Investment Behaviour and the Cost of Project Delays

The environment within which a transmission system operates, evolves and grows is a result of the interaction between the regulator and the companies that own and operate the system. The regulatory framework is designed to push for changes, drive down costs and allow investment in new infrastructure or practices that allow cost reduction or reliability over the long term.

The financial structure of the transmission system operator has an effect on its investment behaviour and differs mainly according to whether the company has a high or low proportion of debt. Debt must be serviced from current cashflows, while equity borrowing has to be paid from dividends and need not be paid in certain circumstances. The company will be likely to invest in different projects according to this relative cashflow requirement. For example, more highly geared companies (i.e., those with a high proportion of debt which must be serviced) might be more likely to make higher risk-higher return investments, while operators with low debt levels are more likely to be satisfied with lower but safer returns.

One of the issues that transmission system operators face is how to balance potential financial returns from a project against the costs of delay if there are public protests against proposed routes. The costs of delay include lost revenues to system operators, due to transmission capacity not being in place, and possible regulatory penalties if delays cause transmission quality to drop, for example if the system starts to experience more faults due to overload.

Costs to industry and consumers from poor quality or supply interruption can also be significant and regulators will be interested in minimising these costs also.

In certain circumstances, operators can find that putting some sections of a project underground can help to unblock local opposition, allowing a project to proceed much sooner than if a judicial process is used to force a 100% overhead line approach. The savings from avoided delays can be significantly larger than the incremental costs of underground cables. However, transmission system operators must be able to prove these cost savings in making their case for investment to the regulator.