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As MRP noted in yesterday’s report on rising US copper demand, a $1 trillion US infrastructure bill looks like it is finally on its way to finally getting passed. Though it has taken some time to hammer out, and may take another week to finally finish up amendments before the US Senate leaves for summer recess, it appears increasingly likely that the bill will eventually pass both houses of congress, driving $73 billion of funding toward modernizing the copper-rich electric grid, including $7.5 billion to develop electric vehicle (EV) charging stations across the country – a move likely to hasten the adoption of electric vehicles.
Underperforming Utilities Could Be Jolted Higher
That money promises to be a huge kickstarter for utilities that are looking ahead to a much more electric-focused future. For the proliferation of EVs alone, a model utility with two to three million customers would need to invest between $1,700 and $5,800 in grid upgrades per EV through 2030, according to Boston Consulting Group (BCG). Assuming 40 million EVs on the road, that investment could reach $200 billion.
Per Reuters, BCG also estimates that investments in both the grid and charging infrastructure that are recovered from ratepayers could add between $3 billion and $10 billion in cumulative cash flow to the average utility through 2030.
Installing 500,000 new charging stations across the country – one of the Biden administration’s stated goals – would cover 57% of the charging that US vehicles will need by 2030, sparking the sale of some 25 million electric cars and trucks, according to Bloomberg New Energy Finance.
Outside of electricity, utilities will benefit from other key points of infrastructure funding.
As JC O’Hara, chief market technician at MKM Partners recently noted in an interview with CNBC, “We found two key segments that we want to explore further ― first, power infrastructure. A big portion of money is allocated to this, so you have to look at utilities, and the second portion is water. We have $50 billion for water infrastructure proposed at this time, another $55 billion for replacing all the country’s lead pipes, so that’s a big chunk of this bill.”
As Yardeni Research data shows, utilities have been the second-worst performing S&P 500 sector of the year thus far, outpacing only consumer staples. Successful passage of the infrastructure bill, along with continuously low interest rates that benefit capex-intensive businesses, could provide the juice needed for a strong catch-up trade in utilities.
Pro-Renewables Initiatives Relegated to Budget Reconciliation
Barron’s notes that “electric vehicles” and “charging” show up 11 times and 117 times in the infrastructure bill, respectively. “Solar” and “wind” and 11 times and 17 times, respectively.
Beyond the aforementioned funding for charging stations, however, many have criticized the infrastructure bill for being noticeably lacking in material support for clean energy initiatives. As the AP writes, the deal omits mention of a Clean Electricity Standard (CES), a key element of Biden’s climate plan that aims to achieve 80% clean electricity by 2030 via gradually rising targets for the power industry to cut emissions by adopting wind and solar, using nuclear energy, or carbon capture.
The Biden administration has hit back at such accusations, asserting that their infrastructure program is two-tracked and many planned clean energy initiatives missing from the bipartisan infrastructure bill (including the CES) will be bundled up in a $3.5 trillion budget reconciliation that is also working its way through the Senate. Unlike most other bills, budget measures can pass the US Senate with a simple majority of just 51 votes, as opposed to the traditional 60, to become law. That presents an alternate route for Democrats to pass infrastructure-focused reforms that lack Republican support.
As MRP noted in our previous update on infrastructure initiatives, the chamber is currently split 50-48 among Republicans and Democrats, respectively, plus two Independents (Vermont’s Bernie Sanders and Maine’s Angus King) who both caucus with the Democrats. In a vote that split solidly along party lines at 50-50, Vice President Kamala Harris would exercise her role as the President of the Senate to tip the balance toward Democratic proposals.
A new bill introduced by congressional Democrats, primed for inclusion in the budget reconciliation, would expand the solar tax credit for residential consumers and small businesses to include entire roofing systems that integrate solar power technology, as opposed to rooftop panels alone. As Reuters notes, the current 26% tax credit only covers the solar roof tiles.
President Biden has also pushed for an extension of the solar tax credit program beyond its 2024 expiration date. Just this week, Representative Linda Sanchez (D-CA) introduced the Residential Solar Opportunity Act, which would increase the residential credit 30% for five years and then gradually phased down to a 10% permanent credit after 2028.
While it remains to be seen which bills in particular will be folded into an eventual budget reconciliation, there is undoubtedly going to be a huge push for solar initiatives.
According to a report from energy research firm Wood Mackenzie and the Solar Energy Industries Association, highlighted by CNBC, solar installations surged 46% to more than 5 gigawatts (GW) in the first quarter of 2021. That 5 GW of solar energy accounted for 58% of all Q1 electric capacity additions.
Bloomberg recently projected that nearly 60% of all power installations through 2025 will be solar based.
Nuclear Energy No Longer Forgotten
Per Bloomberg, the terms of the infrastructure bill would hand struggling nuclear power reactors a $6 billion lifeline via the Department of Energy. An additional $6 billion will be set aside for funding for microreactors, small modular reactors and advanced nuclear reactors.
Strong federal support for the nuclear energy industry has huge implications for its long-run viability. Back in February, Bank of America estimated that the planned closure of 12 US nuclear power plants in the current decade could be postponed beyond 2030, thanks to President Biden’s clean energy agenda – one that specifically carves out a place for nuclear energy. As Barron’s reported, delays to planned nuclear plant closures in the United States could increase uranium demand projections by 26 million pounds a year.
It won’t be the first pro-nuclear measure undertaken by this year either. As MRP has previously noted, President Biden brought a wave of optimism back into nuclear power initiatives and boosted uranium miners earlier this year when his official energy platform mentioned advanced nuclear as part of “critical clean energy technologies” and listed “reclaiming” domestic uranium mining as a goal.
Following that declaration, Biden adopted the outgoing Trump administration’s plan to establish a stockpile of American uranium. Congress approved $75 million for an initial year of funding for the reserve, resulting in a 2.5 million pound purchase of American uranium, according to Investor Intel. That amount is well-above annual domestic production, which was only 174,000 pounds of U3O8 (uranium oxide concentrate) in 2019 and declined even further in 2020. Biden also preserved a Trump-era executive order aimed at pushing the Department of Defense toward quickly developing and producing small nuclear reactors for military use ― and to see if they could be used by military space vehicles. |
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