Investments In Global Electric Transmission Are
Increasing, Report Says
Aug 10, 2006 - Electric Energy
August 10, 2006 - Investment in electric
transmission assets is on the rise globally, and
these new outlays could have implications for credit
quality, according to a report published this week
by Standard & Poor's Ratings Services titled "Capital
Spending On Electric Transmission Is On TheUpswing
Around The World."
The report summarizes the dynamics
of the electric utility industry's transmission
segment in three major regions: Australia and New
Zealand, the U.K., and the United States. The common
theme of the continued need for more spending to
enhance reliability and wholesale markets is contrasted
against regional differences in the types of companies
that own transmission assets and the regulatory
oversight of the transmission owners.
Although the quality of transmission
assets varies between states within Australia's
national electricity market, there is no evidence
to suggest that any region is suffering to any significant
degree from material underinvestment. It is difficult
to identify the precise level of investment required
to maintain the integrity of the grids. However,
the sizable amount of recent capital expenditure,
robust reliability requirements and indicators,
and a supportive regulatory environment, indicate
that the quality of Australia's grid assets is sound.
The investment environment for New
Zealand's transmission system is hindered by the
nation's opaque regulatory regime. Indeed, the lack
of certainty threatens to delay substantial capital
spending that the government-owned transmission
corporation, Transpower New Zealand Ltd., believes
is necessary to maintain grid integrity.
The U.K. electricity transmission
networks, owned by National Grid PLC in England
and Wales, and by Scottish Power PLC and Scottish
and Southern Energy PLC in Scotland, have entered
a period of hugely increased investment due to the
aging of assets (nonload-related investment), and
the required increase in connections (load-related
investment) for new wind-farm and hydropower stations
in the U.K.
Investment in the U.S. transmission
system by investor-owned utilities has begun to
recover from a fallow period in the final decade
of the 20th century and is set to reach new heights.
According to the Edison Electric Institute, a 2003
survey of its members showed an intent by utilities
to increase capital expenditures on the transmission
grid by 60%.
"Some of the higher spending in recent
years can be fairly characterized as "catch-up"
after years of threatened--and then actual--industry
restructuring led utilities to hold back on making
financial commitments until responsibilities and
cost recovery became more certain," said Standard
& Poor's credit analyst Todd Shipman.
Now signs point to a renewed interest
by utilities in making strategic transmission investments
designed to improve market presence and financial
returns. Standard & Poor's believes the focus on
transmission expenditures on balance is beneficial
for credit quality, but important decisions that
will affect how risks are shared could still alter