Further clarity from US administration on infrastructure plan; profound impacts on utilities

Recently, the Biden Administration detailed its domestic infrastructure spending priorities with the unveiling of the first of two Build Back Better policy proposals —“The American Jobs Plan.”

The $2.3 trillion plan reflects the intersection of accelerating the clean energy transition, job creation, and equitable impacts to disadvantaged communities. It will also have an outsized impact on the utilities industry. This plan outlines hundreds of billions of dollars in energy investments, new funding avenues for U.S. utilities to advance clean energy, as well as infrastructure and modernization projects.

As the pathway to unlocking future stimulus programs becomes clearer, there are steps for utilities to take now to position themselves for success.

Overview of the American Jobs Plan

The plan, released late last month, seeks to re-construct the economy and advance the clean energy transition through historic levels of investment in clean energy generation, modernizing the electric grid, repairing core infrastructure, providing affordable access to broadband internet, retrofitting homes and commercial buildings, and revitalizing the manufacturing industry. This proposal is the first push to the administration’s target of achieving a zero-carbon power sector by 2035, in addition to generating good-quality jobs, while addressing long-standing and persistent equity issues across disadvantaged communities. We expect a second administration infrastructure proposal later this spring, but the bulk of the administration’s clean energy proposals are likely baked into this plan.

The plan proposes $2.3 trillion in investments across five focus areas:

  1. Transportation Infrastructure – Approximately $610 billion allocated towards modernizing infrastructure and upgrading public transit options
  2. Clean Water, Electric Grid, Broadband – Approximately $311 billion focused on building a more resilient transmission system, improving water infrastructure, and expanding affordable broadband service
  3. Homes, Schools, Buildings – Approximately $380 billion towards generating affordable housing options, and upgrading public schools, community colleges, childcare facilities, hospitals, and federal facilities
  4. Care Economy – Approximately $400 billion targeting home- or community-based care for the elderly as well as people with disabilities
  5. R&D, Manufacturing, Small Businesses – Approximately $580 billion to accelerate R&D investments for clean energy, manufacturing and creating a network of small business incubators and innovation hubs

Specific funding opportunities for U.S. utilities

The plan will have a very significant impact on the utilities industry, adjacent industries such as automotive and telecom, and the communities these industries serve.

While detailed legislative text is in the process of being developed, a sharper view is coming into focus on how three of the plan’s five focus areas will impact utilities:

Transportation Infrastructure

  • $174 billion of funding will be dedicated to electric vehicles (EV) – the focus will be on creating domestic supply chains, creating tax incentives around American-made EVs, and incentivizing the private sector to build a national network of 500,000 EV chargers by 2030. It would also electrify at least 20% of U.S. school buses and replace 50,000 diesel transit vehicles with zero-emissions vehicles.
  • For utilities, there will be opportunities for stimulus in supporting investments for distribution grid readiness (“make ready”, infrastructure upgrades).
  • There also may be opportunities for utilities to receive funding for public charging infrastructure in disadvantaged communities.
  • Broadly, utilities could benefit from dramatic increases in beneficial electrification and the opportunity to play a leadership role in further evolving the EV ecosystem with its customers and communities.

Clean Water, Electric Grid, Broadband

  • $100 billion of funding will be dedicated to expanding electric transmission across the U.S. to improve delivery of renewable electricity to urban load centers.
  • Transmission funding will be facilitated through investment tax credits (ITC) and establishment of “Grid Deployment Authority” to facilitate 20 GW of transmission growth.
  • There will be substantial opportunity to accelerate additional clean energy technologies, such as energy storage, through a 10-year extension expanded direct-pay ITC and production tax credits (PTC).
  • The plan is also targeting an additional $100 billion of funding toward high-speed broadband infrastructure to underserved communities and removing barriers for electric cooperative utilities to serve these markets.

R&D, Manufacturing, Small Businesses

  • Provide $35 billion to develop technology to address climate change and develop clean energy resources. The research provisions include Biden's previously announced intention to launch an Advanced Research Projects Agency focused on climate change, or ARPA-C.
  • The plan would also provide $15 billion for demonstration projects, including advanced nuclear, carbon capture, utility-scale energy storage, floating offshore wind turbines and hydrogen.
  • As part of the plan’s commitment to equity, these projects will include 15 decarbonized hydrogen demonstration projects in distressed communities through a PTC.

Potential timeline for future funding

The administration’s infrastructure proposal will need to advance through the U.S. House and Senate to unlock funding and implementation through the various agencies (U.S. Department of Energy, Department of Transportation, and Federal Energy Regulatory Commission).

As we’ve seen before, some of the more ambitious components of the administration’s plan could face headwinds from Congress, which means the new administration may look for other ways to advance large portions of its climate agenda. Democrats may need to utilize the fast-track budget reconciliation process for a second time this fiscal year in order to secure passage of more controversial provisions, shielding the legislation from a likely filibuster that would otherwise require 60 votes to overcome. The administration will also likely have to make concessions to moderate Democrats to get the consensus needed to pass a bill.

While the Biden Administration acted quickly with executive orders earlier this year, there is still work to be done to ensure legislation is passed by the end of the year.

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Potential timeline of actions. (Source: Accenture analysis)

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If any version of this bill is to become law, expect it to occur before September 30, 2021, the end of the federal government fiscal year, when the current surface transportation authorization expires. That would put any final legislation to implementation by the federal agencies in late fall 2021.

What should utilities be doing now?

The 2009 American Recovery and Reinvestment Act (ARRA) provides a good blueprint for how the infrastructure plan might unfold and steps utilities could be taking now. Looking back to the 2009 ARRA legislation, there is one major lesson learned: the utilities that were prepared and acted early generally were the biggest winners. These were the utilities that ultimately received funding for their smart meter/smart grid programs that are the foundations of current grid modernization programs.

In light of the expected fall 2021 implementation timeline, utilities should first be examining their “long list” of projects in their multi-year asset investment plan to understand which ones may be candidates for external stimulus vs. those that may be eligible for rate-based investment. With this lens, utilities should then isolate projects that are best aligned with the goals of the five areas of the plan.

Coalition-building will be important for these stimulus project candidates, and framing potential solutions through a “system value” lens can help highlight the different dimensions of value through advancing the clean energy transition while creating economic, environmental, societal and energy value. Utilities can structure a messaging campaign to garner support with key stakeholders and coalition partners.

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Finally, now is the time to add the muscle needed to plan, design, deliver and operate new clean infrastructure to maximize capital efficiency and minimize any associated O&M burden on the utility. This includes strengthening capabilities such as capital project management, using automation and AI-enabled technologies to help enhance productivity, and next-generation asset management. With equitable job creation as an explicit requirement of any stimulus-funded projects, utilities should be working to identify and activate potential partners that can catalyze local community workforce development.

Utilities that act soon could be ideally positioned to benefit from future funding to the industry. Please contact me to find out more and how.

 

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James Mazurek​

Managing Director, North American Utilities Strategy

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