$75B needed annually to keep generation, U.S. grid system running smoothly — report
The report, one of a series updating ASCE’s 2009 “Report Card for America’s Infrastructure,” concludes that such shortfalls could have major economic implications for U.S. homeowners and businesses as they are forced to cope with higher electricity prices and other costs associated with an inefficient electricity system.
“Just like the roads we use every day, when there are bottlenecks or congestion in our electricity infrastructure, it affects everyone,” ASCE President Andrew Herrmann said in a statement. “This report shows that when we make the necessary investments in our energy infrastructure, we see tangible results for our economy, American businesses and family budgets.”
Conversely, the report concludes, “If future investment needs are not addressed to upgrade our nation’s electric generation, transmission and distribution systems, the economy will suffer.” For example, gross domestic product would take a $496 billion hit by 2020, worsening to $1.95 trillion by 2040, if utility investment doesn’t keep pace with electricity demand, the report says.
The economic pain would be most acute in the nation’s fast-growing regions — notably the Southeast, West and mid-Atlantic — as aging infrastructure and transmission bottlenecks conspire to create headaches for consumers, according to the ASCE report, written by the Economic Development Research Group of Boston.
“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,” states the report. “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.”
Pay now, or pay more later
Overall, ASCE projects that such problems would cost the economy $20 billion annually between 2012 and 2020, and $33 billion annually through 2040. Businesses will bear the largest economic brunt, $126 billion by 2020, while households will face $71 billion in impacts over the same period, according to the report. Moreover, “These costs incurred by failing to close the investment gap are higher than the investment itself,” the report concludes.
To adequately close the funding gap, ASCE estimates that utilities and transmission line owners will need to invest $75 billion a year between 2012 and 2020, a level ASCE believes “is within reach” based on recent spending trends. From 2001 to 2010, annual capital investment in transmission and distribution infrastructure averaged $62.9 billion in 2010 dollars ($35.4 billion for generation, $7.7 billion for transmission and $19.8 billion for local distribution), according to industry estimates.
In a statement, Steven Landau, the lead author of the report, expressed optimism that with consistent spending levels over the coming decade, “the outlook for our grid and the system overall is good.” He added, “If spending keeps pace, we will be able to close the gap.” A more robust power grid is believed to be essential to the growth of renewable energy and electric vehicles, two ways the United States may be able to reduce greenhouse gas emissions.
Dan Riedinger, a spokesman for the Edison Electric Institute, which represents investor-owned utilities in Washington, D.C., said in an interview that infrastructure investment over the past several years has amounted to roughly $80 billion annually, and that such spending levels will continue into the future.
“We’re obligated under state regulations to meet customer demand, and obviously, we’ve always gotten there,” Riedinger said. He noted that utility investment is strongly tied to capital markets, and that money could become tighter if Congress raises taxes on dividends from the current 15 percent rate, as has been proposed by the Obama administration.
But even with robust investment, the end result “will not be a perfect network for electricity generation and delivery, but rather one that has dramatically reduced, though not eliminated, power quality and availability interruptions,” the ASCE report said.
Greatest near-term need is transmission
Just as an infrastructure funding gap would not be uniform across the country, neither will the types of investments needed to keep the system running smoothly.
ASCE found that 88 percent of investment needs from 2012 to 2020 will be in the transmission and distribution segments of the electricity system, while spending on generation assets — including fossil and nuclear power plants, wind and solar farms, and other alternative energy plants — will be mostly sufficient to meet average annual demand growth of roughly 8 percent.
By 2040, however, the priorities will shift, as generation infrastructure becomes the costlier element of the electricity system, accounting for 55 percent of the investment gap, according to ASCE, while transmission and distribution shrink to 15 percent and 30 percent, respectively.
Also, differences in regional needs will grow more pronounced between 2021 and 2040, with states like Florida expected to see power demand increases of nearly 40 percent, roughly 14 percent higher than the national average. Significant demand growth is also expected in a number of Western states, as well as in the mid-Atlantic region, according to data compiled by ASCE from the U.S. Energy Information Administration.
The report notes that investments that shore up electric reliability will only become more critical as “the nation moves toward increasingly sophisticated use of information technology, computerized controls and sensitive electronics.”
The ASCE report is the second in recent weeks to address the challenges of meeting rising electricity demand in the decades ahead.
Another recent analysis from the nonprofit group Ceres, which advocates for adoption of clean energy technology, noted that the next major electric utility buildout would cost as much as $100 billion a year, and that such investments are fraught with risk to utilities, investors and ratepayers (ClimateWire, April 20).
The Ceres report, which was aimed at state public service commissions, called for alternative solutions to the electricity supply-and-demand problem, including diversification of fuel sources, investment in advanced generation and grid technologies, and greater use of demand-side tools such as energy efficiency programs and smart-metering to help offset rising demand.
Click here to read the ASCE report.