Is HVDC Transmission Project Potential Just Lots Of Hype?

Renew Grid, Thursday July 05, 2012 - 00:00:00

If all of the planned transmission projects using high-voltage alternating-current (HVAC) and high-voltage direct-current (HVDC) technologies were to be built between now and 2020, cumulative global investment would be a little over $217 billion, according to Pike Research.

However, a new report from the research firm says that officially announced budgets and schedules for HVDC systems overstate the likely outcomes by nearly a factor of two. A more plausible scenario is that the cumulative spending for HVDC systems between now and 2020 will be between $110 billion and $120 billion.

HVDC market segments

Worldwide growth of electricity infrastructure is expected in order to meet increasing demand, and the transmission systems necessary to support this growth will be a mix of HVAC and HVDC. In the past, HVAC was typically used for interconnected short length lines and HVDC was used for long-distance point-to-point bulk power transmission. New developments in HVDC conversion technologies are beginning to blur that distinction, with HVDC also being considered for shorter, multi-terminal applications.

In addition, each technology now has its own constituency base, Pike Research says. There are some who argue that very large HVAC systems built within grid networks can satisfy new demand. Others argue that the future belongs to HVDC overlays that interconnect very large grid systems and, ultimately, enormous regions on a global scale.

Pike Research typically evaluates markets on a continental basis - e.g., North America, South America, etc. In the case of HVDC systems, a slightly different breakout is warranted. Although there are a few HVDC lines in South America and Africa, virtually all new construction is occurring in Europe, India, China and North America. Additionally, the Indian and Chinese programs have very similar drivers.

For the purposes of this report, the HVDC market was evaluated as four distinct regions: North America, Europe, China and India, and the rest of the world.

In North America, where 29 systems worth about 75 GW are planned, 75% of future investment in HVDC comes from merchant transmission companies due to the balkanized regulatory framework of the region. In Europe, where 23 systems worth approximately 20 GW are planned, large amounts of renewable energy generation are anticipated, along with the interconnection of many national grids.

Economic growth and the need to complete national electrification in China and India, where 33 systems worth about 266 GW are planned for both countries, result in the largest single market for HVDC systems. Meanwhile, in the rest of the world, a handful of very large projects - 12 systems worth 37 GW - dominate in regions with great need but very limited resources.

Market challenges

Although there is definitely a need for HVDC systems around the world, several challenges are expected to slow the massive project build-outs that have been predicted, according to Pike.

These challenges include the following:

- Traditional regulatory frameworks have the ability to disincentivize large transmission system construction in some regions, at one extreme, and thoroughly direct and ensure adequate construction at the other extreme.

- In a multinational or multi-state jurisdictional environment, the regulatory framework can actually discourage the involvement of electric utilities in any transmission investment from which part of the benefit flows outside a service territory or a national boundary. This is especially true where no tariffs exist for the recovery of costs, when benefits for ratepayers cannot be directly demonstrated.

- The availability of capital is a key factor, and the degree to which it is a factor varies among market segments.

- Right-of-ways (ROWs) for large transmission lines requiring the require significant amounts of land - much of which must be cleared of vegetation, cutting large swaths through forests. In some protected areas, routing is impossible. Moreover, transmission towers or pylons can dominate a view, especially if it was pristine before construction.

- Acquiring access to land through lease or purchase can be a major economic factor in the overall line cost. This factor has a strong influence on the ultimate routing chosen for the line. Rule-of-thumb costs of land for ROWs in the U.S. vary considerably.

"The planned systems require massive amounts of capital, are subject to the whims of regulatory and national energy policies, and will certainly change depending on the course of energy prices, energy demand growth and global economics - all of which are interrelated," says Bob Gohn, vice president at Pike Research. "Combined with the uncertainties of the global economy, these factors indicate that there is likely to be a significant gap between the planned level of investment in HVDC systems and the build-outs that will actually happen."

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