Published 2Q Gerry Runte Industry Analyst. Bob Gohn Vice President, Research. High-Voltage Direct Current Transmission Systems

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1 EXECUTIVE SUMMARY: High-Voltage Direct Current HVDC System Planning, Economic and Technology Issues, Market Drivers and Uncertainties, and Key Industry Players: Global Market Analysis and Forecasts NOTE: This document is a free excerpt of a larger report. If you are interested in purchasing the full report, please contact Pike Research at sales@pikeresearch.com. Published 2Q 2012 Gerry Runte Industry Analyst 0 Bob Gohn Vice President, Research

2 Section 1 EXECUTIVE SUMMARY 1.1 High-Voltage Like much of the electricity grid, high-voltage transmission systems in service today rely on many of the same technologies that existed at their conception over 100 years ago. In the last 20 years, however, transmission technologies have benefited from innovation. Advances were first spurred by the deregulation and privatization of wholesale power markets and then further accelerated by the following factors: Growth in electricity demand and its concomitant effect on transmission system stability Continued electrification in developing countries Interconnection of renewable generation distant from population centers Need to increase capacity and reduce line losses to offset the diminishing capacity in existing systems Thus, very large capital investments are being made to build new and often very large capacity transmission networks. Funds are also being directed toward R&D in transmission components and control technologies. Many of the new large-scale transmission projects planned or under construction are high-voltage direct current (HVDC) systems. The remainder consists of high-voltage alternating current (HVAC) systems High-Voltage Direct Current Although the first few true commercial electricity delivery systems used direct current (DC), alternating current (AC) quickly overtook DC as the technology for all transmission and distribution of electricity. DC use only reemerged in the early 1950s with the construction of Gotland 1, the first commercial HVDC link. Gotland 1 was an undersea cable connection between the island of Gotland and the Swedish mainland. It was rated at 100 kv and 20 MW and used technology developed at ASEA, ABB s predecessor. Subsequently, Gotland 1 was followed by a number of other HVDC links, primarily for specialized applications such as underwater cables. In the last decade, step changes in the capacity of HVDC converters the facilities that convert AC to DC or DC to AC have allowed for significant growth in HVDC projects across the globe. 1.2 HVDC Market Segments and Drivers Worldwide, electricity infrastructure must grow to meet increasing demand to support economic growth. The transmission systems necessary to support this growth will be a mix of HVAC and HVDC. In the past, the two technologies were differentiated by HVAC for interconnected short length lines and HVDC 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 has its own constituency base. 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. 1

3 Pike Research typically evaluates markets on a continental basis, i.e., North America, South America, etc. In the case of HVDC systems, a slightly different breakout is warranted. While 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, each with their own distinct market drivers. They include: North America: Where 75% of planned future investment in HVDC comes from merchant transmission companies due to the balkanized regulatory framework of the region Europe: Where enormous amounts of renewable generation are anticipated, along with the interconnection of many national grids China and India: Where enormous economic growth and the need to complete national electrification are resulting in the largest single market for HVDC systems Rest of World 1 : Where a handful of very large projects dominate in regions with great need but very limited resources 1.3 HVDC Market Challenges The relative impact of each of the many challenges discussed below differs from one market segment to the next. However all are playing and will continue to play roles in the growth of the HVDC market. 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. If every system that has been announced for commissioning between now and 2020 is actually built, the cumulative global capital requirements for HVDC systems would be a little over $217 billion. Thus, the availability of capital is a key factor. The degree to which it is a factor varies among market segments. Capital is a major constraint in the Rest of World region, as evidenced by the very limited number of HVDC projects planned and the relative skepticism about their viability. Right-of-ways (ROWs) for large transmission lines require rather significant amounts of land. Much of that land 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. 1 Includes Asia-Pacific (excluding China and India), Latin America, Middle East, and Africa 2

4 Acquiring access to that 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 United States vary considerably. 1.4 HVDC Systems in Construction or Planned The sheer number and scale of planned HVDC system buildouts is staggering. Table 1.1 presents a few metrics on systems that have been planned for commissioning between 2012 and Figure 1.1 HVDC Systems Planned for Commissioning by Region, World Markets: Region Number of Systems Overhead Line and Cable (km) Total Capacity (MW) North America 29 26,992 75,150 Europe 23 5,772 20,220 China and India 33 60, ,700 Rest of World 12 25,120 37,110 Total , ,180 (Source: Pike Research) 1.5 HVDC System Market Forecasts Table 1.1 above provides a quick snapshot of HVDC systems in construction or announced/planned. Planned and probable market forecasts for HVDC systems are, however, very different. 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. In order to capture the role of uncertainty in such a forecast, Pike Research developed two categories in this report: Market forecasts based on planned or announced systems (as currently advertised) with limited judgment applied as to the overall costs and timing of certain projects A range of forecasts that employ a probabilistic approach In both categories, the forecast is based announced public projects. New projects conceived within the forecast period are unlikely to have major market impact within the forecast period. 3

5 Chart 1.1 presents the global project spending forecast for HVDC systems as currently advertised. Chart 1.1 Cumulative Spending, Planned HVDC Systems, World Markets: $250,000 $200,000 ($ Millions) $150,000 $100,000 $50,000 $ (Source: Pike Research) 4

6 Pike Research believes that a much more appropriate way to present this particular market is through a range of probable outcomes based on a number of possible global and regional scenarios. Each of the market segments has its own characteristic set of uncertainties that result in quite a variation in the spread of possible global market size. Chart 1.2 presents a probability distribution of the potential cumulative investment between 2012 and Pike Research believes there is an 80% probability that the cumulative spending for HVDC systems between 2012 and 2020 will be between $110 billion and $120 billion. Chart 1.2 Cumulative HVDC Systems Spending Probability Distribution, World Markets: % 6% 80 % Probability Range 5% (Probability) 4% 3% 2% 1% 0% $106 $109 $113 $117 $121 $124 $128 ($ Billions) (Source: Pike Research) On a probabilistic basis, it is Pike Research s conclusion that a forecast based on the officially announced budgets and schedules for HVDC systems overstate the likely outcomes by nearly a factor of two. 5

7 Section 9 TABLE OF CONTENTS Section Executive Summary High-Voltage High-Voltage Direct Current HVDC Market Segments and Drivers HVDC Market Challenges HVDC Systems in Construction or Planned HVDC System Market Forecasts... 3 Section Market Issues Electricity Transmission Markets High-Voltage Transmission Alternating Current and Direct Current Defined HVDC HVAC and HVDC Compared Operational Differences Economic Considerations HVDC and UHVDC HVDC Benefits Summary Global Demand Drivers Global HVDC Market Drivers Electricity Demand Energy Poverty Technology Advancements Regional HVDC Market Drivers North America Europe China and India Rest of World HVDC Market Challenges Land Use Capital Regulatory Policies United States Europe China India HVDC and the Smart Grid Efficient Infrastructure Intelligent Hardware and Controls Section Technology Issues HVDC Technology Overview Primary Components of HVDC Systems Converter Technology Current Sourced Converter Voltage-Sourced Converter

8 3.1.3 Cables and Conductors Mass Impregnated Submarine and Underground Cables Extruded Submarine Cables Overhead Conductors HVDC System Configurations and Operating Modes Submarine Interconnections Undersea National Grid Interconnections Connecting Wind Farms and Offshore Power Generation Power Supply to Offshore Facilities Technology Development Converter Technology HVDC Breakers Superconductors Installed System Cost Metrics Hypothetical HVDC Line Cost Parameters Financing Assumptions Comparison with HVAC Alternatives Section HVDC System Applications Connecting HVAC Grids Multi-Terminal Operations National and International Grid Buildouts North America United States Canada Europe China and India China India Rest of World Planned or Under Construction HVDC Lines: North America Europe China and India Rest of World Section Key Industry Players HVDC Electronic Components Suppliers ABB Alstom AMSC Schweitzer Engineering Laboratories Siemens AG Large Power Grid Operators China Southern Power Grid (CSP) Power Grid Corp. of India Ltd. (POWERGRID) State Grid Corp. of China (SGCC) Statnett TenneT Western Electricity Coordinating Council Cable and Equipment Manufacturers Borealis

9 5.3.2 General Cable Corp. (NSW) LS Cable & System Nexans nkt cables Prysmian Section Market Forecasts HVDC Systems Market Forecasts Global HVDC Systems Market Global HVDC Market by Region Global HVDC Converter Station Market Global Annual HVDC Converter Forecast Global Cumulative HVDC Converter Stations Forecast Global Cumulative HVDC Converter Station Market Forecast by Region Global Cumulative HVDC Converter Station Forecast by Technology HVDC Systems Market Forecast Reflecting Global Uncertainties Global Uncertainties Hypothetical Events Political Hypothetical Events Economic Hypothetical Events Sociological Hypothetical Events Technological HVDC Systems Global Market Probabilistic Forecast HVDC Systems Regional Market Probabilistic Forecast Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Charts and Figures Section Scope of Study Sources and Methodology Notes

10 Section 10 TABLE OF CHARTS AND FIGURES Chart 1.1 Cumulative Spending, Planned HVDC Systems, World Markets: Chart 1.2 Cumulative HVDC System Spending Probability Distribution, World Markets: Chart 2.1 Economic Tradeoffs Quantified, HVAC and HVDC Chart 2.2 Electricity Demand, World Markets: Chart 2.3 Electricity Demand, North America and Europe vs. China and India: Chart 3.1 Total Costs, Hypothetical HVDC System Chart 6.1 Annual Spending, Planned HVDC Systems, World Markets: Chart 6.2 Cumulative Spending, Planned HVDC Systems, World Markets: Chart 6.3 Annual Spending, Planned HVDC Systems by Region, World Markets: Chart 6.4 Cumulative Spending, Planned HVDC Systems by Region, World Markets: Chart 6.5 Share of HVDC Converter Station Component Costs Chart 6.6 HVDC Converter Station Costs by Capacity Chart 6.7 Annual Spending, HVDC Converter Stations, World Markets: Chart 6.8 Cumulative Spending, Planned HVDC Converter Stations, World Markets: Chart 6.9 Cumulative Spending, Planned HVDC Converter Stations by Region, World Markets: Chart Cumulative Spending, Planned HVDC Converter Stations by Technology, World Markets: Chart 6.11 Cumulative HVDC Systems Spending by Probability, World Markets: Chart 6.12 Cumulative HVDC Systems Spending Probability Distribution, World Markets: Chart 6.13 Cumulative HVDC Systems Spending by Probability, North America: Chart 6.14 Cumulative HVDC Systems Spending Probability Distribution, North America: Chart 6.15 Cumulative HVDC Systems Spending by Probability, Europe: Chart 6.16 Cumulative HVDC Systems Spending Probability Distribution, Europe: Chart 6.17 Cumulative HVDC Systems Spending Probability, China and India: Chart 6.18 Cumulative HVDC Systems Spending Probability Distribution, China and India: Chart 6.19 Cumulative HVDC Systems Spending by Probability, Rest of World: Chart 6.20 Cumulative HVDC Systems Spending Probability Distribution, Rest of World: Figure 1.1 HVDC Systems Planned for Commissioning by Region, World Markets: Figure 2.1 Capacity Improvements, HVDC Classic Converter Technology: Figure 2.2 HVAC and HVDC System Layouts, Midwest United States... 8 Figure 2.3 Maximum Real Power Transfer, Subsea Cables... 9 Figure 2.4 HVDC Overall Losses Figure 2.5 Right-of-Way Benefits of HVDC Transmission Figure 2.6 Economic Tradeoffs, HVAC and HVDC Figure 2.7 Distribution of People Living Without Electricity Figure 2.8 U.S. Electricity Reliability Councils Figure 2.9 Regional Transmission Operators Figure 2.10 EU 2050 Goals, Renewable Generation Figure 2.11 Projected Share of Global Indicators, China Figure 2.12 Simplified Synchrophasor Data System Schematic Figure 3.1 Generic Converter Station Layout Figure 3.2 Evolution of Converter Technology Capacity: Figure 3.3 Chuxiong Converter Station

11 Figure 3.4 Shoreham HVDC Converter Station Figure 3.5 Mass Impregnated Submarine Cables Figure 3.6 HVDC XLPE Submarine and Underground Cables Figure 3.7 HVDC System Configurations Figure Offshore Grid Vision of European Wind Energy Association Figure 3.9 Wind Turbine Cable Installation Schematic, Horns Figure3.10 Beatrice Offshore Wind Farm and Oil Platform Figure 3.11 VSC Technology Advances Figure 3.12 Multi-Terminal Operation with and without Circuit Breakers Figure 3.13 Superconductor Wire Components Figure 3.14 Superconductor Cables Figure 3.15 TresAmigas Hub Figure 3.16 PowerPipelines System, United States Figure 4.1 Quebec-New England HVDC Interconnection Figure 4.2 ANOVA Concept U.S. National HVDC Backbone Figure 4.3 Proposed Canadian Interconnections Figure 4.4 EU Transmission Requirements: Figure 4.5 Friends of the Supergrid Concept Figure 4.6 Medgrid Proposal Figure 4.7 DESERTEC Figure 4.8 The Mediterranean Ultra-Grid Figure 4.9 Transmission Line Paths and Construction Plans in China Figure 4.10 Indian HVDC Planned Corridors Figure 6.1 Political, Economic, Sociological, and Technological Uncertainties Table 3.1 Current Converter Technology Capacity Limits Table 3.2 Hypothetical HVDC Line Cost Elements Table 3.3 Project Financing Assumptions Table 3.4 Summary, Pro Forma Financial Statement Table 3.5 Costs per Unit Capacity and Energy: HVDC and HVAC Systems, 3,000 MW Table 4.1 HVDC Lines, Planned or Under Construction, North America: Table 4.2 HVDC Lines, Planned or Under Construction, Europe: Table 4.3 HVDC Lines, Planned or Under Construction, China and India: Table 4.4 HVDC Lines, Planned or Under Construction, Rest of World:

12 Section 11 SCOPE OF STUDY Pike Research has prepared this report to provide participants in the power generation and transmission market (including equipment and hardware vendors, utilities, software companies, installation and service providers, and other system component manufacturers) with a study of the global market potential for HVDC transmission technologies. Such technologies include converter technologies, cables, switchgear, breakers, and superconductors. The report s purpose is not to provide an exhaustive technical assessment of all of the technologies and industries that may be related to HVDC deployments. Rather, it aims to offer a strategic examination of the HVDC market and its business models, key technology issues, regulatory factors, customer demand dynamics, and competitive landscape. Pike Research strives to identify and examine new market segments to aid readers in the development of their business models. All major world regions are included and the forecast period extends through 2020, including a probabilistic analysis of the likelihood of various HVDC investment levels during the period. SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and the firm s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 98

13 NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2012 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 99

14 Published 2Q Pike Research LLC 1320 Pearl Street, Suite 300 Boulder, CO80302USA Tel: This publication is provided by Pike Research LLC ( Pike ). This publication may be used only as expressly permitted by license from Pike and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed or used without the express written permission of Pike. Notwithstanding the foregoing, Pike makes no claim to any Government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication). If you do not have a license from Pike covering this publication, please refrain from accessing or using this publication. Please contact Pike to obtain a license to this publication. 100