The majority of the large public and private utilities participating in the most recent Newton-Evans CAPEX Outlook study are poised to continue many of their long-term capital investment programs as had been originally planned back in January of 2008. However, in several instances, these capital intensive projects have been deferred from their initial planned start-up dates for from three to nine months, or even longer, with some plans pushed back late into 2010 or into 2011.
In the June 2009 tracking study released by the Newton-Evans Research Co., a significant majority of the 118 electric power grid officials from 36 countries participating in the CAPEX and O&M budget planning study indicated that capital spending for control systems, substation automation, smart grid-related programs and advanced metering rollouts remain “on the table” albeit with some pushback in timing. However, a number of planned investments for transmission and distribution grid infrastructure components have been deferred for this year, and are not expected to rebound until the third or fourth quarter of 2010. During the summer months interviews with manufacturers confirmed this sentiment.
”In discussions with first tier and second tier manufacturers serving the U.S. market over the past three months, it appears that the first quarter of 2009 was “not too bad” for T&D equipment suppliers and electric power automation systems integrators, in spite of very weak economic performance generally. However, these officials noted somewhat lower (5-10%) to sharply lower (15-25%) bookings for the second and third quarters of this year with cutbacks initiated at major utilities as industrial and commercial demand for electricity softened further and as retail electricity prices eroded somewhat” according to Charles Newton, president of Newton-Evans Research Co.
Newton-Evans now believes that T&D grid infrastructure spending for the first nine months of 2009 was down as much as 15%-25% in a number of equipment categories, including distribution transformers, capacitors, industrial switchgear and even several protection and control categories. This was in part a result of the overall 4.4% drop in electricity consumption in the US during the first half of 2009 coupled with an easing of retail electricity prices during the same period, along with lowered industrial purchases. However, Newton-Evans believes that at least some of the delay in equipment order placement may be currently related to the federal stimulus program, with utilities taking a “wait and see” attitude to learn if they are to become recipients of a grant under the ARRA smart grid funding provisions.
Reported to be on the upside during the first nine months of the year was increased spending for some smart grid building blocks, including FACTS devices and large power transformers. However, sales of some automation systems (new and upgraded control center-based systems and substation systems) also seem to be lower on a year-to-date basis. Projects related to advanced metering infrastructure (AMI) initiatives and for substation automation and new or upgraded grid control and monitoring capabilities have not met earlier expectations during the first nine of the year. Several vendors have pointed up the reverse effect that the ARRA stimulus fund grant proposals have also caused many utilities to take a “wait and see” attitude prior to approaching the capital markets and making commitment of their own funds.
Some utilities will clearly benefit from some of the smart grid-related and renewables integration projects under government stimulus funding provisions, while others will proceed in 2010 using their own sources of capital. AMI and related in-residence portion of smart grid will likely benefit from an uptick in spending by utilities that are awarded stimulus funds.
The total amount of capital spending for transmission and distribution of electricity by electric power utilities around the world for each year during the 2006, 2007 and 2008 periods were estimated by Newton-Evans to be in the range of $85-$105 billion. The 2009 global outlook is trending toward the very low end of that range. In the United States, annual capital investment in T&D equipment and systems has ranged from $15-20 billion in recent years. In 2009, Newton-Evans forecasts U.S. CAPEX investment in T&D will be in the $16-$17 billion range.
As stated in the Newton-Evans’ latest CAPEX tracking study, “In its July 2009 release, the U.S. Department of Energy’s EIA unit foresees only a 0.8% rise in electricity demand in the U.S. for 2010, following a likely 2.3% decrease in demand anticipated for 2009. When coupled with the International Energy Agency’s forecast of a 3.5% drop in global demand for electricity in 2009, this information supports the cautious investment outlook we are seeing here and abroad since our last survey in December. Two regional exceptions include some Asia-Pacific countries and some portions of the Middle East. These regions continue to grow their electric power infrastructure more rapidly than other areas.”
If industrial demand for electricity picks up even moderately by mid-2010, the outlay for CAPEX investment in distribution equipment and systems will likely reflect some increase by late 2010. Such an increase in demand would likely result in additional billions of dollars committed for smart grid and infrastructure investments going into 2011 and beyond. Transmission equipment sales also will benefit from a pickup in demand but more importantly, will be reliant on federal and state level approvals of siting arrangements and transmission line construction authorization. The federal level approvals have been significant early this year, but state-level reviews have been fraught with challenges, holding up several projects.