U.S. electricity demand is rising, driving new opportunities for contractors.
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U.S. electricity demand is rising, driving new opportunities for contractors.
Federal laws that fund clean energy and grid resilience projects come with restrictions.
Contractors must meet strict labor and material standards to participate.
Demand for electric power in the United States has proliferated in recent years due to several driving factors: the rise of artificial intelligence and the subsequent need for data centers, increased adoption of electric vehicles (EVs), green energy production, far-flung renewable energy sites and federal efforts to reduce carbon and greenhouse gas emissions. As this load growth continues to increase, so too do the hurdles on the supply side. It is clear the electric grid is becoming a bottleneck to bringing more clean energy online.
In response, agencies like the Federal Energy Regulatory Commission are streamlining regulations and creating opportunities for contractors to take on projects amid the backlog. To position themselves for these projects, contractors must understand the qualification requirements tied to funding and tax credits to ensure continued benefit eligibility. Here’s an overview of the key acts that led to the current situation, and the trends at play.
The Infrastructure Investment and Jobs Act (IIJA) was signed into law on Nov. 15, 2021, and contains four major areas of investment in clean energy and power: $21.3 billion to deliver clean power via grid expense and improvement projects; $21.5 billion for clean energy demonstrations introducing a new clean energy technology to the market; $6.5 billion for energy efficiency and weatherization of homes, buildings and communities; and $8.6 billion for clean energy targeted at manufacturing and workforce development.
The Inflation Reduction Act (IRA) was signed into law on Aug. 16, 2022, and contains tax credits to incentivize investment and manufacture of clean energy. The IRA also added $2 billion of funding for transmission facility financing; $760 million in grants for siting authorities such as state public utility commissions, siting boards and local governments to take actions that reduce the time to site and permit a transmission project; and $100 million in support of interregional and offshore wind electricity transmission planning.
Contractors who wish to take advantage of funding from the IIJA and IRA as more of it becomes available have important considerations. While experienced federal contractors will recognize much of the qualification process, IIJA and IRA projects have added requirements, particularly regarding labor and materials. These acts aim to improve infrastructure while promoting socioeconomic goals like reducing carbon emissions, using U.S.-sourced materials and creating well-paying jobs; however, the additional requirements increase compliance risk for contractors.
Contractors should review Build America, Buy America guidelines, consider warranty risk associated with new low-carbon materials and follow prevailing wage laws (like the Davis-Bacon Act). They must also meet apprenticeship and reporting requirements and be mindful of potential changes to the IIJA and IRA.
Projects that may be worth considering
The Grid Deployment Office (GDO), established in 2022 within the Department of Energy, oversees more than $22 billion in funding, including investments from the IIJA and IRA. By August 2024, the GDO had announced more than $9 billion in funding and awarded $4.23 billion, fueling ongoing construction activity amid strong demand for these projects. The approved amount allocated to GDO programs is shown in the graph below and includes:
In a year when several types of construction were affected by tight capital markets, decreased valuations, supply chain issues and labor shortages, construction sectors have received much-needed resources as a result of the IIJA and IRA programs. The U.S. Census Bureau reported a significant year-over-year increase in the value of construction projects affecting water supply (up 17%), power (8.4%) and transportation (5.8%).
The Department of Energy forecasts a potential 10% to 20% increase in total energy demand over the next decade, while the results of the election make the future of the IIJA and IRA uncertain. President-elect Trump has vowed to roll back the Green New Deal, presumably referencing the Inflation Reduction Act’s spend on advancing climate change resilience, which would include provisions from these bills.
However, these projects are spread across states that are represented on both sides of the aisle in Congress, resulting in potential bipartisan support for their continuance. Contractors that want to participate in delivering energy solutions should monitor developments closely and be prepared to act quickly to identify and take advantage of opportunities as the landscape evolves.
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