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FAiluRE to ACt The economic impacT of current Investment trends InElEctricityInfrastructure
This report was prepared for the American Society of Civil Engineers by Economic Development Research Group, Inc. in association with La Capra Associates.
The report was funded by a generous grant from the ASCE Foundation.
American Society of Civil Engineers1801 Alexander Bell DriveReston, Virginia, 20191-4400World Headquarters
101 Constitution Avenue, NWSuite 375 EastWashington, DC 20001Washington Office
[email protected]/failuretoact
Economic Development Research Group, Inc.2 Oliver Street, 9th Floor Boston, MA 02109
www.edrgroup.com
La Capra AssociatesOne Washington Mall, 9th FloorBoston, MA 02108
www.lacapra.com
Copyright © 2011 by the American Society of Civil Engineers. All Rights Reserved.
★|Contents
2|List of Figures and Tables
3 | Preface
4 | Executive Summary
11| Section1IntroductIon
15|Section2overvIew of the electrIcIty Infrastructure
20|Section3supply and demand
24|Section4the potentIal Investment Gap
38|Section5the cost Incurred by a faIlure to Invest
42|Section6economIc Impacts
46 | Section 7conclusIons
48 | About the Study
49|Endnotes
51|References
52|Acknowledgments
53|About EDR Group and La Capra Associates
Atechnicalappendixisseparatelyavailableat www.asce.org/failuretoact
ElEctricity
2 American Society of Civil Engineers
★|Figuresandtables Figures1 ElementsofGeneration,Transmission,and
DistributionSystems
2 ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels
3 NERC’sRegionalEntities
4 FuelSourceofU.S.ElectricityGeneration,2009
5 TheU.S.ElectricityTransmissionGrid
6 MapofCongestedPathsinElectricTransmissionSystems
7 ComparisonofNERCandEIAProjectionsforU.S.SummerCapacity,through2040
8 NERCProjectionofPlanningReserveMarginsbyRegion,2011–21
9 NERCProjectionofPlanningReserveMarginsbyRegion,2021–40
10 ActualandPlannedTransmissionInfrastructure,1990–2015
11 DistributionExpendituresfrom1980ShowCompoundAnnualGrowthRatesof1.5%to2%
12 DistributionAdditions,NERCRegions’ShareoftheNationalTotal,2001–9
13 ElectricityIntensitybyIndustry
Tables1 AnnualAverageConstructionExpenditures
forGeneration,Transmission,andDistribution:2001–10
2 NationalElectricityInfrastructureGap:Estimatedat$107Billionby2020
3 RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040
4 CumulativeImpactsbyRegion,2012,2012–20,and2012–40
5 EffectsonU.S.GDPandJobs,2011–40
6 U.S.DemandforElectricEnergyIsExpectedtoIncrease8%between2011and2020
7 ConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10
8 ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels
9 ProportionofRelianceonElectricityGenerationTechnologiesbyRegion
10 AdditionsofNewCapacityExpectedbyRegionforElectricityGenerationTechnologies
11 ProjectedChangesinU.S.ElectricEnergyDemand,2010,2020,and2040
12 PeakDemandProjections,2010,2011,2020,and2040
13 GenerationSupplyForecast—NationalAggregations
14 ElectricGenerationInvestmentGap:Estimatedat$12Billionby2020and$401Billionby2040
15 ElectricTransmissionInvestmentGap:Estimatedat$37Billionby2020and$112Billionby2040
16 ElectricDistributionInvestmentGap:Estimatedat$57Billionby2020and$219Billionby2040
17 RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040
18 AverageCostofPowerInterruptionsperHouseholdandperBusiness
19 ComparisonofAnnualImpactsofInadequateElectricityDelivery,SelectedStudyYears
20CumulativeImpactsbySector,2012,2012–20,and2012–40
21 JobLossesbySector,2020and2040
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 3
ThepurposeoftheFailure to Actreportseriesistoprovideanobjectiveanalysisoftheeco-nomicimplicationsfortheUnitedStatesofitscontinuedunderinvestmentininfrastructure.Thereportsintheseriesassesstheimplicationsofpresenttrendsininfrastructureinvestmentfortheproductivityofindustries,nationalcompetitiveness,andthecostsforhouseholds.TheFailure to Actseriesanalyzestwotypesofinfrastructureneeds:
1. Buildingnewinfrastructuretoserviceincreasingpopulationsandexpandedeconomicactivity;and
2. Maintainingorrebuildingexistinginfra-structurethatneedsrepairorreplacement.
Everyfouryears,theAmericanSocietyofCivilEngineers(ASCE)publishesThe Report Card for America’s Infrastructure,whichgradesthecurrentstateof15nationalinfrastructurecategoriesonascaleofAthroughF.ASCE’s2009Report Cardgavethenation’senergyinfrastructureaD+.ThepresentreportanswersthequestionofhowtheconditionoftheU.S.infrastructuresystemaffectsournation’seconomicperformance.Inotherwords,howdoesaD+affectAmerica’seconomicfuture?
★|PreFaCe
Thefocusofthisreportisonelectricity,includinggeneration,transmission,andthedistributioninfrastructurethatprovideselec-tricitytoournation’shomesandbusinesses.Mostelementsofelectricityinfrastructureareprivatelyownedandpubliclyregulatedutilities.
ThisisthethirdreportinASCE’sFailure to Actseries.Thefirstreport,Failure to Act: The Economic Impact of Current Investment Trends in Surface Transportation Infrastructure,encompasseshighways,bridges,rail,andtransit.Thesecondreport,Failure to Act: The Economic Impact of Current Investment Trends in Water and Wastewater Treatment Infrastructure,addressesthedeliveryofpotablewaterandwastewatertreatment.Thenextreportwilladdressairportsandmarineports.
4 American Society of Civil Engineers
eXeCutiVesuMMarY
Thisreportillustratestheimportanceofelectricpowergeneration,transmissionanddistributionsystemstothenationaleconomy.Theanalysisperformedfocusesonatrend scenariothatpresumesthemixofelectricitygenerationtechnologies(e.g.electricitygenerationfromoil,naturalgas,coal,nuclear,hydro,wind,solar)continuestoevolveasreflectedinrecenttrends,includingalong-termevolutiontowardssmartgridtechnologies.1
ContextElectricityreliesonaninterconnectedsystemthatiscomposedofthreedistinctelements,asdescribedbelowandillustratedbyFigure1:
1. Generationfacilities—includingapproximately5,800majorpowerplantsandnumerousothersmallergenerationfacilities;2
2. High-voltagetransmissionlines—anetworkofover450,000milesthatconnectsgenerationfacilitieswithmajorpopulationcenters;3and
3. Localdistributionsystemsthatbringelectricpowerintohomesandbusinessesviaover-headlinesorundergroundcables.Thefirsttwoelementsareusuallyreferredtoasthebulkpowersystem.
TheUnitedStates’systemofgeneration,trans-missionanddistributionfacilitieswasbuiltoverthecourseofacentury.Centralizedelectricgeneratingplantswithlocaldistributionnet-workswerestartedinthe1880sandthegridofinterconnectedtransmissionlineswasstartedinthe1920s.Today,wehaveacomplexpatchworksystemofregionalandlocalpowerplants,powerlinesandtransformersthathavewidelyvaryingages,conditions,andcapacities.
Theagingofequipmentexplainssomeoftheequipmentfailuresthatleadtointermittentfailuresinpowerqualityandavailability.Thecapacityofequipmentexplainswhytherearesomebottlenecksinthegridthatcanalsoleadtobrownoutsandoccasionalblackouts.Theseconcernsmakeitcriticaltounderstandwhatinvestmentsmaybeneededtokeepthesysteminastateofgoodrepair,andwhatimplicationsanyshortfallcouldhaveonthenation’seconomy.
Duringthepastdecade,electricenergyinfra-structurehasimprovedthroughanupturnininvestment,andthenegativeeconomicimpactsnotedinstudiesof10and20yearsagohavebeenpartiallymitigated.However,moreinvestmentisneededtofurtherreducetheincidenceofservicedisruptionstohouseholdsandbusinesses.Theneedstomaintainandupdateexistingelectricenergyinfrastructure,toadoptnewtechnologies,andtomeetthedemandsofagrowingpopulationandevolvingeconomyoverthenext30yearswillimposesignificantrequirementsfornewenergyinfrastructureinvestment.
ProjectedDemandforElectricityInthenearterm,thereisclosetoadequatecapacitytomeetdemand.Overtheshorttermfrom2011through2020,nationalgrowthingenerationisexpectedtobe8%anddemandforelectricityinallregionsisexpectedtoaverage8%or9%basedonprojectionsfromtheU.S.EnergyInformationAgency.DivergenceacrossdifferentareasintheUnitedStatesisnotexpecteduntilthe2021-2040period.Overthelong-termthereisexpectedtobesignificantregionaldifferencesasuseisexpectedtoincreaseby39%inFlorida,34%inWesternstatesand20%intheMid-Atlanticarea.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 5
RecentInvestmentTrendsInvestmentinelectricityinfrastructurehasincreasedinthepastdecade.From2001through2010,annualcapitalinvestmentaveraged$62.9billion,including$35.4billioningeneration,$7.7billionintransmission,and$19.8billioninlocaldistributionsystems(in2010dollars).
Theaveragerateofthisinvestmentisusedasthebasisforcalculatingthegapbetweeninvestmentratesandexpectedfutureincreasesininvestmentneeds.However,itisimportanttonotethewidelyvaryingannualinvestmentlevelsfrom2001to2010,whichrangedfrom$44billionto$101billion.Spendingforgenerationshowedthewidestrange,whiledistributionwasthemostnarrowinrange.Overtherecenttenyearperiod,estimatedinvestmentinelectric
generationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6billionto$10billionand$17billionto$22billion,respectively(alldollarsadjustedto2010value).
ThePotentialInvestmentGapforElectricInfrastructureNationally,extendingcurrenttrendsleadstofundinggapsinelectricgeneration,transmis-sion,anddistributionthatareprojectedtogrowovertimetoalevelof$107billionby2020,about$11billionperyear,andalmost$732billionby2040,asshowninTable2,andtheflowofannualexpendituresthrough2040isillustratedbyFigure2.
FIGuRE 1★ElementsofGeneration,Transmission,andDistributionSystems
sourCeFederalEnergyRegulatoryCommission,2006.
RED Generation
BluE Transmission
PInk Distribution
GeneratingStation
GeneratingStepupTransformer
TransmissionCustomer138kVor230kV
Transmissionlines765,500,345,230,and138kV
SubstationStepDownTransformer
SubtransmissionCustomer26kVand69kV
PrimaryCustomer13kVand4kV
SecondaryCustomer120Vand240V
6 American Society of Civil Engineers
TyPEoFInFRaSTRuCTuRE CumulaTIVEnEED
2020 2040
Generation 12.3 401.1
Transmission 37.3 111.8
Distribution 57.4 219.0
U.S.TOTAL 107.0 731.8
sourCesEIA,NERC,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup.
TaBlE 2★NationalElectricityInfrastructureGap:Estimatedat$732Billionby2040(in billions of 2010 dollars)
TyPEoFExPEnDITuRES aVERaGEannual lowannual HIGHannual
Generation 35.4 17.7 71.6
Transmission 7.7 5.6 10.2
Distribution 19.8 16.9 22.3
AverageTOTAL 62.9 44.2 101.0
noteLowandhighannual“total”expendituresrepresenttheaveragetotalspendingfrom2001to2010,andarenotsumsoftheannualaverageexpendituresofthethreecomponentsoftheelectricinfrastructuresystem.
sourCesTransmissionanddistributionnumbersfromEdisonElectricInstitute,2012 Report,table9–1;generationinvestmentwasestimatedfromreportingformsoftheEIAandFederalEnergyRegulatoryCommission,withaveragesappliedforinvestmentcostperkWhforapplicablegeneratingtechnologies.
TaBlE 1★AnnualAverageConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)
Today,wehaveacomplexpatchworksystemofregionalandlocalpowerplants,powerlinesandtransformersthathavewidelyvaryingages,conditions,andcapacities.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 7
FIGuRE 2★ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels(in billions of 2010 dollars)
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REGIon CumulaTIVEGaPESTImaTEByREGIon
2011–2020 2011–2040
Texas 14.6 56.0
Florida 4.2 18.2
Midwest 4.4 45.3
Northeast 8.0 51.2
Mid-Atlantic 18.2 130.3
Southeast 29.7 225.6
Southwest 2.4 9.2
West 25.5 196.0
U.S.Total 107.0 731.8
noteRegionaldescriptionsareapproximationsofNERCRegions.
sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC 2011 Long-term Reliability Report.
TaBlE 3★ RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040(billions of 2010 dollars)
nAdditionalNeed nBase
sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC2011Long-termReliabilityReport,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup
8 American Society of Civil Engineers
In 2020, distribution and transmission infra-structure are expected to account for more than 88% of the investment gap while generation infrastructure represent roughly 11.5%. By 2040, however, generation infrastructure is potentially the most costly element of the gap, accounting for 55% of the total, with transmission account-ing for 15%, and distribution accounting for 30%. This is a reversal from 2020, when generation is expected to be the best funded element of electricity infrastructure.
The cumulative total investment gap adds the generation, transmission, and distribution infra-structure gaps. Those results are shown by region in Table 3, and indicate that the investment fund-ing gap will be highest in the Southeast, the West,
and the Mid-Atlantic area, and lowest in the Southwest and Florida. Growth alone does not appear to be driving the gap, but rather a combi-nation of supply, technologies, and demand.
Estimate of Future Costs IncurredA projected investment gap will be some combination of aging equipment and capacity bottlenecks that lead to the same general outcome—a greater incidence of electricity interruptions. The interruptions may occur in the form of equipment failures, intermittent voltage surges and power quality irregularities due to equipment insufficiency, and/or blackouts or brownouts as demand exceeds capacity for periods of time. The periods of time can be unpredictable in terms of frequency and length, but the end result is a loss of reliability in electricity supply which imposes direct costs to households and businesses.
REgIon 2012 CumulatIvE, 2012–20 CumulatIvE, 2012–40
Florida 0.7 8 32
Midwest 0.8 9 59
Northeast 2.0 17 79
Mid-Atlantic 3.0 36 194
Southeast 5.0 59 297
Southwest 0.5 6 18
Texas 0.5 18 80
West 4.0 44 239
TOTAL 17 197 998
SourceS Calculations by La Capra and EDR Group based on data from EIA and Electric Power Research Institute.
tablE 4 ★ Cumulative Impacts by Region, 2012, 2012–20, and 2012–40 (in billions of 2010 dollars)
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 9
Afailuretomeettheprojectedgapwillcosthouseholds$6billionin2012,$71billionby2020,and$354billionby2040.Itwillcostbusinesses$10billionin2012,$126billionby2020,and$641billionby2040.Annualcoststotheeconomywillaverage$20billionthrough2020and$33billionthrough2040.Itisnotablethattheseestimatedimpactsaresignificantlylowerthantheimpactsestimatedfromstudiesconductedinthe1990sand2000s.
Thesecostsincurredbyfailingtoclosetheinvestmentgaparehigherthantheinvestmentitself.Thismeansthatitiseconomicallyineffi-cientforhouseholdsandbusinessestoallowthishighercostscenariotooccur.Evenifsufficientinvestmentismadetoclosetheinvestmentgap,theresultwillnotbeaperfectnetworkforelec-tricitygenerationanddelivery,butratheronethathasdramaticallyreduced,thoughnoteliminated,powerqualityandavailabilityinterruptions.
annualImPaCTS 2020 2040
GDP -$70 billion -$79 billion
Jobs -529,000 -366,000
Business Sales -$119 billion -$159 billion
Disposable Personal Income -$91 billion -$86 billion
aVERaGEyEaR 2012–2020 2021–2040
GDP -$55 billion -461,000
Jobs -461,000 -588,000
Business Sales -$94 billion -$180 billion
Disposable Personal Income -$73 billion -$115 billion
CumulaTIVEloSSES 2012–2020 2021–2040
GDP -$496 billion -1.95 trillion
Jobs NA NA
Business Sales -$847 billion -$3.6 trillion
Disposable Personal Income -$656 billion -$2.3 trillion
noteLossesinbusinesssalesandGDPreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.
sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012.
TaBlE 5★EffectsonU.S.GDPandJobs,2011–40
10 American Society of Civil Engineers
Table4breaksdowntheestimatedimpactbyregion.ThesecostsarenotfeltequallyacrosstheUnitedStates.CumulativecostincreasesintheSoutheastwillbe30%ofthetotalandcostsintheWestwillbe22%ofthetotal.
FutureImpactonEconomyIffutureinvestmentneedsarenotaddressedtoupgradeournation’selectricgeneration,trans-mission,anddistributionsystems,theeconomywillsuffer.Costsmayoccurintheformofhighercostsforelectricpower,orcostsincurredbecauseofpowerunreliability,orcostsassoci-atedwithadoptingmoreexpensiveindustrialprocesses.Ultimately,thesecostsallleadtothesameeconomicimpact:diversionofhousehold
incomefromotherusesandareductioninthecompetitivenessofU.S.businessesinworldeconomicmarkets.
Ascoststohouseholdsandbusinessesasso-ciatedwithserviceinterruptionsrise,GDPwillfallbyatotalof$496billionby2020.TheU.S.economywillendupwithanaverageof529,000fewerjobsthanitwouldotherwisehaveby2020.AsshowninTable5,evenwitheconomicadjustmentsoccurringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040.Inaddition,personalincomeintheU.S.willfallbyatotalof$656billionfromexpectedlevelsby2020.
ConclusionThecumulativeneed,basedonanticipatedinvestmentlevelsandtheestimatedinvestmentgap,willbe$673billionby2020,anaverageofabout$75billionperyear.Basedoninvestmentoverthepastdecade,closingthegapiswithinreach:theaverageannualneedprojectedfrom2012through2020fallswithintherangeofannualinvestmenttotalsinthelastdecade,andthereisnotasingleyearthrough2020thatisprojectedtobeoutsidethatrange.
Reliableelectricityisessentialforthefunc-tioningofmanyaspectsofhouseholdandeconomicactivitytoday.Asthenationmovestowardsincreasinglysophisticateduseofinfor-mationtechnology,computerizedcontrolsandsensitiveelectronics,theneedforelectricityreliabilitybecomesevengreater.Fortheentiresystemtofunction,generationfacilitiesneedtomeetloaddemand,transmissionlinesmustbeabletotransportelectricityfromgenerationplantstolocaldistributionequipment,andthedecentralizeddistributionnetworksmustbekeptingoodrepairtoensurereliablefinaldelivery.Deficienciesorshortfallsinanyoneofthesethreeelementsofelectricityinfrastruc-turecanaffectournation’sfutureeconomicgrowthandstandardofliving.
aprojectedinvestmentgapwillbesomecombinationofagingequipmentandcapacitybottlenecksthatleadtothesamegeneraloutcome—agreaterincidenceofelectricityinterruptions.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 11
introduCtion
Ournation’ssystemofelectricitygeneration,transmissionanddis-
tributionfacilitieswasbuiltoverthecourseofacentury.Centralized
electricgeneratingplantswithlocaldistributionnetworkswere
firstbuiltinthe1880s,andthegridofinterconnectedtransmission
linesbegantobebuiltinthe1920s.Today,wehaveacomplex
networkofregionalandlocalpowerplants,powerlinesandtrans-
formersthathavewidelyvaryingages,conditionsandcapacities.
1
Theanalysispresentedinthisreportillus-tratesthecontinuingimportanceofelectricpowergeneration,transmissionanddistribu-tionsystemstothenationaleconomy.Thisinfrastructureisneededingoodworkingordertoassurethatsupplyofelectricitycanmeetdemand,andthattheelectricitycanbedeliveredreliablytohouseholdsandbusi-nesses.Bothdeficienciesintheperformanceofagingequipmentandinsufficienciesinelectricsystemcapacitycanleadtodifficultymeetingprojecteddemandandreliability
standards,whichcanimposecostsonhouse-holdsandbusinesses.Thisreporthighlightsthenatureofthepotentialinvestmentgap,andthewaysthatitcanaffecttheproductiv-ityandcompetitivenessofindustriesalongwiththeprosperityofhouseholds.
Thisreport’seconomicanalysisisbasedondocumentationofelectricitysystemconditionsfrom2011,dataonrecentinvestmenttrendsinelectricityinfrastructure,andprojectionsoftheprobableimplicationsofemergingtrendsextendingoutto2040.Theneedstomaintain
12 American Society of Civil Engineers
andupdateexistingelectricenergyinfrastruc-ture,toadoptnewtechnologies,andtomeetthedemandsofagrowingpopulationandevolvingeconomyinthenext30yearswillimposesignifi-cantrequirementsfornewenergyinfrastructureinvestment.Duringthepastdecade,electricenergyinfrastructurehasbeenimprovedthroughanupturnininvestment,andthenega-tiveeconomicimpactsnotedinstudiesof10and20yearsagohavebeenpartiallymitigated.Moreinvestmentisneeded,however,tofurtherreducetheincidenceofservicedisruptionsbornebyhouseholdsandbusinesses.
Theextentoftheeffortthatismadetorespondtotheseneedsandenhanceinvestmentinthisinfrastructurecanhavemajorconse-quencesforindustries’competitivenessandperformance,alongwithimpactsonthestandardoflivingforAmericanhouseholds.
Theanalysispresentedinthisreportillus-trateshowdeficienciesinelectricgeneration,transmission,anddistributionaffecttheU.S.economyandwillcontinuetodosointhefuturewithoutachangeininvestmentpatterns.Thereportthusseekstohighlighthowdeficientelectricenergydeliverysystemsimposecostsonhouseholdsandbusinesses,andhowthesecostsaffecttheproductivityandcompetitivenessofindustries,alongwiththewell-beingofhouse-holds.Thisreportincludesthefollowingtopics:
★ Anoverviewofelectricityinfrastructure,★ Electricitydemandbyregionandtheseg-mentationofconsumers,
★ Thecurrentandprojectedshortfall(gap)inelectricenergyinfrastructureinvestment,
★ Thenationalandregionalimplicationsofthisshortfall,
★ Anoverviewofthemethodologyemployedtoassesseconomicperformance,and
★ Implicationsoftheshortfallininfrastructureinvestmentfornationaleconomicperformance.
Thefinalsectionsincludeadiscussionoflong-termuncertainties,conclusions,thesourcesandmethodologyused,andacknowledgments.
TheprimarybasisfortheeconomicanalysisisdocumentationprovidedbytheU.S.Depart-mentofEnergy,theNorthAmericanElectricReliabilityCorporation,theEdisonElectricInstitute,andtheElectricPowerResearchInstitute.EachyeartheU.S.EnergyInforma-tionAdministration(EIA)releasesanAnnual Energy Outlookthatprojectslong-termenergysupply,demandandpricesbasedonresultsfromEIA’sNationalEnergyModelingSystem(NEMS).Annual Energy Outlook 2011,publishedinApril2011,presentsactualandprojectedtotalelectricsalesbrokendownbygenerationtechnologyfor2008–2035.ForthisstudywepresumetheEIAprojectionsrepresent“trendsextended”or“businessasusual”to2040.
RegionalapproachElectricitydataarereportedbyvariousregionalstructures.ThisreportusestheNorthAmericanElectricReliabilityCorporation(NERC)regions,whichdividesthecontiguousUnitedStatesintoeightregionsforreliabilityplanning(Figure3).NotethattheNERCregionscoveringtheWest,MidwestandNortheastincludeCanada.DatainthisreporthasbeenfilteredtoincludeonlytheUnitedStates,exceptforgenerationplantsandtransmissionlinesthatoriginateinCanadatoserveU.S.markets.
TheU.S.EnergyInformationAdministration(EIA)sometimesreportsdatabrokendowninto22ElectricityMarketModule(EMM)regions.Incaseswheredatawerereportedusingotherregionalstructures,suchasinEMMregions,estimatesweredevelopedtoplacethesedatainconsistentNERCregions.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 13
FIGuRE 3★NERCRegionalEntities
FRCC(Florida) Florida Reliability Coordinating Council
mRo(midwest) Midwest Coordinating Organization
nPCC(northeast) Northeast Power Coordinating Council
RFC(mid-atlantic) Reliability First Corporation
SERC(Southeast) Southeast Reliability Corporation
SPP(Southwest) Southwest Power Pool Regional Entity
TRE(Texas) Texas Reliability Approach
wECC(west) Western Electricity Coordinating Council
FRCC
SERC
RFC
TRE
wECC
SPP
mRo nPCC
sourCewww.nerc.com
14 American Society of Civil Engineers
objectivesandlimitationsofThisStudyThepurposeofthisstudyistosurveytheeco-nomiceffectsofcurrentinvestmenttrendsinAmerica’senergyinfrastructure.Thisreportdoesnotaddresstheavailabilityorshortagesorchangingpricesofenergyresources,thedesir-abilityorcostsofexplorationandextraction,anditisnotintendedtoproposeorimplyprescriptivepolicychanges.Inaddition,thereportdoesnotaddresswhichfuels,orcombinationoffuels,arebestforthenation’senergyfuture,orthecostsandbenefitsofenergyfuelsecurity.Thisstudyislimitedtotheinfrastructuresystemsthatgenerateelectricityandconveyittobusinesses,institutions,andhouseholds.
Itisdifficulttopredictfuturelevelsofcapitalspendingbecauseawiderangeoffactorswillexertaninfluenceduringthecomingdecades.Theanalysisfocusesonatrend scenariothatpresumesthatthemixofelectricitygenerationtechnologies(electricitygenerationfromoil,naturalgas,coal,nuclear,hydro,wind,solar,etc.)continuestoevolveasreflectedinEIAdata,withacontinuedlong-termevolutiontowardsmart
gridtechnologies.1Futureinvestmentinelectricenergyinfrastructurewilllikelyvaryfromyeartoyear,reflectingvariationovertimeintheaverageageandconsequentneedforreplacementofvari-ouselementsofequipment,facilities,andpowerlines.Inaddition,capitalspendingwilltendtorisetomeettherequirementsofnewlawsandregula-tions,thepaceofconversiontorenewableenergysources,thecostsofconnectingnewenergysourcestotheexistingenergygrid,andconver-siontomorereliablesmartgridtechnologies.
Thecapitalgapisthedifferencebetweenthelevelofdollarsinvestedininfrastructureunderthetrendscenario(extendingcurrentinvestmenttrends)andthelevelofinvest-mentrequiredtoreplace,expand,orimproveinfrastructureasdemandgrowsandexistingequipmentages.Regardlessofthereason,fail-uretocarryoutneededinvestmentscanresultinshortages—notnecessarilyinresources,butintheabilitytodeliverreliableelectricitytocustomersduetoinefficientorinsufficientgeneration,transmission,anddistributioninfrastructuresystemsthatultimatelycompro-misetheabilityofcustomerstoreceivereliableelectricity.Anysuchshortageswillresultinthepriceofelectricitybeingraisedsothatthesupplycanmeetthedemand.(Thisisinadditiontothecostsofthefuelsthemselves.)Thus,theunmetcostsofmeetingenergyinfra-structurerequirementscanbeseenasaddingfuturecostsforhouseholdsandforbusinessoperationsintheU.S.
AspartoftheFailure to Actseries,thisreportfocusesontheeconomicconsequencesofnotmakingneededinvestmentsinelectricityinfrastructure,becausetheseinvestmentsfundamentallyaffecttheproductivityandglobalcompetitivenessoftheU.S.economyandhencelong-termjobandincomegrowth.Thisanalysisdoesnotconsidertheshort-termimpactsofmoneyflowsassociatedwithspend-ingonconstruction,installationandoperationofadditionalinfrastructure.
Thecapitalgapisthedifferencebetweenthelevelofdollarsinvestedininfrastructureunderthetrendscenario(extendingcurrentinvestmenttrends)andthelevelofinvestmentrequiredtoreplace,expand,orimproveinfrastructureasdemandgrowsandexistingequipmentages.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 15
oVerVieWoFthe eleCtriCitYinFrastruCture
America’selectricityenergyinfrastructureiscomposed
ofthreedistinctelements:
1.Electricitygenerationfacilities—includingapproximately
5,800majorpowerplantsandnumerousothersmaller
generationfacilities;2
2.High-voltagetransmissionlines—anetworkofover
450,000milesthatconnectsgenerationfacilitieswith
majorpopulationcenters;3and
3.Localdistributionsystemsthatbringelectricpowerinto
homesandbusinessesviaoverheadlinesorunderground
cables.Thefirsttwoelementsareusuallyreferredtoas
thebulkpowersystem.Theinterconnectivityofelectricity
infrastructureelementsisillustratedbyFigure1.
2
CommonElementsofInfrastructureAllformsofinfrastructurehavefeaturesincommon.Ingeneral,infrastructureinvolvesbuiltfacilitieslocatedacrossthecountrythatareusedbyhouseholdsandbusinesses,orareusedbyserviceprovidersforhouse-holdsandbusiness.Infrastructureisalsoa“publicgood,”meaningthatmuchofthepopulationandeconomyeitherdirectlyorindirectlybenefitfromitsexistence.Theelec-tricityinfrastructureissimilartosurface
transportationinfrastructureinthatbothinvolveanetworkofcross-borderandinter-stateconnections,aswellasstateorregionaltransmissionnetworksandlocaldistributionsystems.Energyinfrastructureisalsosimilartowaterinfrastructureinthatbothcom-monlyutilizecentralized facilitiestogenerateorprocessaproductthatisdistributedtohomesandbusinesslocations,thoughinbothcases,asmallsubsetofhouseholdsandbusinessesinsteadprovideforthemselves.
16 American Society of Civil Engineers
keyDifferencesfromotherInfrastructureTypesItisimportanttonotethattheelectricenergyinfrastructureisdifferentfromtransportationandwaterandwastewaterinfrastructure,whichwereanalyzedinpreviousFailure to Actreports,infourways:1. Private ownership.Onedistinguishingfeature
oftheelectricenergyinfrastructure(includingbothbulkpowerandlocaldistribution)isthatmostofitisprivatelyowned.Aportionoftheinfrastructureisownedbyfederalagencies,municipalgovernments,andruralcooperatives.Butthevastmajorityisownedbyfor-profit,investor-ownedutilities.Therearealsoprivatelyowned“independentpowerproducers.”Yetevenwithprivateownershipandoperation,theratesthatlocalutilitieschargeisgenerallyregulatedbystateagencies,andthereisalsofederalandstateregulatoryoversightoftheoperationofgeneratingfacili-tiesandtransmissionsystems.
2. The breadth of technologies for electricity generation.AseconddistinguishingfeatureofAmerica’selectricenergyinfrastructureisthewidevariationintechnologiesbeingemployed.Thewiderangeoftechnologiesismostevidentforgeneratingfacilities,whichcanemploynuclearpower,thecombustionofcarbon-based“fossilfuels”(includingcoal,oil,diesel,andnaturalgas),orrenewablepower(includinghydro,wind,solar,geo-thermal,orbiomass)asshowninFigure4.Centralpowerplantsmayemployanyofthesetechnologies,andthemixvariesacrossregionsoftheU.S.Inaddition,somelargebusinessesoperatedistributedgenerationfacilities,whichareeither“cogeneration”powerplantsthatemploysteam,heat,orbiomassrefusegeneratedfromindustrialprocesses,or“self-generation”facilitiesusingcombustion,wind,orsolarpowerforeitherprimaryorbackuppower.
FIGuRE 1★ElementsofGeneration,Transmission,andDistributionSystems
sourCeFederalEnergyRegulatoryCommission,2006.
RED Generation
BluE Transmission
PInk Distribution
GeneratingStation
GeneratingStepupTransformer
TransmissionCustomer138kVor230kV
Transmissionlines765,500,345,230,and138kV
SubstationStepDownTransformer
SubtransmissionCustomer26kVand69kV
PrimaryCustomer13kVand4kV
SecondaryCustomer120Vand240V
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 17
3. The rate of change.Athirddistinguishingaspectofelectricenergyinfrastructureisthecomplexcombinationofownershiparrangementsandoperatingsystemsthatareconstantlyevolving,inadditiontothevariationoftechnologiesdescribedabove.Thishasimportantimplications.Ononehand,thediversificationoffuelandtechnol-ogyrelianceprovidesadegreeofprotectionagainstunforeseenfutureissueswithanyonetypeofgeneration.Ontheotherhand,uncertaintyaboutfuturepricesoffossilfuels,regulationscontrollinggreenhousegasemissions,andrateofadoptionformorerenewablepowerportfoliosoptionscanallmakeitmoredifficulttoforecastthefuturetechnologymixanditscostimplica-tions.Anticipatedfuturechangesregardingthefeasibilityandimplementationofdistributedgenerationandsmartgrid
technologiesalsoadduncertaintyaboutwhatfutureinfrastructuresystemwilllooklike.4
4. Deregulation of system elements.Afourthdistinguishingaspectofelectricenergyinfra-structureisderegulation,whichhasresultedinthethreeelements(generation,trans-mission,anddistribution)beingoperatedbydifferentparties,facilitatingthegrowthofindependentpowerproductionanddis-tributedgeneration.5Today,householdsandbusinessestypicallyreceiveitemizedelectricbillsthatchargeseparatelyforeachofthethreeelements.However,asmallbutgrowingnumberofbusinessesandhouseholdsnowhavetheirowngenerationequipmentthatminimizesoreliminatestheirrelianceoncentralpowergenerationandtransmissionsystemsatleastpartofthetime,andsomeofthemalsosellpowerbacktoutilities.6
FIGuRE 4★FuelSourceofU.S.ElectricityGeneration,2009
sourCeU.S.EnergyInformationAdministration,2009.
NATURALGAS
NUCLEAR
HYDROELECTRIC
CONvENTIONAL
OTHERRENEwABLEPETROLEUm
COAL
Petroleum 1%
Other Renewables 4%
Hydroelectric Conventional 7%
Nuclear 20%
Natural Gas 23%
Coal 45%
18 American Society of Civil Engineers
keyIssuesPowerplantsuseavarietyofdifferenttech-nologieswithwidelydifferentfuelneedsandoperatingcoststhatleadthemtoservebaseload,peakload,orbackupfunctions.ThesefuelmixesvarywidelyacrossregionsoftheU.S.Thetransmissionlineshaveavarietyofdiffer-entvoltage(power)andcapacity(electricity)characteristicsthatleadthemtoservedifferentfunctionsinthemovementofelectricityfromgenerationplantstolocalload(distribution)centers.Moreover,localutilitycustomersare
servedbyawidevarietyofdifferenttransformertypes,ofdifferentagesandcapacities,whichprogressivelystepdownpowerfromhighertolowervoltagestoservelocalutilitycustomers.
Altogether,ournation’selectricenergyinfrastructureisapatchworksystemthathasevolvedoveralongperiodoftime,withequipmentofwidelydifferingagesandcapaci-ties.Forexample,about51%ofthegeneratingcapacityoftheU.S.isinplantsthatwereatleast30yearsoldattheendof2010.Mostgas-firedcapacityislessthan10yearsold,while
FIGuRE 5★TheU.S.ElectricityTransmissionGrid
sourCeU.S.FederalEmergencyManagementAgency.
115kV138kV161kV
230kV345kV500kV
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 19
FIGuRE 6★mapofCongestedPathsinElectricTransmissionSystems
sourCeU.S.DepartmentofEnergy,National Electric Transmission Congestion Study,December2009.
noteThesemapsareavailablebecauseCongressdirectedtheU.S.DepartmentofEnergytoconductastudyeverythreeyearsonelectrictransmissioncongestionandconstraintswithintheEasternandWesternInterconnectionsintheEnergyPolicyActof2005.
EasternInterconnectionwesternInterconnection
73%ofallcoal-firedcapacityis30yearsorolder.7Moreover,nationally,70%oftransmis-sionlinesandpowertransformersare25yearsorolder,while60%ofcircuitbreakersaremorethan30yearsold.8
Theagingofequipmentexplainssomeoftheequipmentfailuresthatleadtointermittentfailuresinpowerqualityandavailability.Thelimitedcapacityofolderequipmentalsoexplainswhytherearecongestionpointsinthe
gridthatcanalsoleadtobrownoutsandocca-sionalblackouts.Theseconcernsmakeitcriticaltounderstandthenatureofthecurrentandprojectedfutureshortfall,orgap,betweensystemsupplyanddemand.ThespatialpatternofcongestionisshownthroughFigure5thatillustratestheU.S.transmissiongrid,andFig-ure6,whichshowscriticallycongestedareasontheelectricgridoftheEasternInterconnectionandtheWesternInterconnection.
Seattle
Portland
SacramentoSanFrancisco
SanJose
losangeles
SanDiego
RiversidePhoenix
Tucson
Denver
DetroitCleveland
Cincinnati
Pittsburgh
Boston
newyork
Philadelphia
BaltimorewashingtonDC
atlanta
orlandoTampa
miami
CriticalCongestionarea
CongestionareaofConcern
20 American Society of Civil Engineers
suPPlYanddeMand
ElectricityDemand
Demandforelectricitygenerationhastwokeymetrics:
“peakdemand,”representingthekilowatts(kw)ofcapacity
neededonthesystemtomeetthegreatesthourofdemand,
and“load,”representingthetotalkilowatt-hours(kwh)
ofelectricenergydemanded.
OnthebasisofprojectionsmadebytheU.S.Energy
InformationAgency(EIA),electricityuseisexpectedto
increasenationallyby26%from2011to2040(seeTable6).9
Overthelongterm,significantregionaldifferencesare
expectedasuseincreasesby39%inFlorida,34%inthe
westernstates,and20%inthemid-Atlanticarea.Itis
importanttonotethat,overtheshortterm,from2011
through2020,nationalgrowthofelectricitydemand
isexpectedtobe8%andtheincreaseddemandinall
regionsisexpectedtoaverage8%or9%.Divergence
acrossdifferentgeographicalareasintheUnitedStates
isnotexpecteduntilthe2021–40period.
3
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 21
TaBlE 6★U.S.DemandforElectricEnergyisExpectedtoIncrease8%between2011and2020
DEmanD 2011 2020 2040
U.S. demand In terawatt-hours 3,692 3,976 4,658
Percent residential 37% 35% 36%
Percent nonresidential 63% 65% 64%
oVERallPERCEnTGRowTH
2011–20 8%
2021–40 17%
2011–40 26%
sourCesEIA,Annual Energy Outlook 2011 (for2008–35);calculationsbyLaCapraAssociatestoextendtheanalysisto2040.
FIGuRE 7★ComparisonofCompleteNERCandEIAProjectionsforU.S.SummerCapacity,extendedthrough2040(gigawatts)
nEIAnextended
950.0
1012.5
1075.0
1137.5
1200.0
2040203520302025202020152010
sourCeNERC, 2011 Long-Term Reliability Report.
note“Anticipated”referstothemostconservativesupplyestimatefromNERC,basedonexistingresourcesplusfutureplannedcapacityresources.
nNERCAnticipatednextended
nNERCProspectivenextended
nNERCAdjustedPotentialnextended
22 American Society of Civil Engineers
ElectricitySupplyTheprimarysourcesfordataonexistingandprojectedpowergeneration,alsocalledsupplycapacity,areEIAandNERC.Bothprovideesti-matesofexistingandprojectedpowergenerationduringthenext25and10years,respectively.TheirestimatesofU.S.totalsummercapacityarecomparedinFigure7.Notethatfadedlinesindicatethetrendsextendedtotheyear2040.
RecentInvestmentTrendsFrom2001through2010,annualcapitalinvestmentintransmissionanddistributioninfrastructureaveraged$62.9billion,including$35.4billioningeneration,$7.7billionintrans-mission,and$19.8billioninlocaldistribution(in2010dollars).
AsseeninTable7,investmentfortransmis-sionhasbeengrowingannuallysince2001atnearlya7%annualgrowthrate.Forgeneration,investmentlevelshavevariedwidelyfromyeartoyear,withthelowestlevelsinthe2004–06timeperiod.Forlocaldistribution,however,national-levelinvestmentpeakedin2006andhassincedeclinedtolessthanthelevelobservedin1991.
Theaverageratesoftheseinvestmentsareusedinthenextchapterasabasisforcalculatingthegapbetweeninvestmentratesandexpectedfutureincreasesininvestmentneeds.However,itisimportanttonotethewidelyvaryingannualinvestmentlevelsfrom2001to2010,asshowninTable1,whichrangedfrom$44billionto$101billion.Spendingforgenerationshowedthewidestrange,whiledistributionwasthemostnarrowinrange.Overtherecenttenyearperiod,estimatedinvestmentinelectricgenerationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6billionto$10billionand$17billionto$22billion,respectively(alldollarsadjustedto2010value).
Thebulkpowersystemisdesignedandplannedtomeetseasonalpeakdemandinadditiontoacertainreservemargin.AnnualpeakstendtooccurinthesummerinmostpartsoftheU.S.,duetocoolingloads,andtheelectricsystemneedstobesizedtomeettheseloads.However,insomelocations,peakdemandoccursinthewinter.10NERChasanalternativeandhigherforecastofgrowthinpeakdemand,whichindicatesariseof13%from2011to2020,comparedwiththeEIA’sprojectionof8%forthesameyears.11
overtherecenttenyearperiod,estimatedinvestmentinelectricgenerationfacilitiesvariedfrom$18billionto$72billion,whiletransmissionanddistributioninvestmentsvariedfrom$6to$10billionand$17billionto$22billion.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 23
ExPEnDITuRES 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Generation 28.9 38.9 71.6 49.5 18.1 24.4 17.7 25.0 37.0 43.0
Transmission 10.2 9.9 9.0 8.5 8.2 7.5 6.3 6.2 5.7 5.6
Distribution 16.9 17.7 20.3 20.8 22.3 21.1 20.2 19.3 19.9 19.7
Total 56.0 66.4 101.0 78.8 48.6 53.0 44.2 50.5 62.6 68.2
sourCesElectric Power Annual 2011,U.S.EnergyInformationAdministration;and2012 Statistical Yearbook of the Electric Power Industry,EdisonElectricInstitute.
noteNumbersmaynotaddduetorounding.
TaBlE 7★ConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)
TyPEoFExPEnDITuRES aVERaGEannual lowannual HIGHannual
Generation 35.4 17.7 71.6
Transmission 7.7 5.6 10.2
Distribution 19.8 16.9 22.3
AverageTOTAL 62.9 44.2 101.0
noteLowandhighannual“total”expendituresrepresenttheaveragetotalspendingfrom2001to2010,andarenotsumsoftheannualaverageexpendituresofthethreecomponentsoftheelectricinfrastructuresystem.Numbersmaynotaddduetorounding.
sourCesTransmissionanddistributionnumbersfromEdisonElectricInstitute,2012 Report,table9–1;generationinvestmentwasestimatedfromreportingformsoftheEIAandFederalEnergyRegulatoryCommission,withaveragesappliedforinvestmentcostperkWhforapplicablegeneratingtechnologies.
TaBlE 1★AnnualAverageConstructionExpendituresforGeneration,Transmission,andDistribution:2001–10(in billions of 2010 dollars)
24 American Society of Civil Engineers
thePotentialinVestMentgaP
Thischaptersummarizesthedata,assumptions,andmethod-
ologyunderlyingthedifferencebetweentheinvestmentlevels
expectedannuallythrough2040andtheinvestmentlevelsthat
willbeneededtoassurethereliabledeliveryofelectricityto
businesses,households,andotherusers.Theanalysisofthis
potentialinvestmentgapthatfollowsconsidersrecentinvestment
trends,projectedfutureinvestmentrates,andtheextentofthe
shortfallbetweenexpectedinvestmentratesandforecastedfuture
investmentrequirements.Itisconductedseparatelyforeachof
thethreeelementsofgeneration,transmission,anddistribution
systems.Thetablespresenttheresultsforatrendscenario
thatisbasedonEIAprojectionsandassumesacontinuing
shiftinthemixofgenerationtechnologies,andfurther
implementationofsmartgridtechnologies.
4
From2011through2040,theaveragesof2001–10investmentsareassumedandthegaprepresentsannualexpendituresabovetheaveragesforgeneration,transmission,anddistribution(seeTable1).Itisimportanttonotethatinanygivenyear,thetotalneedmaybewithintherangesof2001–10investmentsbutexceedtheaverageannualexpenditures.Forexample,neededgenerationinvestmentsfrom2011to2040willrangefrom$35bil-lionto$61billion.Foreveryyear,thetotaliswithinthe2001–10rangeofgeneration
expenditures,although$61billionisabout$25billionabovetheaverageseenduringthelastdecade.
overviewofkeyFindingsNationally,extendingcurrenttrendsleadstofundinggapsinelectricgeneration,trans-mission,anddistributionthatareprojectedtogrowovertimetoalevelof$107billionby2020andalmost$732billionby2040,asshowninTable2.Thesearetotalsabovetheaveragesforpastexpenditures.In2020,
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 25
TyPEoFInFRaSTRuCTuRE CumulaTIVEGaP
2020 2040
Generation 12.3 401.1
Transmission 37.3 111.8
Distribution 57.4 219.0
U.S.TOTAL 107.0 731.8sourCesEIA,NERC,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup.
noteNumbersmaynotaddduetorounding.
TaBlE 2★NationalElectricityInfrastructureGap:Estimatedat$107Billionby2020(in billions of 2010 dollars)
distributionandtransmissioninfrastructureareexpectedtoaccountformorethan88%oftheinvestmentgap,whilegenerationinfra-structurewillrepresentroughly11.5%.By2040,however,generationinfrastructureisseenaspotentiallythemostcostlyelementofthegap,accountingfor55%ofthetotal,withtrans-missionaccountingfor15%,anddistributionaccountingfor30%.Thisisareversalfrom2020,whengenerationisexpectedtobethebest-fundedelementofelectricityinfrastructure.Byitself,thisfundingdoesnotnecessarilymeanthattherewillbeafutureshortageofelectricityavailable.Rather,itindicatesthatfutureinvest-mentneedswillbegreater.
Thegapiscalculatedastotalestimatedneedsperyearminusthe2001–10averageannualinvestmentlevelsandsummedtoaggregatelevelsin2020and2040.Table8illustratesthecalculationsforfivespecifiedyears.
GenerationGenerationTechnologiesTable9showstherelianceofeachNERCregiononvariouspower-producingtechnologiesasof2011.Notetheprominenceofcoalineveryregion,especiallyintheMidwest.TheTexas,Florida,andNortheastregionsusethehighestproportion
ofnaturalgas,whiletheMidwestusestheleast.Nuclearpowerisspreadoutamongallregions,anditisreliedonmostintheNortheastandleastintheSouthwest.NotealsothatrenewablesourcesaremostprominentintheWesternstatesandarealsoemployedintheNortheastandMidwest,thoughtheyareinsignificantinotherregions.Conversely,oilgenerationisminimalasaproportionofcurrentpowerusage.
Table10showstheincreaseineachregionoftheplantadditionsthatareexpectedthrough2040.Asdisplayed,mostregionsareanticipatedtobuildsignificantcapacityingasplants(andlimitedcoalplants).Notetheprominenceofgasineveryregion,butespeciallyFlorida,theNorth-east,andtheMid-Atlanticregion.Conversely,newrenewablesourcesareprominentinfourregionsandminimalintheotherfour,andnuclearpowerisprominentintheSoutheast.
InvestmentneedElectricityinfrastructureatthewholesalelevelisregulatedbytheFederalEnergyRegulatoryCommission(FERC)andNERC.FERCregu-latesmarketsandincentivesforinfrastructureinvestment,whileNERC(asauthorizedbyFERC)monitorsreliabilitylevels.Systemsaremaintainedtoa“1dayin10years”loss-of-load
26 American Society of Civil Engineers
aSPECToFnEEDS 2012 2015 2020 2030 2040
Projectednationalneeds
Generation 35.4 38.3 37.8 54.1 61.0
Transmission 11.4 11.4 11.4 11.4 11.4
Distribution 24.6 25.4 26.8 30.2 28.9
TOTAL 71.5 75.1 76.0 95.8 101.3
Baseline2001–10averages
Generation 35.4 35.4 35.4 35.4 35.4
Transmission 7.7 7.7 7.7 7.7 7.7
Distribution 19.8 19.8 19.8 19.8 19.8
TOTAL 62.9 62.9 62.9 62.9 62.9
Calculatedgapbyyear*
Generation 0 2.9 2.3 18.7 25.6
Transmission 3.7 3.7 3.7 3.7 3.7
Distribution 4.8 5.6 7.0 10.4 9.1
TOTAL 8.5 12.2 13.1 32.8 38.4*Calculatedasthedifferencebetweenprojectednationalneedsandbaseline2001-10averages.
noteThegenerationportionof“projectednationalneeds”isbasedoneachregiongenerating115%ofexpectedelectricitydemand(seeFigures8&9).The15%reservemarginisincludedtoensurereliability.Numbersmaynotaddduetorounding.
sourCeEIAAnnualEnergyOutlook2011(years2008-2035)andNERC2011Long-termReliabilityReport,EasternInterconnectionPlanningCollaborative,PhaseIReport,December2011,RenewableEnergyTransmissionInitiativeElectricPowerResearchInstituteandFederalEnergyRegulatoryCommission.CalculationsbyLaCapraAssociatesandEDRGroup
TaBlE 8★ProjectedNeedsandGapbyYearComparedwith2001–10AverageInvestmentLevels(in billions of 2010 dollars)
expectation.Thehistoryororiginofthisstandardisnotwelldocumented,butisbelievedtohaveoriginatedwithacademicpaperswritteninthe1940s.12Asutilitiesbegantostudytheuseofthisstandardandfinditacceptable,moreandmoreutilitiesbegantoincorporateitintotheirplanningdepartments.Itwaseven-tuallyacceptedbyNERCasthestandardthatshouldbefollowedthroughoutthecountry.
Utilitiesandindependentsystemoperatorsplantohaveresourcesavailabletomeetthis
expectation.Assuch,reliabilityatthelevelofthebulkpowersystemisusuallygood(andbet-terthanatthelevelofthedistributionsystem),somajoroutagesatthelevelsofthegenerationandtransmissionsystemarenowrelativelyrare.Forthisanalysis,asimplifiedreliabilityanaly-sisbasedonplanningreservemarginswasused,whichrepresentsthepercentageofadditionalresourcesbeyondpeakdemandlevelsthatareneededtomeettheloss-of-loadexpectation.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 27
TECHnoloGy REGIon
noRTH- mID- SouTH- SouTH-
TExaS FloRIDa mIDwEST EaST aTlanTIC EaST wEST wEST
Coal 37 31 70 10 59 52 57 29
Petroleum 0 6 0 2 1 0 0 0
Natural Gas 42 44 3 41 12 16 32 26
Nuclear 12 16 13 31 27 27 5 11
Pumped Storage/Other 0 1 0 1 0 0 0 0
Renewables 8 1 14 14 2 5 6 34
Distributed Generation 0 0 0 0 0 0 0 0
TotalbyRegion 100% 100% 100% 100% 100% 100% 100% 100%
sourCeEIA,Annual Energy Outlook,2011.
TaBlE 9★ProportionofRelianceonElectricityGenerationTechnologiesbyRegion(percent)
TECHnoloGy REGIon
noRTH- mID- SouTH- SouTH-
TExaS FloRIDa mIDwEST EaST aTlanTIC EaST wEST wEST
Coal 14 0 16 0 0 8 0 2
Oil and natural gas steam 0 0 0 0 0 14 0 0
Combined-cycle gas 32 99 19 60 70 18 28 35
Combustion turbine/diesel 44 0 40 9 23 52 25 15
Nuclear power 0 0 0 0 0 16 0 0
Renewable sources 5 0 21 31 4 6 46 44
Distributed generation 5 0 3 0 3 15 0 4
Totalnewcapacitybyregion 100% 100% 100% 100% 100% 100% 100% 100%
noteProjectionsbytheEIAarethrough2035andareassumedfor2040.Additionsareintermsofmegawattsexpectedtobeadded.
sourCeEIA,Annual Energy Outlook,2011.
TaBlE 10★ AdditionsofNewCapacityExpectedbyRegionforElectricityGenerationTechnologies(percent)
28 American Society of Civil Engineers
Nevertheless,thereareoutagesatthedistribu-tionlevel,whichusuallyarenotbuilttomeetvaryingstateandlocalstandards.
Forecastsoffutureelectricdemandarepro-videdbytheEIA.Itsforecasts,showninTable11,portrayfuturedemandforelectricpowergivenexpectedchangesinpopulation,economicactivity,andenergy-efficienttechnologies.ThedatashowsthattheEIAexpectscontinuedmod-estgrowthinfuturedemandforelectricity(an8%increaseby2040).Duringthe2011–40period,demandinallregionsisexpectedtogrowat1.0%orlessperyearandonly0.7%peryearfortheU.S.asawhole.Muchofthislowdemandgrowthisexpectedtobeduetoenergyefficiencyandanoveralldeclineinenergyintensityperdollarofgrossdomesticproduct.Thoughitisusefultoanalyzeenergydemand,electricsys-temsareplannedtomeetpeakloads.However,itisnoteworthythattheelectricenergydemandedbybusinessesandinstitutionsisexpectedtoincreasecomparedwithsalestohouseholds.In2010,61%ofelectricenergypurchasesweremadebynonresidentialcustomers,andin2020and2040,thisproportionisexpectedtogrowto65%andthenfallslightlyto64%.
Table12showstwoconceptsofpeakdemand.ThetoprowsofthetableshowEIA’ssupplyfore-cast,whichessentiallyrepresentsaforecastofgenerationinvestmentneed,becausetheEIAassumesthatNERCplanningstandardsaremet.ThebottomrowsofthetablegiveaforecastfromNERC.Thefirstimportantpointisthediffer-encebetweenthetwonationaltotals.Thetopsetofdataisbasedonhistorical,existinggenera-tionandhowdemandlevelsandothermarketorpolicyfactorsaffectgenerationbuild-out,andincludesanygenerationcapacitythatisusedtomeetthereservemargins.
Thebottomsetofdatarepresentsactualinter-nalregionalpeakdemandforecasts(byNERC)withoutreservemargins.OnedrawbackoftheNERCforecastisthatdataareonlyavailablethrough2021,comparedwith2035forEIAdata.Moreover,theNERCforecastofdemandismuch
higherthantheEIA’sdemandforecast(whichisbasedongenerationsupply).Fordataconsis-tencypurposesandtoaccountforthecurrentgenerationoversupplythatisreflectedintheEIAforecasts,the2016–21NERCgrowthrateswereusedratherthanthegrowthratefortheentire2010–21periodtoprojectdemandto2040.Thisresultsinalowerforecasted“need”figure,butonethatislikelymoreplausiblethanthevaluefortheentire2010–21period.
ForecastedSupplyForelectricitygeneration,thesupplyforecastwasdevelopedbyexaminingrecenttrendsinsupplyandcontinuingthesetrendsintothefuturebyapplyingtheNERCsupplyforecasttotheNERCdemandforecastofinternalpeakloads.Threesupplyforecastscategorizethelikelihoodofsupplyinto“anticipated,”“pro-spective,”and“conceptual,”with“anticipated”providingthelowest,mostconservativeout-look.Thisanalysisusesthemoreconservativeestimateof“anticipated”supplystream,thoughtheotherforecastscanalsobeused.Tomain-tainconsistencywithprojecteddemandtrends,theaveraged2016–21growthratewasappliedtodeterminethesupplyforecastto2040.
Areliableelectricitygenerationsystemmusthavemorecapacityresourcesthananticipatedpeakdemand,toaccountforunanticipatedout-agesandhigher-than-anticipatedpeakdemand.Theamountthatcapacityresourcesexceedpeakdemandisknownastheplanningreservemar-gin.NERCisprimarilyresponsibleforensuringthatplanningreservemarginsaremaintainedatalevelsufficienttoensuresystemreliabil-ity.Althoughitcanvarybylocality,NERC’sreferencemarginlevelis15%,meaningthatgenerationof115%ofexpectedpeakdemandisneededtoensurereliabilityofsupply.Duetocapacitysurpluses,mostregionsandthecountryasawholearecurrentlyprojectedtoexceedthe115%marginthrough2020,withtheexceptionofTexas.13
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 29
DEmanDPRoJECTIon annualToTalS(GIGawaTTS) ComPounDannualGRowTHRaTE(%)
2010 2011 2020 2040 2010–20 2020–40 2010–40
1,014 1,023 1,028 1,174 0.1 0.7 0.5
2011 2020 2040 2011–20 2021–40 2011–40
1,551 1,759 2,256 1.4 1.3 1.3
noteNetsummercapacityisthesteadyhourlyoutputthatgeneratingequipmentisexpectedtosupplytosystemloadexclusiveofauxiliarypower),asdemonstratedbytestsduringsummerpeakdemand.Includeselectricutilities,smallpowerproducers,andexemptwholesalegenerators.
annualToTalS/PRoJECTIonS
(TERawaTT-HouRS) ComPounDannualGRowTH(%)
maRkETSEGmEnT 2010 2020 2040 2010–20 2020–40 2010–40
Total electricity sales 3,749 3,976 4,658 0.6 0.8 0.7
Electricity sales, residential 1,455 1,394 1,692 -0.4 1.0 0.5
Electricity sales, nonresidential 2,293 2,583 2,966 1.2 0.7 0.9
Percent demand, nonresidential 61 65 64
note1terawatt-hour=1billionkilowatt-hours.Estimatesfor2035–40assumeanannualgrowthrateequaltotheaverage2030–35annualgrowthrate.
sourCeEIA,Annual Energy Outlook 2011 (for2008–35).
TaBlE 11★ ProjectedChangesinU.S.ElectricEnergyDemand,2010,2020,and2040
SCEnaRIo 2011 2020 2040
Anticipated peak capacity resources 986 1,043 1,074
Prospective peak capacity resources 1,017 1,081 1,125
Adjusted potential capacity resources 1,018 1,102 1,163
sourCeNERC,2011 Long-Term Reliability Report.
TaBlE 12★ PeakDemandProjections,2010,2011,2020,and2040
Electricgeneratingcapacity,EIA,AnnualEnergyOutlook2011projection
FromNERC,2011Long-TermReliabilityReport
TaBlE 13★GenerationSupplyForecast—NationalAggregations(in Gigawatts)
30 American Society of Civil Engineers
FIGuRE 8★NERCProjectionofPlanningReservemarginsbyRegion,2011–21
FIGuRE 9★NERCProjectionofPlanningReservemarginsbyRegion,2021–40
Texas Florida
Midwest Northeast
Mid-Atlantic Southeast
Southwest West
Texas Florida
Midwest Northeast
Mid-Atlantic Southeast
Southwest West
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
20212020201920182017201620152014201320122011
-20%-15%-10%-5%0%5%10%15%20%25%30%
20402035203020252021
sourCeNERC2011Long-termReliabilityAssessmentto2021andtrendlinecalculationsbyLaCapraandEDRGroupto2040.
sourCeNERC2011Long-termReliabilityAssessmentto2021andtrendlinecalculationsbyLaCapraandEDRGroupto2040.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 31
Ingeneral,thenationiscurrentlyfacinganoversupplyphaseofelectricgeneration,andtheEIA’sAnnual Energy Outlook 2011 forecastdatafordemandandsupplydiscussedaboveassumesthatthisoversupply,coupledwithimprovementsinelectricenergyefficiency,willnotleadtoabsoluteshortagesbefore2024.Thegappre-dictedforgenerationin2020isbecausesupplyintheTexasregionisexpectedtofallbelowa15%reservemargin(or115%ofexpecteddemand)beforethatyear(Table14).ExtendingcurrenttrendsindicatesthatthegenerationofelectricityforfiveoftheNERCregions(Texas,Southeast,Mid-Atlantic,West,andNortheast)willfallbelow100%ofdemandby2040,withonlytheSouthwestarearemainingabovethe115%planningreservemargin.ThesetrendsaregraphicallyrepresentedinFigures8and9.
Figure8showscapacitybyregioncomparedwithretainingatleast100%capacityandtheadditional15%marginfrom2011–2021,basedontrendsextendedfordemandandelectricitygeneration.
Figure9extendsthisoverview,andshowsexpectedgenerationcapacitycomparedwithdemandfrom2021–40.Aspreviouslymentioned,onlytheSouthwestareaisexpectedtomaintaingenerationcapacitythatis15%abovedemand.Twootherregions,FloridaandtheMidwest,areexpectedtogenerateelectricitytomeetdemandoverthedurationofthe20-yeartimespan,butwillfallbeneaththe15%marginforreliability.Generationofelectricityforfiveotherregionsisexpectedtofallbelowdemandby2040:theNortheast,theSoutheast,Texas,theMid-Atlantic,andWesternstates.
GenerationGapanalysisWithsupplyanddemandforecastsfromaconsis-tentsource,thegapiscalculatedastheamountofadditionalgeneration(ingigawatts,GWs)neces-sarytomeetregionaldemandforecastsplusthenecessaryreservemarginsof15percent.Thedatashowthatinitiallyallregionsarewellabovethereferencereservemargins,withonlytheTexasregionindangeroffallingbelowreferencelevelsoverthenearterm.However,bothcurrentinvest-menttrendsandratesofprojectedfuturedemandgrowthdifferbyregion,solong-termneedsandtheassociatedgapswillgrowatdifferentratesaroundthecountry.
Tocalculatepotentialfuturegenerationneed,theprojectedfuturedemand(plusreservemargin)isforecastintermsofGWsforeachregionandthencomparedwiththesupplyforecasttocalculateaGWneedforeachyearoftheforecastperiod.OncethegapinGWiscalculated,generationneedsaretranslatedintodollarstreams.ItwasassumedfirstthattheneedwouldbemetaccordingtothecostsoftechnologymixesprojectedbytheAnnual Energy Outlook 2011 thatsupplyelectricenergybyregionto2035.14ThisvaluewasmultipliedbythenumberofGWsneededineachregiontoproducethedol-larstreamofinfrastructureinvestmentneeds.Notethatthisstreamonlyconsistsofcapitalcost,andnooperationandmaintenancecostsareincluded.
Overall,thisgenerationgapanalysisconsiderstheamountofgenerationspendingthatisneces-sarytomeetthereliabilitycriterion(asrepresentedbymeetingreservemarginreferencelevels).Withinthetrend scenario,thegapisexpectedtogrowovertimetoalevelof$401billionby2040.AbreakdownofthisgapbyregionisshowninTable14.
ThegenerationgapisbasedonpeakdemandforecastsfromNERC,andisassumedtogrowattheannualrateprojectedfrom2016–21.ThegapalsoisbasedonNERCreferencelevelsforreservecapacity,meaningthatthegapcalculationsarebasedonregionalattainmentof115%ofprojectedpeakcapacity.Asdiscussedabove,thereisamini-malgapshownthrough2020duetoacurrentoversupplyofgenerationcapacity.
32 American Society of Civil Engineers
incentivesprovidedbyFERCandsupportedbymandatesorplanningstudiesbystatesandregionaltransmissionorganizationshaveledtoanuptickininvestmentplanning.Second,aggressiveenergyefficiencydeploymentinmanyregions,coupledwiththerecenteconomicdownturn,hasreducedloadrequirements.
ThischangeinthelevelofconcerncanbeseenbycomparinglanguageinthereliabilityassessmentsthatareproducedannuallybyNERC.Forexample,inthe2007versionofthatreport,thefollowingstatementwashighlighted:“ArecentNERCsurveyofindustryprofession-alsrankedaginginfrastructureandlimitednewconstructionasthenumber one challenge to reliability—bothinlikelihoodofoccurrenceandpotentialseverity.”15Bycontrast,notethelanguageinthisreport’s2011version:“Trans-missiongrowthisrespondingtoincreasedplansforintegratinganddeliveringnewresources(i.e.,renewables);constructedtransmissionis
REGIon GEnERaTIonGaPESTImaTE
2020 2040
Florida 0 3.5
Midwest 0 29.5
Northeast 0 22.1
Mid-Atlantic 0 66.1
Southeast 0 121.2
Southwest 0 0
Texas 12.3 47.3
West 0 111.3
U.S.TOTAL 12.3 401.1noteThegenerationgapisdefinedastheinvestmentthatisnecessarytoensurethatregionsachievea15%planningreservemargin.Numbersmaynotaddduetorounding.
sourCesNERC;calculationsbyLaCapraandEDRGroup.
TaBlE 14★ ElectricGenerationInvestmentGap:Estimatedat$12Billionby2020and$401Billionby2040(in billions of 2010 dollars)
TransmissionTransmissionandgenerationareconsideredastwopartsofthe“bulkpowersystem”andarealmostexclusivelyusedforwholesalemarkettransactions.Veryfew(andverylarge)customersdirectlyaccessthetransmissionsystem.Asaresult,transmissionsystemsareregulatedatthefederallevel.Thedistributionsystemiswheremostreliabilityproblemsoccur;itisregulatedbyindividualstatesanddiscussedinasubsequentsection.
InvestmentneedformeetingloadGrowthandReliabilityTransmissioninvestmenthasincreasedsignifi-cantlyinthepastfewyears,onbothanationalandregionalbasis.Asaresult,manyoftheconcernsthatwereexpressedinthemiddletolate2000sconcerningthelackofinvestmentinthetransmissionsystemintermsofdemandgrowthhaveessentiallybeeneliminated.First,
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 33
FIGuRE 10★ActualandPlannedTransmissionInfrastructure,1990–2015
onpacewithprojections”and“ananalysisofthepast15yearsshowsthatadditionaltransmis-sion(greaterthan200kV)duringthenextfiveyearswouldnearlytripletheaveragemilesthathashistoricallybeenconstructedduringafive-yearperiod.”16
Figure10showsthattheplannedinvestmentintransmissioninfrastructurepickedupsig-nificantlystartinginthe2006–10period.Beforethistime,investmentwasmoreorlessconstant,intherangeof6,000–8,000circuit-milesperperiod.Futureinvestmentisexpectedtoreachcloseto18,000circuit-miles,whichrepresentsadramaticincreaseininfrastructureinvest-ment.Inaddition,itisimportanttopointoutthatthecalculationofthegapisbasedontrendsextended,notonlywithregardstodemandforelectricityandintechnologytrendsandregu-lations,butalsothatprivately-ownedutilityinvestmentsinthecoming30yearswillbeatthe
sourCeNERC,2011 Long-Term Reliability Assessment.
0
5000
10000
15000
20000
250002
01
1-1
5
20
10
-14
20
09
-13
20
08
-12
20
07
-11
20
06
-10
20
05
-09
20
04
-08
20
03
-07
20
02
-06
20
01
-05
20
00
-04
19
99
-03
19
98
-02
19
97
-01
19
96
-00
19
95
-99
19
94
-98
19
93
-97
19
92
-96
19
91
-95
19
90
-94
5 Year Plan Actual Miles Added Over 5-Year Period
Theplannedinvestmentintransmissioninfrastructurepickedupsignificantlystartinginthe2006–10period.Beforethistime,investmentwasmoreorlessconstant.
34 American Society of Civil Engineers
annualaverageratesforgeneration,transmissionanddistributionthatwereseenduring2001–10.
Thisconclusionshouldnotbeinterpretedasmeaningthatthereisnoneedorvalueinaddi-tionaltransmissioninfrastructure.Itonlymeansthattheaggregatelevelofactualspendingontransmissioninfrastructureisnowtrackingwithplannedlevelsofinvestment.Localizedissuescanstillbepresent.Forexample,therecanbeopportunitiesforenhancingconnectionsbetweenNERC’sregions,whichwouldhavebeneficialimpactsoncongestionmanagement,reliability,andgreaterdeliverabilityofrenew-ablesfromresource-richregions,suchastheMidwestandOklahoma/Texasarea,tourbancentersintheEasternUnitedStates.
TransmissionGapanalysisThetransmissiongapanalysisisbasedonpro-jecteddemandto2040andinvestmenttrendsforeachregion.DemandisbasedonpeakdemandforecastsfromNERCandisassumedtogrowatannualgrowthratefoundin2016–21period.Supplyisassumedtogrowathistoricalgrowthratebasedonfive-yearmovingaveragesofthe1999–2010periodandbasedonNERCcircuit-miledataforeachregion.Thegapiscalculatedasthedifferencebetweentheratesofdemandandsupplyforeachregion,anditassumesaconstant$2.375million(inconstant2010dollars)costpercircuit-mile,whichisspreadoutevenlyduringthe2011–40period.
Withthistrendscenario,thegapintransmis-sioninvestmentisprojectedtogrowovertimetoalevelofnearly$112billionby2040,asshowninTable15.Anumberoffactorscanaffectthesizeofthisinvestmentgap,mostnotablytheratesofchangeinthemixofgeneratingtechnologiesandtheircorrespondinglocationsrelativetopowersourcesandpopulationcenters.17
localDistributionTheagingoflocaldistributionnetworkshasreceivedparticularattentioninmanyareas,giventhatintermittentpowerfailuresarecom-monlyassociatedwithdownedpowerlines,
transformermalfunctions,andundergroundequipmentfailures.Althoughinvestmentinelectricdistributioninfrastructurehasrecentlyincreasedandnowexceedshistoricalloadgrowth,itisalsoimportanttoassesstheade-quacyofthisinvestmenttomeetgrowingneedsforgreaterreliabilityandcapacitytoaddressthechangingnatureofelectricityuse.Investmentinortheexpansionofelectricdistributioninfra-structureisundertakenbylocaldistributioncompanies,whichcanbeownedbyinvestorsormunicipalities.Usually,investor-ownedutili-tiesinvesttomeetlocallyacceptablestandardsandthenseektorecovertheirinvestmentcoststhroughrateincreases.Somestatesdoallowrecoveryoutsideformalrateincreaseproceed-ings.Thesestandardsaresetbyeachutilityaccordingtoitscapitalbudgetingprocess,withregulatoryoversightbystates,andthisprocessvarieswidely,withsomestatesactivelypenal-izingutilitiesforpoorreliabilityorcustomerserviceperformanceandotherstateshavingnopenaltiesbutmaintainingtheabilitytodenycostrecoveryforimprudentinvestments.
Figure11showstheannualrateofinvest-mentinlocalelectricitydistributionnetworks,expressedasthree-yearandfive-yearmovingaverages.Overall,itshowscompoundedannualgrowthratesintherangeof1.5%to2%,whichisupconsiderablyfromtherateoccurringintheearlyandmiddle1990s.
Thetrend scenarioforinvestmentinlocaldistributioninfrastructureisbasedonthelevelofconstructionexpendituresbyshareholder-ownedutilitiesfortheperiod1980–2008.18Althoughtheactualtrendvariesfromyeartoyeartoreflecteconomiccycles,theaverageannualgrowthrateforthemostrecentfive-yearperiodisactuallysimilartotheaveragerateduringtheentire28-yearperiod.Projectionsfor2009–40business-as-usualexpenditureswerebasedontwofactors.Onewasthemostrecentfive-yearaveragerateof1.05%,whichisslightlylowerthanthemovingaveragefiguresdiscussedabove.Theotheristheincrementalcostofgrad-uallyimplementingsmartgridtechnologies
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 35
REGIon TRanSmISSIonGaPESTImaTE
2020 2040
Florida 1.8 5.5
Midwest 1.4 4.3
Northeast 1.6 4.7
Mid-Atlantic 6.4 19.2
Southeast 10.9 32.7
Southwest 0 0
Texas 0 0
West 15.2 45.5
U.S.TOTAL 37.3 111.8
sourCesNERC;EasternInterconnectionPlanningCollaborative,“PhaseIReport,December2011”;RenewableEnergyTransmissionInitiative;calculationsbyLaCapraAssociatesandEDRGroup.
noteNumbersmaynotaddduetorounding.
TaBlE 15★ ElectricTransmissionInvestmentGap:Estimatedat$37Billionby2020and$112Billionby2040(in billions of 2010 dollars)
FIGuRE 11★ DistributionExpendituresfrom1980ShowCompoundAnnualGrowthRatesof1.5%to2%
sourCeEdisonElectricInstitute,Statistical Yearbook 2009.
10000
12800
15600
18400
21200
24000
200820062004200220001998199619941992199019881986198419821980
5 Year Moving Average
3 Year Moving Average
Annual Distribution Expenditures
36 American Society of Civil Engineers
duringtheperiodupto2040,tomaintainandupgradereliabilityasrequiredbyincreasinglysophisticatedelectronicequipment.ThelatterwasbasedonestimatesfromanElectricPowerResearchInstitutestudyfortheincrementalcoststoimplementthesmartgrid,19whichprovideslowandhighestimatesoftotal20-yearcostsforthetransmission,distribution,andcustomeraspects.20
Theregionalpatternofinvestmentinlocaldistributioninfrastructureisestimatedbasedonanallocationthatrepresentshistoricalpatterns,asshowninFigure12.
DistributionGapanalysisUnderthetrendscenario,theinvestmentgapforlocaldistributioninfrastructureisprojectedtogrowovertime,toalevelof$57billionby2020and$219billionby2040.AbreakdownoftheseneedsbyregionispresentedinTable16.
Thisgapcanwidenifadditionalinvestmentsarerequiredtoallowfortheacceleratedgrowthoflocallydistributedpower,withaccordinglyhigherrequirementsforafasterimplementationofsmartgridtechnologiestoaddresstheirinter-mittentsupplycharacteristics.
overallGap:SummaryThecumulativetotalinvestmentgapaddstogetherthegeneration,transmission,anddis-tributioninfrastructuregaps.ThoseresultsareshownbyregioninTable17,andindicatethattheinvestmentfundinggapwillbehighestintheSoutheast,theWesternstates,andtheMid-Atlanticarea,andlowestintheSouthwestandFlorida.Itdoesnotappeartobegrowthalonedrivingthegap,butratheracombinationofsupply,technologies,anddemand,asreviewedearlierinthisreport.
FIGuRE 12★DistributionAdditions,NERCRegions’ShareoftheNationalTotal,2001–9
Florida Midwest Northeast
Mid-Atlantic Southeast Southwest
Texas Unknown West
0%
5%
10%
15%
20%
25%
30%
200920082007200620052004200320022001
sourCeFederalEnergyRegulatoryCommission(FERCForm1Data).CalculationsbyLaCapraassociatestofitdataintoNERCregions.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 37
REGIon DISTRIBuTIonGaPESTImaTE
2020 2040
Florida 2.4 9.2
Midwest 3.0 11.5
Northeast 6.4 24.4
Mid-Atlantic 11.8 45.0
Southeast 18.8 71.7
Southwest 2.4 9.2
Texas 2.3 8.7
West 10.3 39.3
U.S.TOTAL 57.4 219.0sourCesEdisonElectricInstitute,FERC,ElectricPowerResearchInstitute.
noteNumbersmaynotaddduetorounding.
TaBlE 16★ ElectricDistributionInvestmentGap:Estimatedat$57Billionby2020and$219billionby2040(in billions of 2010 dollars)
REGIon DISTRIBuTIonGaPESTImaTE
2020 2040
Florida 4.2 18.2
Midwest 4.4 45.3
Northeast 8.0 51.2
Mid-Atlantic 18.2 130.3
Southeast 29.7 225.6
Southwest 2.4 9.2
Texas 14.6 56.0
West 25.5 196.0
U.S.TOTAL 107.0 731.8sourCesEdisonElectricInstitute,FERC,ElectricPowerResearchInstitute.
noteNumbersmaynotaddduetorounding.
TaBlE 17★ RegionalBreakdownofElectricDistributionInvestmentGap,2020and2040(in billions of 2010 dollars)
38 American Society of Civil Engineers
theCostinCurred bYaFailuretoinVest5
TheChainofImpacts
Failuretoclosetheinvestmentgapandadequatelyinvestinour
nation’selectricityinfrastructurecanoccurformanyreasons,
includingdisagreementsoverconstructionplansforgenera-
tionfacilitiesoradditionaltransmissionlines,orthefailureto
allowfortheelectricityratelevelsneededtosupportmoreefficient
energyuse,technologyadoption,orinvestment.whateverthe
reason,theresultofagrowinginvestmentgapwillbesomecombi-
nationofagingequipmentandcapacitybottlenecksthatleadstothe
samegeneraloutcome:agreaterincidenceofelectricityinterruptions.
Theinterruptionsmayoccurintheformofequipmentfailures,intermittentvoltagesurges,andpowerqualityirregularitiesduetoequipmentinsufficiency,and/orblackoutsorbrownoutsasdemandexceedscapacityforparticularperiods.Theseperiodscanbeunpredictableintermsoffrequencyandlength.Regardlessofthesedetails,theresultisalossofreliabilityinelectricitysupply,whichimposesdirectcostsonbothhouseholdsandbusinesses.
Thesecostscantakeseveraldistinctforms,including(1)damagetoagrowing
portionofequipmentmadewithsensitiveelectroniccircuitsthatcanbeaffectedbyvoltagespikesandsurges;(2)spoilageoffoodandotheritemsthatareheated,refrigerated,orkeptincontrolledconditions;(3)wasted,unproductivetimeforworkersataffectedbusinessmanufacturingandservicefacilitieswhenproductionprocessesaretemporarilyidled;and(4)addedcostsincurredbyanincreasedrelianceon(anduseof)backupgenerators,powerqualitymonitoringandconditioningequipment,orreschedulingofproductionshifts.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 39
PriorStudiesoftheCostsofElectricityInterruptionsThebestwaytoestimatethemagnitudeofthecoststobeincurredbyhouseholdsandbusinessesiftheinvestmentgapgrowsinthefutureistoconsiderinterruptionsandthescaleofcostsalreadybeingincurred.Nationally,a2004studyfoundthatcustomersarefacedwith4.3momen-taryoutagesoflessthan5minutesthatcosttheU.S.morethan$50billioneachyearand1.2sus-tainedoutagesof5minutesormorethataccountforanadditional$29billion,totaling$79billionannuallyin2002dollars.Thestudyalsofoundthattheaveragelengthofsustainedoutageswere106minuteseach.21Aseparatelyconducted2003studyconcludedthatonaverageU.S.electriccustomersexperience1.5to2outagesperyear,withaveragedurationslastingtwohours.22
Thesecostscausedbyelectricityinterruptionsoccurintheformofidleworkertime,productspoilage,equipmentdamage,andreplacementcosts.Theaforementioned2004studyfoundthatindustrialfirmscaneachloseabout$2,000to$5,000perpowerinterruption,commercialestablishmentscanlose$700to$1,300,andhouse-holdseachloselessthan$5peroccurrence,asshowninTable18.23
Aseriesofstudiescompletedinthe1990sandfirstdecadeofthe2000sestimatedthetotalannualcostofpoweroutagesandreliabilityforournationaleconomy.Whennormalizedto2010dollars,estimatesoftheannualcosttoournationrangedfrom$39billionto$201billionperyear,asillustratedinTable19.Thereasonsforthevariationweredifferencesinmethodologyandtherangeofcostsbeingincluded.However,itshouldbenotedthattheconditionofelectricityinfrastructurehasimprovedmarkedlyduringthepastdecadesincethosestudieswereconducted.Improvementsinqualityhavebeenparticularlysignificantingenerationandtransmissionsystemsduetosignificantinvestmentsmadesince2005,andthenationalinvestmentgapisnowsmallerthaninearlierdecades.
EstimationofFutureCostsIncurredbyFailingtoClosetheInvestmentGapForthisstudy,thecostsassociatedwithmain-tainingandimprovingelectricityadequacyandreliabilitywerecalculatedbasedon(1)estimatesoftheregionallong-terminvestmentneedsforgeneration,transmission,anddistributioninfra-structure;and(2)estimatesoftheaddedcostsandforgonebenefitsincurrediftheyarenotmade,drawingonstudiesbytheEIAandElectricPower
DuRaTIonoFInTERRuPTIon RESIDEnTIal CommERCIal InDuSTRIal
Momentary 2.64 733 2,294
1 hour 3.27 1,074 3,943
Sustained Interruption* 3.62 1,293 5,124
*Themeantimeofsustainedinterruptionsis106minutes(whendataweretrimmedofoutliers).Costswerereportedin2002dollarsandwereinflatedto2010dollarsforthistable.Thestudyestimatedtotalannuallossesat$79billionorarangeof$22billionto$135billionin2002dollars.
sourCeLaCommareandEto,2004.
TaBlE 18★ AverageCostofPowerInterruptionsperHouseholdandperBusiness(in constant 2010 dollars)
40 American Society of Civil Engineers
ResearchInstitute.Itwasassumedthatsmall,locallybasedsourcesofdistributedgenerationwouldberequiredtofilltheelectricityavailabilitygap,resultinginsomeassociatedhighercosts.24
Thefindingisthatafailuretomeettheprojectedinvestmentgapwillresultinacosttobusinessesandhouseholds,startingat$17billionin2012andgrowingannuallyto$23billionby2020and$44billionby2040.Thecumulativecostsapproach$200millionby2020and$1trillionby2040.Annualcoststotheeconomywillaverage$20billionthough2020and$33billionthrough2040.Theseestimatedimpactsaresignificantlylowerthantheimpactsestimatedfromstudiesconductedinthe1990sand2000s,presentedaboveinTable19.
Table20showstheestimatedcostimpactbyeconomicsector.Table4breaksdowntheesti-matedimpactbyregion.Itisnotablethatthesecostsincurredbyfailingtoclosetheinvest-mentgapareactuallyhigherthantheavoidedinvestment.Thismeansthatitiseconomicallyinefficientforhouseholdsandbusinessestoallowthishighercostscenariotooccur.Itshouldalsobemadeclearthatevenifsufficientinvest-mentismadetoavoidtheinvestmentgap,theresultwillnotbeaperfectnetworkforelectricitygenerationanddelivery,butratheronethathasdramaticallyreduced(thoughnoteliminated)powerqualityandavailabilityinterruptions.
TaBlE 19★ ComparisonofAnnualImpactsofInadequateElectricityDelivery,SelectedStudyYears
REPoRTED aDJuSTED
DollaR STuDy ToConSTanT
amounT yEaR 2010DollaRS CoSTSInCluDED auTHoR/SouRCE
$26 1993 $39 Limited to power- J. Clemmensen, Electric Power Research billion billion quality analysis and Institute, “Estimating the Cost of Power manufacturing sector Quality,” IEEE Spectrum, 1993.
$150 1998 $201 Accounts for U.S. S. Swaminathan and R. K. Sen, Reviewbillion billion industry, but does not of Power Quality Applications of Energy include commercial or Storage Systems, Report SAND98–1513 household sectors (Sandia National Laboratories, 1998).
$119 2001 $147 Includes business Primen, The Cost of Power Disturbancesbillion billion sectors but not to Industrial and Digital Economy households Companies, Report TR-1006274 (Electric Power Research Institute, 2001).
$79 2002 $96 Includes households, K. H. LaCommare and J. H. Eto, billion billion commercial and Understanding the Cost of Power Industrial Interruptions to U.S. Electricity Customers, Report LBNL-55718 (Lawrence Berkeley National Laboratory, 2004).
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 41
EConomICSECToR 2012 CumulaTIVE,2012–20 CumulaTIVE,2012–40
Residential 6 71 354
Commercial/other 6 74 402
Industrial 4 52 239
Transportation 0.03 0.38 3.82
TOTAL 17 197 998
sourCesCalculationsbyLaCapraandEDRGroupbasedondatafromEIAandElectricPowerResearchInstitute.
TaBlE 20★CumulativeImpactsbySector,2012,2012–20,and2012–40(in billions of 2010 dollars)
REGIon 2012 CumulaTIVE,2012–20 CumulaTIVE,2012–40
Florida 0.7 8 32
Midwest 0.8 9 59
Northeast 2.0 17 79
Mid-Atlantic 3.0 36 194
Southeast 5.0 59 297
Southwest 0.5 6 18
Texas 0.5 18 80
West 4.0 44 239
TOTAL 17 197 998
sourCesCalculationsbyLaCapraandEDRGroupbasedondatafromEIAandElectricPowerResearchInstitute.
TaBlE 4★CumulativeImpactsbyRegion,2012,2012–20,and2012–40(in billions of 2010 dollars)
Failuretomeettheprojectedinvestmentgapwillresultinacosttobusinessesandhouseholds,startingat$17billionin2012andgrowingannuallyto$23billionby2020and$44billionby2040.
42 American Society of Civil Engineers
eConoMiCiMPaCts
Iffutureinvestmentneedsarenotaddressedtoreplaceand
upgradeournation’selectricgeneration,transmission,and
distributionsystems,thencostswillbebornebybothhouseholds
andbusinesses.Thesecostsmayoccurintheformofhigher
costsforelectricpower,orcostsincurredbecauseofpower
unreliability,orcostsassociatedwithadoptingmoreexpensive
industrialprocesses.Ultimately,theyallleadtothesame
economicimpact:diversionofhouseholdincomefromother
usesandareductioninthecompetitivenessofU.S.businesses
inworldeconomicmarkets.
6
Ifannualinvestmentsinelectricenergyinfrastructurethrough2040continuetoaverage$63billion,astheydidduringthepastdecade,thenby2020thecumulativedeficit(gap)forinvestmentinelectricityinfrastructurewillbe$107billion,andthiswouldincreaseto$732billionby2040.Thedirectcosttobusinessesandhouseholdswouldbeevengreaterthanthemissedinvest-ment,risingto$197billionby2020and$998billionby2040.Nationally,thesecostsarepassedintothenationaleconomyintheformofbusinessexpenses,lostproductionandhouseholdspendingdivertedtosatisfyingdemandforelectricalpower.ThesebroaderimpactsontheU.S.economywouldrepresent
acumulativelossofgrossdomesticproduct(GDP)amountingto$496billionby2020and$1.95trillionby2040.
Thelossofcompetitivenessforbusinessesthatselltooverseasmarkets,andthehigherpricespaidforforeignimports,wouldalsoleadtoalossofjobs.Theseestimatedjob“losses”willoccurintheformofalowerrateofnationaleconomicgrowth,andhencealowerrateofjobgrowth.Overall,theU.S.economywillendupwithanaverageof529,000fewerjobsthanitwouldotherwisehaveby2020.Andevenwitheconomicadjustmentsoccur-ringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040,asshowninTable5.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 43
annualImPaCTS 2020 2040
GDP -$70 billion -$79 billion
Jobs -529,000 -366,000
Business Sales -$119 billion -$159 billion
Disposable Personal Income -$91 billion -$86 billion
aVERaGEyEaR 2012–2020 2021–2040
GDP -$55 billion -461,000
Jobs -461,000 -588,000
Business Sales -$94 billion -$180 billion
Disposable Personal Income -$73 billion -$115 billion
CumulaTIVEloSSES 2012–2020 2021–2040
GDP -$496 billion -1.95 trillion
Jobs NA NA
Business Sales -$847 billion -$3.6 trillion
Disposable Personal Income -$656 billion -$2.3 trillion
noteLossesinbusinesssalesandGDPreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.
sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012
TaBlE 5★EffectsonU.S.GDPandJobs,2011–40
Table21illustratesthatjoblosseswillfallheavilyontheretailandotherconsumerspend-ingsectorsduetotheexpecteddiversionofhouseholdspending.Personalconsumptionexpenditures25areprojectedtobereducedbyacumulative$400billionby2020and$2.1trillionby2040(in2010dollars).Moreover,servicedis-ruptionsthatforcebusinessestoshutdownwillhaveadisproportionalimpactonhourlyworkersandalsoonbusinesslocationsthatrequiredirectpersonalinteraction,suchasstoresandrestaurants.Lastly,retailisthenation’slargesteconomicsectorintermsofnumbersofjobs.Therefore,jobimpactswillbedisproportionately
Evenwitheconomicadjustmentsoccurringlateron,withcatch-upinvestments,theresultwouldstillbe366,000fewerjobsin2040.
44 American Society of Civil Engineers
assumedinthatsectorcomparedtoothersthatmightcontributemoretoGDPorbemoreenergyintensive.
Substantiallossesinmanufacturingsectorsarealsoanticipatedduetolessreliableelectricityservicewithashortfallinelectricityinfrastruc-tureinvestment.TheselosseswillsignifyreducedcompetitivenessofU.S.industries.Figure13indicateswhichindustrieswillbemostharmed.
By2020,thepotentialinvestmentneedsininfrastructuremaycausetheU.S.tolose$10billioninexports,whichcouldgrowto$40billionby2040(in2010dollars).Thehardest-hitindustrialsectorswillbe:
★ Aerospace,★ Electroniccomponents,and★ Airtransportation.
EnergyIntensiveIndustriesIndustriesvarytotheextentthattheydependonareliablesupplyofelectricity.OnewaytomeasuretherelativeenergydependenceofU.S.industriesistocomparetheamountofelectricitythateachsectorpurchases.Figure13isanindexofreflectingtherelativerelianceonelectricityamongindividualindustries,rep-resentedasaproportionofthenationalaverageelectricitypurchasedbyeachindustry.Nation-ally,purchasesof“electricpowergeneration,transmission,anddistribution”averageof6.8%oftotalindustryrevenue.Intheindexpresentedbelow,avalueof“100”issettothenationalaverage.Avaluegreaterthan100indicatesthatindustriesuseahigherportionoftheirrevenuesforelectricityandanindexvaluelessthan100indicatesthatelectricservicesconsumeasmallerthanaverageportionofbusinessrevenues.
2020 2040SECToR JoBImPaCTS PERCEnT JoBImPaCTS PERCEnT
Retail trade/restaurants and bars 213,000 40 136,000 37
Business and professional services 101,000 19 94,000 26
Manufacturing 59,000 11 55,000 15
Construction 52,000 10 38,000 11
Other 105,000 20 42,000 12
TOTAL 529,000 100 366,000 100
noteLossesinjobsreflectimpactsinagivenyearagainsttotalnationalbusinesssalesandGDPinthatyear.Thesemeasuresdonotindicatedeclinesfrom2010levels.
sourCesEDRGroupandLIFTmodel,UniversityofMaryland,INFORUMGroup,2012.
TaBlE 21★ JobLossesbySector,2020and2040
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 45
FIGuRE 13★ElectricityIntensitybyIndustry
0 50 100 150 200 250 300 350 400
Capital gap
Capital spending
Information
Construction
Transportation Eqp Mfg
Transportation & Warehousing
Prof, Scientific & Technical Services
Wholesale Trade
Misc Mfg
Finance, Insruance & Real Estate
Computers & Electronics
Machinery Mfg
Retail Trade
Furniture
Electrical Equipment
Medical Services
Fabricated Metals
Petroleum & Coal Products
Printing
Leasing
Textiles & Apparel
Mining
Plastics
Wood Products
Food & Beverage Mfg
Agriculture & Forrestry
Chemical Products
Education
Accommodation & Food
Paper
Non-Metal Minerals
Primary Metals
sourCesBureauofEconomicAnalysis,U.S.DepartmentofCommerce,aggregatedbyMinnesotaIMPLANGroup,Inc.,2009.CalculationsbyEDRGroup
nMoreelectricityintensivenLesselectricityintensive
46 American Society of Civil Engineers
ConClusions7
Reliableelectricityisessentialforthefunctioningofmany
aspectsofhouseholdandeconomicactivitytoday.Asthenation
movestowardsincreasinglysophisticateduseofinformation
technology,computerizedcontrolsandsensitiveelectronics,
theneedforelectricityreliabilitybecomesevengreater.In
addition,overalldemandforenergyisexpectedtoincrease
astheUnitedStateseconomyandpopulationgrowsbetween
todayandtheyear2040.
Toobtaintheneededelectricpower,householdsandbusinessesdependtoalargeextentonmaintainingandupdatingthethreekeyelementsofelectricityinfrastructure:(1)generationplants,(2)transmissionlinesand(3)localdistributionequipment.Fortheentiresystemtofunction,generationfacilitiesneedtomeetloaddemand,transmissionlinesmustbeabletotransportelectricityfromgenerationplantstolocaldistributionequip-ment,andthedecentralizeddistributionnetworksmustbekeptingoodrepairtoensurereliablefinaldelivery.Connectionsamongthedifferentelementsofthisbroader
systemarecrucialtomeetregionalandnationalenergyneedsaswellastosupportemergingchangesinthespatialpatternofpowersourcesandpopulationlocations.Deficienciesorshortfallsinanyoneofthesethreeelementsofelectricityinfrastructurecanaffectournation’sfutureeconomicgrowthandstandardofliving.
Threekeyfactorsaffectthesufficiencyandreliabilityofelectricityinfrastructure:(1)theageofinfrastructure,(2)thecapacityofinfrastructure,and(3)thespatialpatternofinfrastructurerelativetothelocationsofelec-tricitygenerationandconsumption.Allthree
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 47
affectrequirementsforfutureinvestmentinelectricityinfrastructure.Thisstudyexaminedthemagnitudeofexpectedneedforfutureinvestmentinelectricityinfrastructureandcomparedittorecentinvestmenttrends(assum-ingacontinuingevolutionoftechnologies).Althoughrecentinvestmenttrendsshowadis-tinctimprovementininfrastructureinvestmentoverearlierdecades,evencontinuingtherateofaverageannualinvestmentseenoverthepastdecadeisnotexpectedtocoveralloftheincreaseindemandforelectricity.Thisreport,conductedaftersignificantannualinvestmentincreasesbyprivately-ownedutilitiessince2005weremade,estimatestheannualcosttobusinesses,house-holds,andinstitutionsatabout$16billionin2012andaveraging$33billionannuallythrough2040undercurrentinvestmenttrends.
Thisanalysisshowedthatifcurrenttrendsaretocontinue,thenthenationwillfaceacumu-lativeelectricityinfrastructurefundinggapof$107billionby2020,risingto$732billionby2040.Inturn,aninvestmentshortfallofthatmagnitudewillcostbusinessesandhouseholdsacumulative$197billionby2020and$998bil-lionby2040.ThesecostsarepassedintotheU.S.economyintheformofincreasedbusinessandhouseholdexpenses,whichwillalsoaffectthenation’scompetitivenessineconomictrade.Economicmodelsindicatethatthiscouldulti-matelyresultina$500billioncumulativelossinGDPby2020andabout$2.5trillionby2040.
long-TermuncertaintyItisdifficulttopredictfuturelevelsofcapitalspendinginelectricityinfrastructurebecauseawiderangeoffactorswillexertaninfluenceoverthecomingdecadesoccurringinsupplyanddemandfactors—suchastherelativecostoravailabilityofoilornaturalgas,regulatoryactionstopromotegreenhousegasreduction,otherenvironmentalconcerns,andnew
technologychangesthatincreaseordecreasetherateofinvestmentrequiredtodeliversufficientservicestomeetthedemandforelectricity.
Thethreeaspectsoftheelectricityinfrastructurenetwork—generation,trans-mission,anddistribution—areconnectedandmutuallydependent.Changesinoneofthethreemayrequireinvestmentintheothertwotoensurethatthesupplyofelectricityeffectivelyreachescustomers.
Theinvestmentsrequiredforgenerationcouldincreaseifitbecomesnecessarytoreplaceshortfallsintheavailabilityofelementsoftheexistingfuelmixortomeetenvironmentalconcerns.Ifgenerationtechnologieschange,thenitislikelythatadditionaltransmissioninvestmentwillberequiredtoconnectthenewpowersourcestothedistributiongrid.Moreover,ifadditionalinvestmentsarerequiredinthegenerationandtransmissionnetworks—forexample,toallowforthecostoftheacceleratedgrowthoflocallydistributedsolarandwindpower,withaccordinglyhigherrequirementsforsmartgridtechnologiestoaddresstheirintermittentsupplycharacteristics—thenlocaldistributioninfrastructureinvestmentneedsmayalsorise.
Sinceelectricitygeneration,transmissionanddistributionareallmadebyprivatecompaniesoperatingunderpublicoversight,thefundinggapisnotasimplematterofincreasingpublicexpenditures.Rather,thenatureandmagnitudeofprivateinvestmentinelectricityinfrastructureisaffectedbyprivatecapitalloanandbondmarkets,perceivedeconomicrisksanduncertainties,andpublicpoliciesgoverningregulation,approvalofelectricityrates,andfacilitysitingprocesses.Publicpolicies,regulationsandprocessescanplayaroleaffectingthepace,locationandnatureofelectricinfrastructureinvestments.
48 American Society of Civil Engineers
for2008–2035.ForthisstudywepresumetheEIAprojectionsrepresent“trendsextended”or“businessasusual”to2040.
Aftercalculatingcapitalneeds,severalassumptionsweremadetotranslatecapitalneedsintoeconomiccosts,andarediscussedinSection5.Keysourcesandassumptionsinclude:
★ Generation.Thisanalysiswasbuiltassum-ingthatdecentralizeddistributivegenerationwouldfillinthegenerationgapthatwouldnotbemet.DistributedgenerationcapitalcostassumptionscamefromEIA.ACalifor-niastudywasusedtocalculatefuelandO&Mcosts(Itron,Inc,2011).Thesumofcapital,O&M,andfuelwereusedtocalculatecosts.
★ Transmission.Fortransmission,regionsemploydifferentassumptionsaboutwhatforegonebenefit(oropportunitycost)isanacceptableandreasonablebasisforuse.Forexample,theMid-Atlanticutilizeamini-mumthresholdof1.25/1,whiletheMidwestspecifiesratiosvaryingfrom1to3depend-ingonthetypeoftransmissionprojectandhowcloseoneistothein-servicedate(Fink,S.,2011andMISO,2011).Thisstudyusedtherationof1.25asasinglemeasureacrossregions,although,itispossiblethatthisundervaluesthebenefitsoftransmission.Forexample,arecentBrattlestudypositedthattransmissioncost-analysestendtounder-estimatebenefitsbecausetheyarehardtoquantify,butyetarereal,economicbenefits.
★ Distribution.ElectricPowerResearchInstituteprovidedbenefitestimatesofthesmartgridbyincludingdifferentattributes(EPRI,2011).Weremovedthe“softer”attri-butesthatwouldtendnottobeincludedinbillstocustomersandremovedsomeoftheattributesthatwouldbealreadycountedintheothergapanalysis.Theresultisasetofbenefittocostratiosthatarelowerthanthestudybutthatismorecredibleforinputtoaneconomicmodel.
Thisstudyillustrateswhatcouldhappentothenationaleconomyifhouseholdsandbusinessesdonothavereliableenergyservice.Economicimpactsarebasedon:(1)forecastdemandforelectricity;(2)currentandprojectedmixofelec-tricitygenerationtechnologies;and(3)observedinvestmentpatternsforgeneration,transmissionanddistributioninfrastructure.ConsistentwithguidelinesfromtheNorthAmericanEnergyReliabilityCorporation(NERC),a15%bufferisusedasameanstoincorporatereliabilityinprojectedsupplyanddemandcalculations.Theanalysisapproachcomparestwoscenarios:
★ Theimpliedbasecaseinwhichsufficientinvestmentismadeperregiontomaintainelectricitygeneration,transmissiondis-tributioninfrastructuresystemstomeetanticipatedfutureneedsandreliabilitystandards,and
★ TheFailure to Actscenarioinwhichmain-tainingcurrentinvestmenttrendsleadtoagrowinggapbetweentheperformanceofregionalelectricityinfrastructureandtheregions’anticipatedneeds.
Capitalneedsandexpendituresforallthreepartsofelectricityinfrastructurearebasedonfederalgovernmentandindustrysources.TheprimarybasisfortheeconomicanalysisisdocumentationprovidedbytheU.S.DepartmentofEnergy(2011Annual Energy Outlook),theNorthAmericanElectricReliabilityCorporation,theEdisonElectricInstitute,andtheElectricPowerResearchInstitute.
EachyeartheU.S.EnergyInformationAdministration(EIA)releasesanAnnualEnergyOutlookthatprojectslong-termenergysupply,demandandpricesbasedonresultsfromEIA’sNationalEnergyModelingSystem(NEMS).AnnualEnergyOutlook2011,publishedinApril2011,presentsactualandprojectedtotalelectricsalesbrokendownbygenerationtechnology
★|aboutthestudY
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 49
Followingcalculationofthecapitalgapandexpectedcoststocustomers,theeconomicanalysisprocesshasthreesteps:
1. Theaddedcostsincurredbyhouseholdsandbusinessesduetoincreasinglyinadequateinfrastructurearecalculatedonayear-by-yearbasedonthedifferenceofthetwoscenarios.
2. Thoseaddedcostsaredistributedamongsthouseholdsandvarioussectorsoftheecon-omyinaccordancewiththeirlocationandelectricityusepatterns.
3. AneconomicmodeloftheU.S.economyisusedtocalculatehowhouseholds’incomeandexpenditurepatterns,aswellasbusinessproductivity,isaffectedandleadtochangesinournation’scompetitivenessandeconomicgrowth.Theresultsareprovidedintermsoflong-termchangesinjobsandincomeintheU.S.ThissequencemakesuseoftheLIFTmodel(Long-termInter-industryForecastingTool),anationalpolicyandimpactfore-castingsystemdevelopedbyINFORUM—aresearchcenterwithintheDepartmentofEconomicsattheUniversityofMaryland,CollegePark.
Economicimpactsforpurchaseanddeploy-mentoftechnologiesbeyondatrendsextendedapproach,suchincreasedemphasisonrenewableenergysourcestomeetenvironmentalorenergyindependencegoalsorintensifyingextractionanduseofnaturalgasbeyondwhatisnowinplaceandpredictedwouldchangetheinvest-mentscenariosandresultsofthisstudy.
★|endnotes1.“Smartgrid”referstotechnologiesthatmodernizetheelectricityutilitygridandimprovehowelectricityisdeliv-eredtoconsumers.Ituses“computer-basedremotecontrolandautomation”with“sensorstogatherdata(powermeters,voltagesensors,faultdetectors,etc.),plustwo-waydigitalcommunicationbetweenthedeviceinthefieldandtheutility’snetworkoperationscenter.Akeyfeatureofthesmartgridisautomationtechnologythatletstheutilityadjustandcontroleachindividualdeviceormillionsofdevicesfromacentrallocation.”(Source:http://energy.gov/oe/technology-development/smart-grid)Italsoprovidesameanstodynamicallyoptimizeelectricitysupplyanddemand,providesformorewidelydistributedgenerationandenablesgreatersystemreliability.Source:TitleXIIIoftheEnergyIndependenceandSecurityActof2007(EISAprovidedlegislativesupportforDOE’ssmartgridactivitiescoordinatingnationalgridmodernizationefforts).
2.Majorpowerplantsaredefinedhereasoperationalpowerplantsthatgenerateatleast1MWofpower.Source:Electric Power Annual 2010,table5.1.
3.Thereareover450,000milesoftransmissionlinesover100,000volts,whichincludeover150,000milesoftransmissionlinesover230,000volts.Thelatternumberisreferencedinthe2009ASCEReportCardonAmerica’sInfrastructureandisreferencedbytheU.S.GovernmentAccountabilityOffice.Source:U.S.GovernmentAccountabilityOffice,www.gao.gov/products/GAO-08-347R.
4.Asthecost-effectivenessofsmall-scalegenerationequipmentincreases,thereisapotentialformore“distributedgeneration,”with“microgrids”thatcanreducetheneedforfutureinvestmentinlargecentralgenerationplantsandassociatedtransmissionlinesservingthem.Assophisticated“smartgrid”computersystemsbecomemoreavailabletodigitallymonitorandinstantaneouslyshiftdemandorreroutepower(tooffsetequipmentfailuresorothersuddensupplyanddemandchanges),thereisalsoapotentialforchangeinfutureneedsfortransmissionanddistributioninvestments.Intheory,thetwoemergingtechnologiescanbecomplementary.However,bothtechnologiesrequireaddedinvestmentinaparticulartypeofequipmentthatcanpotentiallyreduceneedsforothertypesofequipment.Andthoughbothcanpotentiallyprovidegreaterreliabilityandflexibilityformeetingfutureneeds,therateoftheirfutureimplementationwillalsodependonvariousregulatory,institutional,andeconomicfactorsthathaveyettobeplayedout.
5.“Distributedgeneration”referstodecentralizedenergygenerationthatisproducedbymanysmallenergysources,oftenlocatedonbusinessorhouseholdpremisesorincloseproximitytothem.Itisacategorythatcanalsoencompasson-sitegeneration,cogeneration,dispersedgeneration,embeddedgenerationanddecentralizedgeneration.
50 American Society of Civil Engineers
6.Distributedgenerationtechnologiescurrentlyaccountforunder1%ofUSgeneratingcapacity,buthavebeengrow-inginuseandareprojectedtoaccelerateinfutureyears.In2012,distributedgenerationisexpectedtoproduce130millionkillawatthoursofelectricity.By2040itisexpectedtoproduce4.63billionkillawatthours,anaverageannualincreaseofnearly17%.Thatsaid,distributedgenerationisexpectedtoremainasmallportionoftheenergymixunlesshouseholdsandbusinessesbecomeanxiousaboutensur-ingreliableelectricity.Undercurrentconditions,thetotalshareofkillawatthoursisexpectedtoincreasefrom0.003%ofthenation’selectricitymixin2012to0.1%in2040.(Source:EnergyInformationAdministration,FormEIA-759,MonthlyPowerPlantReport.2008and2009.
7.Seewww.eia.gov/energy_in_brief/age_of_elec_gen.cfm.
8.Seewww.globalenvironmentfund.com.
9.EIAprojectionsfortotalsalesofelectricityextendfrom2008to2035.Toextendtheprojectionsto2040,weassumedthatsalesforeachregionandcustomerclasswouldgrowattheaverage2030–35annualgrowthrate.
10.InmostregionsintheU.S.,“peakperiodsofelectricitydemandisinthesummerseason.However,incertainregions/sub-regions,suchasthenorthwestUnitedStates,SouthDakota(MIRO-MAPPregion)andFlorida,peakdemandinthewinterexceededpeaksummerdemandwhentheexpecteddemandofthe2011/2012winteriscomparedtotheexpecteddemandinthesummerof2012.Source:NERC 2011 Long Term Reliability Assessment,tables8and9.
11.NERC,2011 Long-Term Reliability Assessment Projection.
12.PJMResourceAdequacyAnalysisSubcommittee,“ComparisonofPRISMandMARS,”February9,2011.
13.NERCestimatesplanningreservemarginsoverthenext10yearsinits2011 Long-Term Reliability Assessment.EIAalsoestimatesactualmarginsfor1999–2010andprojectedmarginsfor2011–15initsElectric Power Annual 2010,releasedinNovember2011.Estimatesofgenerationcapacitytodemandarebasedonextendingtrendsfromtheseestimates.
14.Thesenumberswerefurtherprojectedto2040forthisanalysisasshowninTable11onpage29.
15.NERC,2007 Long-Term Reliability Assessment,19.
16.NERC,2011 Long-Term Reliability Assessment,36–37.
17.Essentially,everytypeofelectricgeneratingfacilityiseitherlocatednearafuelorpowersource(e.g.,gaspipeline,river,orwindsite)orrequiresthetransportationoffuel(e.g.,naturalgasorcoal)toitssite,andalsorequirestransmissionlinestocarryitsgeneratedelectricitytomarkets.Asaresult,theretendtobelocationimpactsandadditionaltransportationortransmissioninfrastruc-tureinvestmentrequirementsassociatedwithallchangesinthemixofgeneratingtechnologiesorfuelsources.
18.DataweretakenfromEdisonElectricInstitute,Statistical Yearbook 2011.The2011StatisticalYearbookreportstransmissionanddistribution(T&D)investmentsthrough2009.TheInstitutereleasedpreliminary2010investmentsasthisstudywasunderway.Acomparisonof2009and2010expendituresshowedthatoverall2009T&Dinvestmentswere98.4%of2010totals(inconstant2010dollars).Thisanalysiswentforwardwithdatafromthe2011StatisticalYearbook(2009data)becausethe2010and2009totalswereequivalentandthe2010datawerepreliminary.
19.ElectricPowerResearchInstitute,Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid,2011.Thisstudyalsoprovidedestimatesfortransmissionsystemimprovements,butgiventhatthefuturethatweusedfortheEasternInterconnectionPlanningCollaborativestudyalsoincludedsmartgridimprovements,wedidnotincludetheElectricPowerResearchInstituteestimatestobeconservative.
20.Thesestudiesdonotprovideregionalbreakdownsoftheirexpenditureestimates.Toestimatedistributioninvest-mentbyNERCregion,weobtainedFERCForm1dataondistributionadditionsbyindividualutilities.ThetotaldistributionexpendituresfromourFERCForm1datafor2001–8werewithin10%(andwithin5%formanyyears)ofthenationalestimatesinEdisonElectricInstitutedata.ByassigningeachutilitytoitsNERCregion,sharesofnationalspendingwereallocatedtoeachregion.Eachregion’srelativesharewasfairlystableoverthe10-yearperiod.Afive-yearaveragenationalsharewasusedforeachregiontoestimatetheregionalsharesofthebusiness-as-usualandsmartgriddistributioninvestments.
21.LaCommareandEto,2004.
22.DatafromtheElectricPowerResearchInstitute.
23.LaCommareandEto,2004.
24.Asnotedearlier,EIAexpectsthatelectricitygeneratedbydistributedgenerationwillgrowbyalmost17%peryearthrough2035.Thisrepresentsanearly36foldincreasefrom2012.Ifthatrateofincreasecontinuesto2040,elec-tricityproducedbydistributedgenerationwouldincrease77timestheprojected2012total.EIAexpectstherateofincreaseofkillawatthoursproducedbydistributedgenera-tiontobeconsiderablyhigherthanforanyothertechnology.(Source:EnergyInformationAdministration,FormEIA-759,MonthlyPowerPlantReport.2008and2009).
25.Personalconsumptionexpenditures(PCS)isaconceptfromtheU.S.BureauofEconomicAnalysisandisameasureofgoodsandservicestargetedtowardsindividualsandconsumedbyindividuals.
Failure to Act: The Economic Impact of Current Investment Trends in Electricity Infrastructure 51
16.Primen.The cost of power disturbances to industrial and digital economy companies.ReportTR-1006274,ElectricPowerResearchInstitute,2001.
17.SwaminathanS,SenRK.Review of power quality applications of energy storage systems.ReportSAND98-1513.SandiaNationalLaboratories,USDOE.1998.
18.U.S.-CanadaPowerSystemOutageTaskForce,FinalReportontheAugust14,2003BlackoutintheUnitedStatesandCanada:CausesandRecommendations.April,2004
19.U.S.DepartmentofEnergy.2011 Annual Energy Outlook,2011
20.U.S.DepartmentofEnergy.National Electric Transmission Congestion Study.December2009
21.U.S.EnergyInformationAdministration.Electric Power Monthly.March27,2012.
22.U.S.EnergyInformationAdministration.Electric Power Annual 2010.November2011.
23.U.S.EnergyInformationAdministration.How old are U.S. power plants?EnergyinBrief.August8,2011.Retrievedfromwww.eia.gov/energy_in_brief/age_of_elec_gen.cfminMarch2012.
24.U.S.EnergyInformationAdministration(EIA).Annual Energy Outlook (AEO) 2011(withProjectionsto2035).2011
25.U.S.EnergyInformationAdministration.“DistributedGenerationinBuildings”.PublishedAnnual Energy Outlook,2005.Retrievedfromwww.eia.gov/oiaf/aeo/otheranalysis/aeo_2005analysispapers/dgb.htmlinMarch2012.
26.U.S.EnergyInformationAdministration.Electric Power Annual 2010.2011
27.U.S.EnergyInformationAdministration.The National Energy Modeling System.2009
28.U.S.GeneralAccountabilityOffice.FederalElectricitySubsidies:InformationonResearchFunding,TaxExpenditures,andOtherActivitiesThatSupportElectricityProduction.October,2007
29.U.S.GeneralAccountabilityOffice.Transmission Lines: Issues Associated with High-Voltage Direct-Current Transmission Lines along Transportation Rights of Way.February2008
1.Clemmensen,ElectricPowerResearchInstitute.Estimating the Cost of Power Quality.IEEESpectrum,1993
2.Itron,Inc.CPUC Self-Generation Incentive Program: Cost-Effectiveness of Distributed Generation Technologies, Final Report.PreparedforPG&E.DavisCA,2011
3.EasternInterconnectionPlanningCollaborative.Phase I Report: Formation of Stakeholder Process Regional Plan, Integration and Macroeconomic Analysis.December2011.
4.EdisonElectricInstitute-Statistical Yearbook of the Electric Power Industry–2012,(preliminary2010DataTables).
5.EdisonElectricInstitute.Statistical Yearbook of the Electric Power Industry–2010(2009data).
6.ElectricPowerResearchInstitute,Estimating the Costs and Benefits of the Smart Grid: A Preliminary Estimate of the Investment Requirements and the Resultant Benefits of a Fully Functioning Smart Grid.2011.
7.FederalEnergyRegulatoryCommissionForm1data-base,2006:www.ferc.gov/docs-filing/forms/form-1/data.asp#skipnav.
8.Fink,S.,et.al.ASurveyofTransmissionCostAllocationMethodologiesforRegionalTransmissionOrganizations.Exeter Associates, Inc. Columbia, MarylandSubcontractReportforNREL,anationallaboratoryoftheU.S.DepartmentofEnergy,OfficeofEnergyEfficiency&RenewableEnergy,operatedbytheAllianceforSustainableEnergy.LLCNREL/SR-5500-49880.2011
9.GlobalEnvironmentalFund.TheElectricityEconomy:NewOpportunitiesfromtheTransformationoftheElectricPowerSector.2008
10.LaCommareKHandJHEto.Understanding the cost of power interruptions to U.S. electricity customers.ReportLBNL-55718.LawrenceBerkeleyNationalLaboratory,USDOE,2004
11.MidwestIndependentTransmissionSystemOperator(MISO).MISO Multi-Project Value Portfolio Results and Analyses.January,2012
12.MidwestIndependentTransmissionSystemOperator(MISO).“MidwestTransmissionExpansionPlan(“MTEP”)”,Attachment FF Transmission Expansion Planning Protocol Version: 3.0.0 Effective: 3/22/2011
13.NorthAmericanElectricReliabilityCorporation,Long-term Reliability Assessment Projection,October2007andNovember2011.
14.OfficeofElectricityDelivery&EnergyReliability.“SmartGrid”.Accessedathttp://energy.gov/oe/technology-development/smart-gridinMarch2012.
15.Owens,DavidK.Electricity: 30 Years of Industry Change.EdisonElectricInstitute.(MSPowerPoint)2008.
★|reFerenCes
52 American Society of Civil Engineers
aCknowlEDGmEnTS
EDRGroupwishestothankBrianPallasch,EmilyFishkin,JaneHowellandBrittneyKohler,aswellasASCE’sCommitteeonAmerica’sInfrastructure,fortheopportunitytoconductthisresearch.WegratefullyacknowledgetheassistanceofJeffreyWerling,RonHorst,andDougMeadoftheUniversityofMarylandEconomicsDepartment.Inaddition,wewishtothankPeggySuggsandstaffoftheEdisonElectricInstituteforprovidingitsdata.
aBoUT eDR GRoUp
Economic Development Research Group, Inc. (EDR Group), is a consulting firm focusing specifically on applying state-of-the-art tools and techniques for evaluating economic development performance, impacts, and opportunities. The firm was started in 1996 by a core group of economists and planners who are specialists in evaluating the impacts of transportation infrastructure, services, and technology on economic development opportu-nities. Glen Weisbrod, the president of EDR Group, was appointed by the National Academies to chair the TRB Committee on Transportation and Economic Development.
EDR Group provides both consulting advisory services and full-scale research projects for public and private agencies throughout North America as well as in Europe, Asia, and Africa. Its work focuses on three issues:
★economic impact analysis ★benefit/cost analysis ★market/strategy analysis
The energy work of EDR Group includes studies of benefit/cost, economic impacts and program evaluation for both supply-side and demand-side programs, policies and projects. The firm’s work is organized into three areas: (1) general research on investment benefit and productivity implications; (2) planning studies, including impact, opportuni-ties, and benefit/cost assessments; and (3) evaluation, including cost-effectiveness implications.
Senior staff at EDR Group have conducted studies from coast to coast in both the U.S. and Canada, as well as in Japan, England, Scotland, Finland, the Netherlands, India, and South Africa. EDR Group is also nationally recognized for state-of-the-art analysis products, including the REEM framework (Renewables & Energy Efficiency Model).
aBoUT La capRa associaTes
La Capra Associates is an independent consulting firm which has specialized in the electric, natural gas and water industries for over 30 years. Our expertise includes power systems planning, transmission planning and studies, load forecast-ing, reliability assessments, ratemaking and rate design, market policy and analysis (wholesale, retail, and renewable), power procurement and portfolio management, economic/financial analysis of energy assets and contracts, and regulatory policy. Our firm provides services to a broad range of organizations involved with energy markets, including public and private utilities, energy producers and traders, financial institutions and investors, consumers, regulatory agencies, and public policy and energy research organizations.
La Capra Associates is a full-service, independent energy consulting firm focused on helping our clients make sound policy, planning, investment, pricing, and procurement decisions. We provide each client with objective analysis and strategic advice to help them navigate the complexities and uncertainties of market and regulatory environments. La Capra Associates has a national practice with experience in a broad range of regulated and competitive market environments, as well as proficiency with energy sector policy in developing countries.
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