Title: Building the Grid: Aligning Utilities and Developers on the Next Wave of Transmission
Speakers: Brian Fineman and Brian C. Harms
Brian Harms (00:06):
Hey, Brian. Good to be here to talk about our aging infrastructure and the need for new transmission development in the US, especially in light of the significant uptick in large load, i.e., data centers.
Brian Fineman (00:18):
Yeah, Brian, good to be with you as well.
I think if you’re reading the news these days, you’re certainly seeing a lot of stories about big technology companies interested in co-location of generation behind the meter at data center sites.
But I think in order to serve the enormous AI demand, we’re going to continue to see front-of-the-meter growth, particularly because it’s sort of an all-of-the-above strategy when it comes to bringing in different generation to serve that demand, and that obviously includes renewables. And so you’ve got to meet the generation where it is.
Brian Harms (00:53):
I think we’re going to continue to see a lot of transmission development being talked about, being pursued, because we need to bring that power from wherever it is.
Brian Fineman (01:07):
Yeah, agreed.
Brian Harms (01:09):
As you’re saying that, I think to myself, hey, where’s the solar plant going to be? It’s going to be out in the desert. Where’s the wind project going to be? It’s going to be up on a ridge. Is that where the load is? Not necessarily. Sometimes it is, sometimes it isn’t. So it’s absolutely agreed.
I see the same things in terms of data centers looking to self-build or kind of have self-generation behind the meter co-locate. I think there’s some fact to that. There’s some good reason for that, which is the transmission development timeline is a long one.
And so instead, if they feel like, “Hey, we need the power immediately,” sometimes that’s going to make more sense. But that option has become a little harder these days. It’s something that you and I have talked about many times on “The Brain Drain,” in terms of keeping these fulsome development teams on staff over long periods of time, and transmission takes a long time, and sometimes folks are moving in and out, and so it makes it a little bit more difficult to be able to do that.
Brian Fineman (02:09):
Yeah, I think that’s right. We’ve seen development timelines on transmission projects that, they’re obviously numerous years, but sometimes they’re a decade or more. And so with that type of a timeline, and in sort of the modern workforce of today, it is hard to keep continuity on a development team at a utility in that way.
I think one of the alternative structures is to work with transmission developers around build transfer agreements. These transmission developers, this is their bread and butter. It’s what they do. And a build transfer agreement allows you to have a project brought to the owner where the owner doesn’t pay until substantial completion, when the project is ready to transmit power.
And so there’s a lot of use for that, and I think that while there’s some additional costs that are incurred in that structure for the owner, and certainly there’s a developer premium, it can give more certainty to the utilities, which is valuable when you’re working in the context of dealing with public utility commissions and approvals and the ability to recover costs.
Brian Harms (03:25):
Yeah, absolutely. I think risk allocation is obviously the key. I think at the end of the day, you’ll have buyers, which are ultimately the utilities, transmission owners, transmission providers. They’ll be open to this increased cost for someone who’s actually on the ground and can kind of have that understanding of what’s going on.
Sometimes the utilities will have those same kind of maybe relationships, but not all the time. And so having one party who’s able to do that, to be able to tell them, “Hey, this is what we expect in terms of what’s going to be built.” Because there’s always the technical side, “Hey, we want this to be built.” Get that built to the expected outcome, and I think everybody pretty much becomes happy.
Brian Fineman (04:16):
Yeah, I think that’s right. Utility owners are focused on a project that’s turnkey, that’s ready to go, and so I do think they’re willing to pay for that. The costs need to be prudently incurred, and that needs to be demonstrated.
But I think one of the main advantages of a BTA is you can structure it around a firm date construct, which allows you to have a checkpoint, usually at the end of development, before the EPC contractor begins construction, where you’re checking in to make sure that the permits are in place, that the real estate’s in place, the owner was able to get their regulatory approvals.
And so there are reasons why both parties are benefited from a firm date where there are CPs that are negotiated upfront, conditions precedent, and both parties are striving to meet those, and it provides some protection for both the developer. If there are fatal flaws in the project, the developer has an off-ramp, as does the owner. And so that can be a very useful structure.
Obviously, the devil’s always in the details, and that’s what we spend a lot of time negotiating, but it is a workable structure and one which we’ve used many times.
Brian Harms (05:34):
Yeah, absolutely. I think what’s interesting is that you have that structure for risk allocation, and then a lot of times on any kind of a big project, we’ve seen it for decades in terms of big generation, you’ll see co-ownership structures of one type or another.
And it could be BTAs, it could be self-builds, it could be anything, but you see folks, that’s just another way to manage cost, to manage risk allocation. I think it’s really interesting in terms of the transmission, because you could actually look at multiple circuits and other methods to just create more benefit for co-owners in dealing with a new transmission development.
Brian Fineman (06:15):
Yeah, co-ownership structures are intriguing for a number of reasons. You can set up a co-ownership structure where you have two owners, it could be two utilities, owning transmission assets on the same line when you have a double circuit set up.
You can have a transmission developer build a double circuit and retain one of the circuits for themselves and sell the other. And then you can also have lease structures as well, so there’s a whole other pathway there.
I think when we think about sort of the value there, it allows sort of the socialization of costs, particularly when it comes to O&M expenses. There’s an ability to share those costs, and that can be very valuable when you’re talking about modeling the long-term economics of the project. And so we’ve seen an interest in that, and we’ve seen those sorts of projects moving forward as well.
So I think it really comes down to owners and transmission developers finding common ground. And there’s got to be a trust developed, and the BTA is really a mechanism to memorialize what that agreement is so that there’s a clear process to get the project to completion.
So, Brian, great talking to you on this topic today. I think it’s one that’s very salient with everything that’s going on, and look forward to talking with you on it some more.
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