Underground Infrastructure - January 2023 - 14

Utility & Communications
materials and labor across various industries;
ongoing strain on global logistics
infrastructure; volatility across real estate,
financial and equity markets with additional
Federal Reserve rate hikes through
2022 and 2023; and continued inflationary
pressures tied to heightened living
expenses, elevated energy costs, strength
in the U.S. dollar and rising wages.
FMI research also considered wartime
and economic turmoil in various
countries (e.g., Russia, Ukraine, China)
adding to the strain and uncertainty on
each of the items listed above.
Despite all these potential headwinds,
capital plans by owners of power, gas and
communication infrastructure continue
to grow. Some of this comes from inflation
- the ongoing theme of " more for
less " is true. To fundamentally improve
our nation's infrastructure, we need investment
that is growing faster than the
rate of inflation or you're simply spending
more per foot of pipe.
Combining the Infrastructure
Investment and Jobs Act, the Inflation
Reduction Act, the Drinking Water and
Wastewater Infrastructure Act, and private
company investment, the dollars
available for repair of utility infrastructure
have never been more available. The
bottleneck will likely be similar to what it
has been for the past 10 years - finding
qualified people to manage and construct
the projects available.
Power distribution
The power distribution segment of underground
construction will experience
continued growth and investment in
2023. FMI Research projects that investor-owned
utilities will grow capital
expenditures at over 6 percent year-overyear
and total capital expenditures could
near $160 billion in the United States.
Power distribution comprises about onethird
of the expected spend and the emphasis
for the IOU's has been on adaption,
hardening and resilience programs.
The loss of life and infrastructure
damage that has occurred due to fires
in California and hurricanes on the East
Coast is transforming the way that infrastructure
is installed, repaired and
replaced. Underground power lines are
becoming more prevalent, as the cost
14 JANUARY 2023 | UndergroundInfrastructure.com
savings in these extraordinary events is
significant and the ongoing maintenance
cost is also much less. The effects of this
were seen in a quick repair earlier this
year following Hurricane Ida.
The second major trend is upgrading
the distribution networks in cities to be
able to handle a distributed generation
network. Houses that are producing
solar power are only helpful if the infrastructure
can effectively utilize the energy.
We also see storage of energy both in
residential homes and at the utility scale
becoming much more widespread.
Lastly, we will soon be at the point
where the efficiency efforts will not outweigh
the increasing demand on the
electric grid, as more and more electric
vehicles are now on the roadway. The
increased load demand will require upgrades
to infrastructure that in our largest
cities was put in place over 50 years ago.
Natural gas transmission,
distribution
The outlook for the natural gas transmission
segment is less stable than the other
infrastructure types. The Biden administration
has been very clear about the
desire to shift from fossil fuels, and the
likelihood for new oil and gas transmission
infrastructure will remain limited.
However, the war in Ukraine and the
volume of LNG shipments have kept the
price of both oil and gas at levels that are
strong for the industry.
FMI expects repair and replacement of
existing infrastructure to have a stable outlook
due to gas and energy prices and ongoing
gas main distribution replacement
programs. Despite the need and the relatively
low emissions from natural gas, the
message from the Biden administration
has been clear on this front and we would
not expect growth from large pipeline activities
or significant new production.
For the gas distribution contractor,
installation, repair and replacement will
remain consistent at similar levels to
prior years. North American gas local
distribution companies continue efforts
to remove cast-iron and bare steel in
20- to 30-year replacement programs
addressing aging infrastructure. Nearly
every LDC in the United States is under
some form of accelerated replacement
program with multi-year capital investments
being made to address leakprone
infrastructure.
Interestingly, despite some counties
in U.S. states limiting new gas appliances,
discussions around hydrogen as a potential
long-term fuel source that could
be delivered through natural gas infrastructure
have slowly begun. As energy
supply and cost challenges continue, this
technology and its applications could
pick up steam in the coming years.
Communications infrastructure
The communication construction segment
will experience meaningful growth
to implement the 5G shift and power being
implemented by the major communication
companies. Current expectations
are that by 2025, over half of all mobile
users will be relying on 5G connections.
To facilitate this, micro cell deployment
and the " densification " of the
current network is a necessity. The underground
segment will benefit as fiber
is the backbone that makes the small
cell network function. The emergence of
5G wireless technologies marks the next
great shift in telecom infrastructure (i.e.,
from wireline to fiber).
Multi-year initiatives led by telecom
service providers will create fiber installation,
small cell deployment and on-going
maintenance contract opportunities
for those operators with the requisite fiber
construction capabilities. The North
American 5G infrastructure market is
projected to grow from about $2 billion
in spending to over $20 billion within
the next 10 years, as the technology and
dense network are rolled out throughout
the country.
Additionally, funding for rural broadband
has been provided after the disparities
highlighted during the pandemic.
The engineering and construction of this
infrastructure to meet high-speed goals
of the FTC will create opportunity in the
underground communication segment.
Municipal water/wastewater
The wet utility construction market is
expected to be one of the bright spots
in the U.S. economy over the next two
to four years. Federal spending and the
Drinking Water State Revolving Funds
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Underground Infrastructure - January 2023

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