With most capital investments in the power sector typically measured in multi-decade terms, how do service providers balance the necessity for long-term planning and the need to achieve near-term goals associated with changing policies, decarbonization objectives and an increasing need for resilience?
And with the relentless surge of renewables, how do U.S. electric utilities find ways to integrate it all onto the grid — a task that our survey of about 250 power sector stakeholders cite for the second consecutive year as their top challenge, along with aging infrastructure?
Funding from the Infrastructure Investment and Jobs Act (IIJA), also known as the Bipartisan Infrastructure Law and signed into law in November 2021, certainly helped impact at least some of this investment decision-making by virtue of the $107 billion it ultimately will provide in funding and incentives for clean energy, power and electricity grid reliability projects. The more recently enacted Inflation Reduction Act (IRA) — approved by Congress and signed into law in August — provides another $369 billion in funding incentives for clean energy, arguably making it the most impactful piece of energy policy ever enacted in the United States.
One example highlighting this “power of policy”: Prior to the passage of the IRA, our survey queried respondents on which types of projects they would prioritize if the legislation was approved. Resoundingly, two of the project types featured most prominently in the bill — electric vehicle (EV) charging infrastructure (63 percent of respondents) and batteries or long-duration storage (56 percent) — topped the list (Figure 8). Even though our survey was completed prior to the IRA’s enactment, it’s clear this landmark legislation will have an even greater influence and impact.
Yet despite nearly a half-trillion dollars across both bills in total funding intended to further catalyze the energy transition, uncertainty among decision makers still abounds. Affordability, shifting public perceptions, political instability, stranded asset risks, regulatory jurisdictional differences and technology uncertainty all factor into play.
To wit, three-quarters of respondents said the inability to predict future policy and regulatory changes makes investment decisions difficult. Six in 10 cited concerns about the readiness or longevity of certain technologies as a challenge, and nearly one-half cited lack of clarity around funding sources as problematic (Figure 9).
As one respondent noted, these days it can sometimes feel like 20-year utility resource plans need to be updated every two years.
Nevertheless, some broad patterns are emerging.
Over the near term — the next five years — respondents are particularly bullish about solar and wind projects, as well as fleet electrification. Sixty-four percent expect to invest in solar projects, and roughly 40 percent plan to earmark funds for wind and/or EVs (Figure 10). These findings appear to validate predictions by the U.S. Energy Information Administration that solar power generation will outstrip wind power generation by a factor of two by 2040.
Solar, wind and EVs remain popular priorities for respondents when asked to look further out into the horizon — beyond five years. But the survey shows that other technologies not presently commercially viable stand to garner more investments as time passes.
For instance, while only 13 percent of respondents intend to invest in hydrogen over the next five years, more than 22 percent expect to invest in it in the long term. Similarly, only 9 percent of respondents plan to invest in small modular reactors in the short term, but more than 22 percent expect to allocate dollars on that energy source beyond five years from now.
Balanced Planning, Decisions Essential
As the sector transforms at such a dizzying rate, mandates and ambitious decarbonization targets have brought clean energy forces to the forefront as a solution. Integrating that green energy onto the grid — and finding ways to pay for it — while hardening infrastructure assets against extreme weather and other threats present some of the industry’s most-pressing challenges.
Now more than ever, utilities again must balance long-term investments with an open eye on short-term, emerging needs as a continuous process, unlike previous decades of resource planning in this industry. Perhaps by leveraging Black & Veatch’s expertise, utilities should embrace the importance of an early, integrated and executable strategy that combines strategic, financial, regulatory, technical and digital considerations.