Renewable Energy Goals Powering Investment in North American Electricity Transmission

Includes: IGE, IYE, VDE, XLE
by: Research Recap

Fitch Ratings expects the growing investment by utilities in U.S. electric transmission infrastructure will continue, with another $23.3 billion in spending expected over the next two years.

Transmission investment has increased steadily over the last ten years, more than doubling between 2000 and 2010. While capital spending by U.S. electric utilities has been rising over the past decade, the share of total capex represented by electric transmission also increased. In addition to the reliability impetus for the initial round of transmission spending, specifically avoiding repeats of the 2003 Blackout, another key driver for future transmission investments will be to bring power from renewable generation to faraway load centers.

Renewable energy now accounts for 9.1% of total electricity produced in the country, and is projected by the Energy Information Administration to have 17% of electricity market share 2035. Several federal and state laws and regulation - including The Energy Policy Act of 2005, state renewable portfolio standards, and federal transmission policy - will continue to foster this growth.

From a credit perspective, Fitch expects that utilities with large transmission projects will be able to finance their capital expenditures consistent with their current ratings. Fitch notes however that utilities are facing multiple sources of future capital spending, as well as some regulatory uncertainties that could place negative pressure on operating cash flows and therefore lead to possible negative rating actions.

from Fitch Ratings Transmission Investment Continues to Rise (Premium)