Private investment in electric transmission has quintupled from $2.7 billion in 1997 to $14.1 billion in 2012.
Private electric utilities in America have been doing something surprising over the past ten years – they have been investing a lot of money in power lines and other electric-transmission infrastructure. (Chart)
Why is that surprising? Because it comes after investment plummeted between the 1960s and 1990s. And it comes despite the fact that America’s demand for electricity is growing very slowly, at less than 1 percent per year. So what suddenly changed?
First, some numbers: According to a new Energy Information Administration (EIA) analysis, private investment in electric transmission has quintupled from $2.7 billion in 1997 to $14.1 billion in 2012:
The short story is that electric utilities built a lot of new power lines between the 1900s and the 1960s as electrification spread throughout the United States. But by the 1970s, the country was basically saturated with power plants — and investment declined.
That’s changed in recent years, the EIA notes, as the US electricity system has shifted in a few important ways. A few important things are going on:
1) The grid is aging — and blackouts are becoming a bigger concern. All that existing transmission infrastructure is starting to get old and creaky. And that, experts have found, makes blackouts more likely. Between 2000 and 2004, there were 149 power outages that affected 50,000 people or more. Between 2005 and 2009, that rose to 349, according to Massoud Amin of the University of Minnesota.
That includes the massive 2003 blackout in the Northeast that left 50 million people without power. So, in 2005, Congress passed legislation that would give utilities more incentive to improve the reliability of the grid. That’s one reason for the uptick in investment. (Though a 2012 report from the National Research Council found that these upgrades were still insufficient.)
It’s also worth noting that the 2009 stimulus bill provided new money to modernize the grid and boost reliability — and about $3.4 billion has been disbursed so far. If that money was matched by additional private investment (as the Department of Energy claims), it would be reflected in the chart above.*
2) Renewable energy is becoming more popular. Thanks to federal tax incentives and state-level mandates for renewable energy, energy sources like wind and solar have grown rapidly in recent years — with wind going from virtually nothing in 1997 to generating 4% of US electricity in 2013.
The catch? Companies can’t just plunk down wind farms next to existing power lines — they have to go where the wind is. So, in turn, power companies have to build new transmission infrastructure.
3) More people are moving to the South. Yes, demand for electricity has grown very slowly — at less than 1 percent per year between 1997 and 2012. (That’s partly due to improvements in energy efficiency.)
But the US population has also shifted, with more and more people moving to the South and West. You can see that in this neat map showing the “center of gravity” for the US population:
All those new homes in the South and West need air conditioning, and that, in turn, means more transmission infrastructure.
4) The electricity system has become deregulated. Since the 1990s, large portions of the US electricity system have become deregulated — which in many cases means that utilities have more choices for where to buy their electricity. But that, the EIA notes, has spurred some utilities to spend more on power lines.
Now, there are a few other factors here — among other things, the price of commodities has surged with the rise of China, which means that the price of materials for things like transformers has gone up. But those are some of the biggest changes at work here.
Photo credit: Labor Tribune