Utilities (IDU) wanted to enhance their operational efficiency when their top line grew. However, the earnings failed to impress. Therefore, they turned their focus towards expanding their transmission and distribution segments in order to attain cost advantages.
According to data compiled by the Edison Electric Institute (EEI), utility companies invested $19.5 billion in transmission infrastructure in 2015. These utilities will likely spend $85 billion on transmission projects from 2015 to 2018.
Let’s look at utilities’ capital expenditure trends.
Spending on generation
Due to electricity’s slow demand growth, the investments in power generation were modest. The capital spending on power generation rose by 2% on a dollar basis during 2013–2015. However, power generation is still the segment where utilities spend most of their capital expenses. A shift from coal-fired power plants to natural gas-fired plants remains the key driver for higher spending in the power generation segment. It’s important to note that ~60% of utilities’ capital expenses are spent on power generation. Distribution accounts for 30% of the expenses. Transmission accounts for 10% of the overall expenditure.
Transmission and distribution investment highlights
Dominion Resources (D) is planning to invest $1.2 billion per year in transmission and development in Virginia from 2015 to 2020. The primary motive behind this investment is to achieve cost competitiveness and enhance its customer base in Virginia. NextEra Energy’s (NEE) subsidiary Florida Power and Light expects to invest $3–$4 billion in transmission and distribution infrastructure from 2015 to 2018 mainly to implement smart grid technology and system expansion. Duke Energy’s (DUK) regulated operations will invest $9.6 billion in grid modernization between 2015 and 2020. American Electric Power (AEP) is also focusing investments on clean energy infrastructure options that will provide green electricity. As part of the plan, more than $9.3 billion of the $13 billion planned capital expenditure will be invested in the transmission business.