Study: Utilities must invest $2 trillion for continued reliability

10 November 2008 — The U.S. utility industry will have to invest between $1.5 and $2.0 trillion between 2010 and 2030 to maintain current levels of reliable energy service for customers throughout the country, according to a new report issued today by The Brattle Group.

All types of new generation capacity will be needed, including natural gas, coal, nuclear, and renewables. Nearly 40 GW of new renewable capacity will be needed just to meet state requirements.

Significantly, capital spending to upgrade distribution and transmission facilities nationwide may surpass investment in new generation, the study found. Spending on “smart grid” technologies to ramp up efficiency — along with new power lines to integrate renewable electricity sources — will account for much of that spending.

The findings are detailed in “Transforming America’s Power Industry: The Investment Challenge 2010-2030,” presented by Peter Fox-Penner, a principal of The Brattle Group, at the Edison Electric Institute’s 43rd Financial Conference. The Edison Foundation sponsored the report.

The report, which follows highly publicized preliminary results introduced at an Edison Foundation conference, analyzes four possible scenarios that measure the impact of energy efficiency and demand response program implementation on investment needs and new plant construction.

In the base case scenario, which does not account for new climate policies, the total investment needs are projected to reach $1.5 trillion. Implementation of a federal carbon policy would significantly increase the capital cost and change the mix of new generation capacity; for instance, a simplified model of one scenario with carbon controls would require an increase in total capital spending to $2 trillion.

Another key finding in the study is a large potential reduction in the need for new generation capacity, due to the faster than previously estimated implementation of energy efficiency and demand response programs. In the preliminary results, energy efficiency was estimated to potentially reduce new capacity by 17 percent.

In the final results, the potential reduction in new capacity is projected to be approximately 38 percent. However, reductions in new required capacity will not correlate to an equal reduction in total investment due to the offsetting costs of implementing the efficiency programs.