EnergyBiz - January/February 2008 - (Page 60) » Guidebook Transmission Drivers attracting capital By eDWarD M. stern nov eL a pproaches a r e sUcceeding in (GuesT opinion) financing critically needed new transmission infrastructure. Consider the story of the on-time, on-budget completion of the Neptune underwater transmission cable project between New Jersey and New York in June of 2007. A 660-megawatt, 500-kilovolt direct current line built at a cost of more than $600 million, Neptune was a success story on several levels. Technologically, it represented state-of-theart alternating current-to-direct current conversion technology that has performed almost flawlessly since starting commercial operation, with availability of Edward Stern more than 99 percent. Environmentally, it minimized impacts on resources and the public by installation underground and under water along its entire 65-mile route. Economically, it provides long-term cost savings that its customer, the Long Island Power Authority, has estimated to be in the range of a billion dollars. Of at least equal significance for the future, the Neptune cable thus far is one of the few major transmission infrastructure projects to have been entirely financed by private investors. Although the traditional self-build approach taken by utilities, with assured, regulated returns, remains valid, the Neptune project – which obtained an investment grade rating – demonstrates that there is plenty of room for new financing approaches that tap into vast and varied capital markets both in the United States and abroad. The Neptune team is already looking ahead to other transmission development and investment opportunities using these innovative approaches, many in cooperation with utilities and regional transmission organizations. The proposed Hudson transmission project, which has been selected by the New York Power Authority to bring at least 500 megawatts of power from PJM to New York City, will be a second underwater cable, this time under the Hudson River. We expect Hudson to essentially follow the Neptune model in terms of financial structure. In New England, we are pursuing the “Green Line,” an underwater direct current cable with the potential both to strengthen the regional transmission system and to export hundreds of megawatts of new renewable energy from Maine to the greater Boston area. Neptune, Hudson, and Green Line represent a spectrum of different reasons why we expect doors to open to new capital sources for transmission. For Neptune and Hudson, the principal driver is pure supply-and-demand economics. These lines supply less-expensive power from one system to another, higher-cost system, and the difference in energy and capacity prices between the two markets more than offset the capital cost of the line. But there are other, equally valid incentives for private capital to invest in major transmission facilities. One is the need for increased reliability, as determined by RTOs. The cost of reliability improvements can run into the billions, and there is ample evidence that private investors – often in partnership with affected utilities – will consider a rate-based return, particularly in light of the Federal Energy Regulatory Commission decision to provide somewhat higher returns to encourage needed transmission. Perhaps an even more important incentive for more transmission is the ever-increasing demand for renewable energy such as wind. Transmission systems must be significantly strengthened to bring remotely located renewable generation to its end users. In New England and New York, for example, the Regional Greenhouse Gas Initiative and renewable portfolio standards will require cleaner A Long Island station converts direct current to alternating current. Photos By JEffrEy holmEs 60 E n E rgyB i z January/February 2008
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