The 2021 infrastructure bill represents the largest investment in the US electrical grid in decades, and it is expected to shape utilities’ strategic priorities for years to come. In this blog, we explain key provisions of this legislation and examine its implications for utilities. As we explore below, these investments don’t mark a sudden shift, but rather a confirmation of the existing trend of utilities working to build a more adaptable, renewable-ready grid.
What is the infrastructure bill? Why is it so important for utilities?
The Infrastructure Investment and Jobs Act (IIJA), which became law in November 2021, represents a historically significant public investment in US infrastructure. The IIJA is a $1 trillion bill (about $550 billion of which represents new spending) that is commonly referred to as the ‘infrastructure bill’.
It contains:
- The largest investment in US road infrastructure since the construction the interstate highway system.
- The largest investment in rail transportation since the creation of Amtrak.
- A $65 billion dollar investment in US broadband internet infrastructure in rural areas.
- $73 billion in spending on energy grid transformation and clean energy transmission.
Energy grid spending is one of the most important elements of this legislation. The Department of Energy notes that power outages cost the U.S. economy up to $70 billion annually, and improved service reliability is an explicit goal of these investments. This spending will create strategic ramifications (and lucrative opportunities) for years to come, so it is important for utilities to understand how it is structured.
How does the infrastructure bill invest in the electric grid?
Specific outlays in the infrastructure bill highlight its ultimate objective: accelerating the transformation of the grid to be more efficient and more amenable to the large-scale employment of dynamic renewable energy sources.
Representative examples include:
- More than $7 billion targeted toward bolstering the supply chain for batteries.
- $1.5 billion for clean hydrogen manufacturing and recycling R&D.
- $3.5 billion targeted at weatherization assistance.
- $7.5 billion to expand Electric Vehicle infrastructure, chiefly charging stations
The spending on vehicle charging stations underlines a vision for a grid that will be more dynamic than ever before. In its report on how utilities should take advantage of new infrastructure spending, Power Grid International reports that:
“For the past five to ten years, U.S. utilities have been modernizing an aging grid that was built to withstand the highest load day of the year and was based on large, centralized generation with predictable load. Part of this modernization includes the ability to manage distribution power flows that fluctuate based on distributed energy resources (DER) and rapidly changing load patterns, like many EVs charging at the same time.”
For a broader look at renewable energy and how it will create a new strategic environment for utilities, we recommend our article here.
The bill also includes some spending items directly targeted at improving service reliability for utilities:
- $11 billion in grants for states, tribes, and utilities to improve grid resilience against disruptive events such as extreme weather, including a $6 billion cost-share program to sport grid reliability R&D.
- $2.5 billion administered as a revolving loan fund by the DOE for a Transmission Facilitation Program, designed to promote nationally significant transmission lines for improved inter-grid resilience. According to Utility Dive, this provision will empower the DOE to “operate as an anchor tenant for new or upgrade transmission lines,” allowing the DOE “to commit up to half the capacity of the power lines and then sell the capacity to others.”
- A $3 billion matching program for “Smart Grid” investments.
- Beyond Transmission & Distribution, the bill makes generation-side investments in renewing existing hydro and nuclear power plants.
The bill also gives the Federal Energy Regulatory Commission (FERC) new powers to fast-track the development of critical national transmission lines. FERC can now approve key transmission projects that have been stymied by state regulators. Further paving the way for smart grids with demand-driven pricing, the bill “amends the Public Utilities Regulatory Policies Act of 1978 by requiring state regulatory authorities to consider establishing rate mechanisms to allow electric utilities to recover the costs of promoting demand response and demand flexibility practices by consumers for the purpose of reducing electricity consumption during periods of unusually high demand.”
With investments in electric vehicles, demand-sensitive pricing, long-distance transmission, and many other areas, the infrastructure bill represents a comprehensive approach to funding a more resilient, renewable-friendly grid. For many utilities, working toward this strategic vision was already a major priority, and this infusion of capital constitutes a true win-win proposition.
How can utilities position themselves to take advantage of the strategic direction established by the infrastructure bill?
The Utility Dive ‘State of the Electric Utility 2021’ Survey Report (written before the passage of the infrastructure bill) suggests that the top concerns for utilities are incorporating renewable energy, improving sustainability, and environmental protection, followed closely by reliability and resiliency. Notably, these industry priorities track closely with the spending priorities funded by the Infrastructure Bill. Rather than a dramatic pivot for the utility industry, the infrastructure bill represents an accelerant for existing industry trends.
Today’s grid was shaped by the last major influx of federal investment in energy infrastructure, the American Recovery and Reinvestment Act of 2009. Power Grid International reports that this legislation “allocated approximately $4.5 billion, which was matched by the industry for a total investment of $9.5 billion and resulted in what we now know as AMI 1.0, or the Advanced Metering Infrastructure’s initial implementation.” However significant, this 2009 investment is dwarfed by the size of utility-related spending in the 2021 legislation. With this huge infusion of capital just beginning to flow into the industry, we could continue to see an expanded scope of investment in grid infrastructure for years to come.
To take advantage of the historic opportunity, utilities can immediately begin assessing which funding opportunities dovetail with their long-term plans. This bill passage marks an excellent time to establish or revise existing roadmaps and determine which funding opportunities will be relevant to their organization, how funding can be secured, and how the organization can prepare to execute their modernization efforts.
How can utilities prepare themselves to take advantage from an analytics perspective?
Utility analytics play a vital role in preparing for the future, which the Infrastructure Bill seeks to usher in. To truly take advantage of this approach, utilities need to develop robust models to anticipate and meet electricity demand (and supply, via renewable generation) for different seasons, weather events, and times of day. Even if funding and final implementation for capabilities like real-time demand-sensitive pricing are still years off, starting now to build the data pipeline that will support these activities will be instrumental to long-term success, paying dividends for years to come.
More broadly, new funding for grid resilience can potentially be directed toward priorities including machine learning for outage prediction, vegetation management, asset management, and more. All of these priorities will require investments in enhanced analytics capabilities. We take deeper look at how real-time analytics can transform utility operation in our article here.
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