- U.S. investor-owned electric utilities will make about $140 billion in capital investments annually from 2021-2023 — higher than at any point in the last decade — as they roll out clean energy technologies and work to decarbonize the grid, officials from the Edison Electric Institute (EEI), which represents investor-owned utilities, told Wall Street analysts on Wednesday.
- Inflation and a lack of clean energy policy from the federal government complicate the outlook for those investments, but EEI members have invested more than $1 trillion in their systems over the last decade and the sector remains the most capital intensive in the U.S., according to the group's annual update at the Nasdaq MarketSite.
- A comprehensive federal clean energy policy would make investments more predictable, but the failure of the Biden administration to pass the Clean Electricity Performance Program (CEPP) means policy will be set by state governments and through litigation, according to EEI General Counsel Emily Fisher.
A unified clean energy policy stretching across all 50 states would drive the utility sector to make more stable and predictable investments — but that appears unlikely, Fisher told analysts.
The Biden administration has scrapped the CEPP, which would have penalized utilities that lagged in adding renewable power sources and provided incentives to those exceeding a standard.
"When we don't have comprehensive federal policy, we see states step up, we see investors step up, and we see plaintiffs in litigation step up," Fisher said. "There is some value to helping us direct these long-lived investments that comes from federal policy ... and I'm not sure that we're going to get a federal policy, so I think those folks will be in the driver's seat."
"It doesn't mean that there's no policy, it just means that totally different people are in the driver's seat," she said. "And that's more complicated than we want it to be."
EEI's current legislative priorities include the expansion of various electric vehicle tax credits, a nuclear production tax credit for existing nuclear facilities, and new tax credits for transmission, energy storage and hydrogen.
The CEPP proposal was not perfect, Fisher said, but it is not something that can be replicated at the state level. In particular, federal legislation would be helpful to EEI companies that serve customers in multiple states, she added.
"We definitely had concerns about the CEPP and were going to work hard on the mechanics of that, but there is nothing right now that's going to provide that offset and the cost and I think that's a loss," she said.
However, even without a unified clean energy policy, there is still a push to invest in clean energy technology. EEI expects this will mean continued high levels of capital expenditures, even following a decade of elevated spending fueled by cheap natural gas.
Industry capital expenditures have risen from $78.6 billion in 2011 to almost $133 billion in 2020. And from 2021 to 2023, EEI expects investment of $143.3 billion, $139.3 billion and $142.4 billion annually.
"There's no doubt that cheap commodity inputs and low capital costs were drivers of this decade-long capital expansion we've had," EEI Senior Vice President of Energy Supply and Finance Richard McMahon said in response to an analyst's question on spending.
The electric sector deployed more than a trillion dollars in capital over the last decade, but now faces a changing economy.
"I think the inflation is definitely a concern," McMahon said. But he added that electric rates remain "a very good bargain" and the electrification of new end uses, in particular transportation, will boost sales.
Utilities are working with their supply chains to mitigate cost increases, and McMahon said he expects electricity rates will continue to be "less responsive" to inflation.
"Because of the way we finance our companies and the way we grow our businesses, we're able to manage those costs a little bit better, and I think that's going to continue," he said.