New economic analysis reveals bright spots in grid investment, continued need for private funding to protect U.S. competiveness, mitigate job losses, drops in personal income
Reston, VA (April 26, 2012) – The nation’s aging energy facilities are in need of significant investments, according to a new report from the American Society of Civil Engineers (ASCE) that analyzes how current accelerating investments in the nation’s transmission, generation and distribution systems will prevent unnecessary costs to businesses and household budgets by 2020.
The nation’s energy network—much of which is funded through private investment—includes centralized electric generating plants with local distribution networks that feed into an interconnected network of transmission and distribution lines.
Extending current investment trends for these assets through 2020 shows an anticipated investment of $566 billion, but also reveals a $107 billion shortfall compared to needs. That investment gap is equivalent to approximately $11 billion in new funding needed each year until the year 2020.
Failure to Act: The Economic Impact of Current Investment Trends in Energy Infrastructure concludes that closing that gap would lead to fewer brownouts and blackouts and save American businesses $126 billion, prevent the loss of 529,000 jobs and $656 billion in personal income losses. America’s economic competitiveness would also benefit by protecting $496 billion in Gross Domestic Product (GDP) and $10 billion in revenue from U.S. exports.
Without new investment, service interruptions and capacity bottlenecks will contribute to more frequent and unpredictable service interruptions that impose direct costs to businesses and households. Those consequences will cost households $6 billion in 2012, $71 billion in total by
2020 and $354 billion in total by 2040. Businesses will pay $10 billion in 2012, $126 billion in 2020 and $641 billion by 2040 in avoidable costs.
”Just like the roads we use every day, when there are bottlenecks or congestion in our electricity infrastructure, it affects everyone. And fewer disruptions mean real money to American businesses and households,” said Andrew W. Herrmann, P.E., president of ASCE. “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.”
Grid Investments Most Urgent
The nation’s complex, patchwork system of regional and local power plants, power lines and transformers varies widely in age and capacity. However, the state of the nation’s grid is in the worst shape with 70 percent of transmission lines and power transformers aged more than 25 years and 60 percent of the nation’s circuit breakers currently more than 30 years old.
By 2020, the analysis showed that distribution and transmission infrastructure needs will account for more than 88 percent of the investment gap while generation infrastructure represents roughly 11 percent.
Positive Investment Trends
While the report identified a funding gap through 2020 and beyond, the need is not insurmountable. Investment in electricity infrastructure has experienced an upturn in the last decade and previous estimates of the negative economic impacts have been partially reduced.
From 2001 through 2010, annual capital investment in transmission and distribution infrastructure averaged $62.9 billion, including $35.4 billion in generation, $7.7 billion in transmission and $19.8 billion in local distribution (in 2010 dollars).
However, more investment is needed to further reduce the incidence of service disruptions to households and businesses and prepare for a continued evolution toward a smart grid system. The need to maintain and update existing electric energy infrastructure, adopt new technologies and meet the demands of a growing population and evolving economy will impose significant requirements for new energy infrastructure investment.
“The outlook for our grid and the system overall is good because the rate of investment has increased substantially in the past few years. In fact, the total needs projected for each year between 2012 and 2020 fall within the range of spending seen between 2001 and 2010. We saw an increase from $44 billion to a high of $101 billion in that timeframe, and so if spending keeps pace we will be able to close the gap,” said Steven Landau of the Economic Research Group of Boston, the lead author of the report.
Regional Differences
Divergence in demand for electricity across different regions of the U.S. is not expected until the 2021-2040 period. Longer term projections show significant regional differences in demand with a 40 percent expected increase in Florida, 34 percent increase in western states and a 20 percent increase in the mid-Atlantic region. Regionally, the funding gap for all three sectors (generation, transmission and distribution) will be highest in the Southeast, the West and the mid-Atlantic area, and lowest in the Southwest and Florida.
Report Methodology
Compiled by the Economic Research Group of Boston in coordination with ASCE, the report uses a “trend scenario” that presumes the mix of electricity generation technologies (e.g. oil, natural gas, coal, nuclear, hydro, wind, solar) continues to evolve as reflected in recent trends. U.S. Energy Information Administration data was used for demand projections.
The analysis accounted for the nation’s approximately 5,800 major power plants and numerous other smaller generation facilities; 450,000 miles of high-voltage transmission lines that connect those facilities to population centers; and the local distribution systems that bring electric power into homes and businesses via overhead lines or underground cables.
The full report and infographics can be found at www.asce.org/failuretoact.