MONEY, MONEY, MONEY
Executive Summary
This Energy Industry Update examines how energy infrastructure investment needs continue to grow, while post-pandemic and geopolitical trends keep inflation a topic of intense discussion. This has focused the attention of energy policymakers, industry participants, and stakeholders on capital as well as operating and maintenance costs required for the sector. Specifically: Where is this funding coming from? How much is needed? How will it be recovered or repaid?
HIGHLIGHTS FROM THIS
ENERGY INDUSTRY UPDATE
Where is the money coming from?
- Less than a year after passing major federal infrastructure legislation, Congress has passed $369 billion+ legislation containing energy- and climate-related incentives and investments. Much work lies ahead in organizing and deploying programs under the Inflation Reduction Act of 2022, while energy companies consider which investments will be most beneficial to their respective businesses.
Where is the money being deployed?
- Numerous utilities are deploying grid modernization programs to update grid facilities, enhance demand response and efficiency, facilitate distributed resource deployment, and prepare for increased electrification. But end-user behavior, such as widespread vehicle electrification, remain years away. How do you plan, develop, and recover investment in a grid that can accommodate a distributed future?
- California began its energy transition decades ago and has recently accelerated its net-zero target to 2045. But as investment in resources, reliability, and the grid (both distribution and transmission) have been made and more are contemplated, hurdles remain to deal with fire and hydrological conditions, import dependence, and rising costs. California’s journey has potential lessons for other jurisdictions seeking to transform their respective energy sectors.
- Post-pandemic recovery has led to increasing natural gas demand, and supply has been working to keep up. But the sector now faces factors, such as effects of geopolitical events and policy, and historically low prices have turned upward in recent months. Meanwhile, continued gas-power interdependence for electric reliability underscores the continuing need for adequate and reasonably priced gas supplies for the foreseeable future. Are these dynamics transitory or long-lived?
How will costs be recovered?
- The past several years have seen rising generation fuel prices, growing investment in electric infrastructure, and continued build-out of low-carbon-emitting resources. We expect many utilities to grow their investments as they pursue net-zero objectives. As these costs eventually work their way into rates, utilities and regulators must consider the trajectory of energy costs and their impact on affordability.