Released November 21, 2022 | SUGAR LAND
en
November 21, 2022--Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The management consulting firm ScottMadden Incorporated (Atlanta, Georgia) titled its fourth-quarter energy industry update "Money, Money, Money," borrowing the title from the Swedish pop group ABBA's song from the 1970s. But it wasn't a bout of nostalgia that drove that titling decision. First, as Cristin Lyons, a partner and the firm's energy practice leader, told listeners on a November 9 webcast, money "is what everyone (in the energy industry) is talking about." Second, with the passage of the Inflation Reduction Act of 2022 (IRA), and to a lesser degree the Infrastructure Investment and Jobs Act (IIJA) of 2021, the electric power industry is expected to spend an unparalleled, eye-popping amount of capital, particularly in the 2030s.
Excluding generation, average annual spending on transmission & distribution (T&D) by U.S. investor-owned utilities (IOUs) more than doubled since 2011, to more than $65 billion in 2021, Talha Sheikh, a director at ScottMadden, said on the November 9 webcast. That estimate does not include spending by other industry participants, such as non-IOU power developers, public power utilities, electric cooperatives or federal agencies.
The IIJA, enacted in late 2021, boosted total projected industry capital spending to nearly $200 billion per year over the 2024-2035 period, Paul Quinlan, clean tech manager at ScottMadden, told the webcast, citing data from the Princeton REPEAT Project. But the IRA will drive the industry's annual capital spend to $400 billion in 2028, $600 billion in 2032, and nearly $900 billion in 2035, he said. "It's unparalleled," Quinlan said of the projected surge in capital spending, much of which is tied to tax credits for wind and solar energy in the IRA, part of President Joe Biden's effort to decarbonize the electricity industry by 2035.
Quinlan added that it would take some time before all of the planned federal spending is reflected in utility integrated resource plans (IRPs).
He pointed out that the IRA clean electricity tax credits will not begin to expire until the later of (a) 2032 or (b) when greenhouse gas (GHG) emissions from electric generation decline 75% compared to a 2022 baseline.
Quinlan said that "the most overlooked program may be the new Energy Infrastructure Reinvestment Program, administered through the Department of Energy's Loan Project Office (LPO)." The new law IRA authorized $250 billion in lending authority for this new program.
Through the program, the LPO may offer direct loans or loan guarantees for projects that:
The projected electric power capital spending estimates cited by ScottMadden's speakers do not reflect fuel costs, which have been extraordinarily volatile this year, following Russia's invasion of Ukraine. Those experts cited data from the U.S. Energy Information Administration (EIA) (Washington, D.C.) that prices at the Henry Hub in Louisiana hovered around $2 per million British thermal units (MMBtu) for most of 2020, but more than quadrupled in 2022, to a recent high of nearly $9 per MMBtu. More recently, prices have plunged, to under $5 per MMBtu in October before surging again to a recent range of about $6.75 per MMBtu. The ScottMadden speakers did not venture their own price projection, but cited EIA data projecting a sharp decline in gas prices throughout 2023.
Click on the image at the right to see the historical and projected natural gas prices at Henry Hub, Louisiana.
A significant driver of gas costs would be exports of liquefied natural gas (LNG), which are projected to rise steadily in the next few months, partly the result of increased exports to Europe following its embargo of Russian energy imports starting next month. The boost also will stem partly from the resumption of operations at the Freeport LNG export facility, which suffered a mid-2022 fire that shut down three liquefaction trains at that facility. For more on that, see June 9, 2022, article - Freeport LNG Outage Stresses European Supplies.
Click on the image at right to see historical and projected exports of LNG.
In their November 9 webcast, the ScottMadden speakers acknowledged there is a higher-than-usual level of uncertainty about how the power industry's capital outlays might play out, particularly in the 2030s. For example, to hat degree will investment in renewable energy insulate customers from fuel costs? And, how will state utility regulatory panels mandate utility spending on distributed energy resources (DERs) and other non-wires alternatives, as well as programs to address energy and environmental justice?
Although no one from Industrial Info Resources spoke on the ScottMadden webcast, we have a more conservative estimate on the Electric Power industry's projected capital outlays for the next five and 10 years. IIR's Global Market Intelligence (GMI) platform is tracking about $715.4 billion of capital projects scheduled to kick off construction over the five-year period January 2022 through December 2026. That capital spending reflects investments across the electricity value chain -- generation, transmission, distribution, energy storage and environmental remediation -- and covers approximately 5,363 projects. Over the 10-year horizon, January 2022-December 2031, IIR's GMI platform is tracking about 5,634 capital projects valued at about $867.6 billion.
"We don't expect all of that announced capital spending will take place according to developers' original plans," commented Britt Burt, IIR's vice president of research for the Global Power Industry. "Every day our staff adds, removes and delays projects. For electric utilities, the energy transition is extremely dynamic."
The states with the largest scheduled power industry capital spend over the 2022-2026 period are Texas, Nevada and Arizona. In fact, five of the six states with the largest power industry capital spend over that five-year period are located west of the Mississippi River.
"No matter who you talk to, outlays for capital projects and fuel are going to be going up for the foreseeable future," Burt said. "The spending outlook reminds me of the comment, made years ago by a U.S. Senator in a different context: "A billion here, a billion there, and pretty soon you're talking about real money."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
Excluding generation, average annual spending on transmission & distribution (T&D) by U.S. investor-owned utilities (IOUs) more than doubled since 2011, to more than $65 billion in 2021, Talha Sheikh, a director at ScottMadden, said on the November 9 webcast. That estimate does not include spending by other industry participants, such as non-IOU power developers, public power utilities, electric cooperatives or federal agencies.
The IIJA, enacted in late 2021, boosted total projected industry capital spending to nearly $200 billion per year over the 2024-2035 period, Paul Quinlan, clean tech manager at ScottMadden, told the webcast, citing data from the Princeton REPEAT Project. But the IRA will drive the industry's annual capital spend to $400 billion in 2028, $600 billion in 2032, and nearly $900 billion in 2035, he said. "It's unparalleled," Quinlan said of the projected surge in capital spending, much of which is tied to tax credits for wind and solar energy in the IRA, part of President Joe Biden's effort to decarbonize the electricity industry by 2035.
Quinlan added that it would take some time before all of the planned federal spending is reflected in utility integrated resource plans (IRPs).
He pointed out that the IRA clean electricity tax credits will not begin to expire until the later of (a) 2032 or (b) when greenhouse gas (GHG) emissions from electric generation decline 75% compared to a 2022 baseline.
Quinlan said that "the most overlooked program may be the new Energy Infrastructure Reinvestment Program, administered through the Department of Energy's Loan Project Office (LPO)." The new law IRA authorized $250 billion in lending authority for this new program.
Through the program, the LPO may offer direct loans or loan guarantees for projects that:
- Retool, repower, repurpose, or replace energy infrastructure that has ceased operation
- Enable operating energy infrastructure to avoid, reduce, utilize, or sequester GHG emissions
The projected electric power capital spending estimates cited by ScottMadden's speakers do not reflect fuel costs, which have been extraordinarily volatile this year, following Russia's invasion of Ukraine. Those experts cited data from the U.S. Energy Information Administration (EIA) (Washington, D.C.) that prices at the Henry Hub in Louisiana hovered around $2 per million British thermal units (MMBtu) for most of 2020, but more than quadrupled in 2022, to a recent high of nearly $9 per MMBtu. More recently, prices have plunged, to under $5 per MMBtu in October before surging again to a recent range of about $6.75 per MMBtu. The ScottMadden speakers did not venture their own price projection, but cited EIA data projecting a sharp decline in gas prices throughout 2023.
Click on the image at the right to see the historical and projected natural gas prices at Henry Hub, Louisiana.A significant driver of gas costs would be exports of liquefied natural gas (LNG), which are projected to rise steadily in the next few months, partly the result of increased exports to Europe following its embargo of Russian energy imports starting next month. The boost also will stem partly from the resumption of operations at the Freeport LNG export facility, which suffered a mid-2022 fire that shut down three liquefaction trains at that facility. For more on that, see June 9, 2022, article - Freeport LNG Outage Stresses European Supplies.
Click on the image at right to see historical and projected exports of LNG.In their November 9 webcast, the ScottMadden speakers acknowledged there is a higher-than-usual level of uncertainty about how the power industry's capital outlays might play out, particularly in the 2030s. For example, to hat degree will investment in renewable energy insulate customers from fuel costs? And, how will state utility regulatory panels mandate utility spending on distributed energy resources (DERs) and other non-wires alternatives, as well as programs to address energy and environmental justice?
Although no one from Industrial Info Resources spoke on the ScottMadden webcast, we have a more conservative estimate on the Electric Power industry's projected capital outlays for the next five and 10 years. IIR's Global Market Intelligence (GMI) platform is tracking about $715.4 billion of capital projects scheduled to kick off construction over the five-year period January 2022 through December 2026. That capital spending reflects investments across the electricity value chain -- generation, transmission, distribution, energy storage and environmental remediation -- and covers approximately 5,363 projects. Over the 10-year horizon, January 2022-December 2031, IIR's GMI platform is tracking about 5,634 capital projects valued at about $867.6 billion.
"We don't expect all of that announced capital spending will take place according to developers' original plans," commented Britt Burt, IIR's vice president of research for the Global Power Industry. "Every day our staff adds, removes and delays projects. For electric utilities, the energy transition is extremely dynamic."
The states with the largest scheduled power industry capital spend over the 2022-2026 period are Texas, Nevada and Arizona. In fact, five of the six states with the largest power industry capital spend over that five-year period are located west of the Mississippi River.
"No matter who you talk to, outlays for capital projects and fuel are going to be going up for the foreseeable future," Burt said. "The spending outlook reminds me of the comment, made years ago by a U.S. Senator in a different context: "A billion here, a billion there, and pretty soon you're talking about real money."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
