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July 20, 2015
Brattle Economists Show Record $20 Billion in Annual U.S. Transmission Investments Will be Sustained Over Next Several Years

Economists at The Brattle Group have released an updated study showing that transmission investment in the United States will remain strong over the next decade, with a projected $20 billion investment required annually over the next several years and at least $120 billion to $180 billion needed over the next decade.

Based on an analysis of annual transmission investment of investor-owned utilities using recent data submitted to FERC, the authors find that despite previous projections that transmission investment levels would decrease in the coming years, total transmission investments hit a new record in 2014. Based on data collected by the Edison Electric Institute, this level of investment is projected to be sustained for the next several years, which represents a significant upward adjustment to prior outlooks. The key drivers of the required investment include:

  1. Aging facilities: Most of the existing grid was built 40 to 50 years ago. If all facilities had to be replaced after 50 to 80 years, investment needs could increase by $5 billion per year over the next decade.
  2. Renewable generation additions to meet renewable portfolio standards (RPS) and other upcoming environmental standards or regulations, such as the EPA’s Clean Power Plan (CPP): An estimated $20 to $45 billion of transmission is still needed nationwide to support the ramp-up of existing state RPS requirements through 2015. Additional clean power sources needed to meet new environmental regulations would likely increase renewable generation-related transmission investments to $50 billion.
  3. Coal plant retirements replaced by new generation: Extrapolating from PJM experience, large-scale coal retirement projections, even without the CPP, will require at least $10 billion in transmission investment through 2025, and $20 billion under the CPP nationwide.
  4. Additional drivers for transmission investment include the need to improve interconnections between regional power markets; serve regions with high load growth in less developed portions of the grid transmission; and traditional drivers related to reliability needs, general load growth, and the interconnection of conventional generation interconnection.

The analysis also demonstrates that while there are significant opportunities for non-incumbent competitive transmission investment, the timing and level of such investments will vary significantly across regions. Even though many uncertainties such as the potential impact of environmental regulations and increasing uses of distributed generation on transmission needs is delaying the planning of valuable new infrastructure investments, the investment trend should continue steadily over the next few years because building a robust transmission infrastructure provides a wide range of values and helps to mitigate the risks associated with extremely costly grid conditions for customers,

The analysis was authored by Brattle principals Johannes Pfeifenberger and Judy Chang and associate John Tsoukalis.