Infrastructure investing has been a hot business sector for several years against a background of swift economic development in the emerging world and efforts by developed-world governments to limit the impacts of a grinding recession, energy infrastructure investment has continued to lag needs.
While investing in water or transportation infrastructure has links to energy both in the way deals are structured and in how the actual assets impact each other, energy infrastructure has some key differences, highlighted by the American Society of Civil Engineers in its recent report on Investment Trends in Electricity Infrastructure.
The sheer complexity of energy investing has become even more confounding for private companies and governments in recent years, as former EDF Chairman and CEO and current World Energy Council Chairman Pierre Gadonneix told Breaking Energy at the World Energy Leaders Summit in Istanbul recently. For more coverage of WELS and analysis of the increasingly “networked” global energy future read more here.
ASCE has identified four key differences for electricity infrastructure:
- Private ownership: Most electric energy infrastructure is privately owned by for-profit, investor-owned utilities. That doesn’t mean that power companies can do as they please, though. “Even with private ownership and operation, the rates that local utilities charge is generally regulated by state agencies, and there is also federal and state regulatory oversight of the operation of generating facilities and transmission systems,” ASCE points out.
- Technology choices for electricity generation: Even when limited by choosing one fuel type over another, the choices and trade-offs for generators choosing technologies are complex. A further layer of complexity is added by the potential for increased use of distributed generation that interacts very differently with the larger grid than the centralized “hub and spoke” system of power generation and delivery historically popular in the US.
- Change is happening faster for electric energy infrastructure: While opening up possibilities for companies to become more protected against the failure of any one kind of fuel supply chain or technology, the proliferation of choice is also posing a unique degree of uncertainty for a sector also grappling with a shifting regulatory structure. (Read more about the ever-evolving shape of US power regulations here). “Uncertainty about future prices of fossil fuels, regulations controlling greenhouse gas emissions, and rate of adoption for more renewable power portfolio options can all make it more difficult to forecast the future technology mix and its cost implications.”
- Deregulation has complicated the supply chain: Generation, transmission and distribution form the three major elements of electric energy infrastructure, and all have been disaggregated to various degrees by several decades of steady deregulation and occasional bouts of re-regulation. As customers receive more-itemized bills that break out their costs into those three elements a growing number are choosing to own generation equipment that “minimizes or eliminates their reliance on central power generation and transmission systems at least part of the time,” ASCE said.