The energy transformation will continue in 2024. Both electric and gas utilities will continue to invest in upgrading infrastructure and new renewable energy sources as they turn away from fossil fuels. Facing both water quantity and quality issues across the United States, and spurred by recent funding, water and wastewater utilities are also increasing investment as they look to conserve and protect this vital resource.
“There is no greater transformation taking place than what's happening in the energy space, right now,” says Danny Freeman, Senior Partner, Energy and Utilities, for West Monroe. “And you can expand that to include natural gas and water in this as well.”
Electric
Demand for electricity is expected to rise in 2024. In its report “The ERA of Flat Power Demand is Over", consulting firm Grid Strategies revealed that reports filed this year with the Federal Energy Regulatory Commission, show grid planners expect nationwide electricity demand to grow 4.7% over the next five years, up from 2.6% growth forecast just last year. Peak demand is expected to grow 38 GW over the next five years.
The report cites investment in new manufacturing, industrial, and data center facilities as the primary drivers. Since 2021, Grid Strategies says commitments for industrial and manufacturing facilities have totaled about $481 billion.
“A big jump for many of our clients comes from data center expansion,” says Freeman. “In Virginia for example, they're seeing, 6% -8% potential load growth on a compound annual basis, which is unprecedented, just based on the volume of new data centers.”
Electric vehicle sales will also be a driver for increased demand. BloombergNEF (BNEF), an economic data analysis firm managed by Bloomberg, projects global battery electric and plug-in hybrid vehicle sales to top 16.7 million units in 2024, a 20% increase over 2023. However, this forecast is 4% lower than what was originally projected in its Long-Term Electric Vehicle Outlook published in June 2023 (17.5 million units). BNEF cited slashed production targets among GM and Ford, a lack of affordable models, and outdated product offerings from Tesla, the segment’s current top player. BNEF anticipates U.S. EV sales will grow at a rate of 32%, slower than the 47% expected for 2023.
“The number of EVs is growing rapidly but the growth rate is slowing and it’s not clear the market share will reach a point that pinches electricity supply,” says Ken Simonson, Chief Economist for the Associated General Contractors of America. “But there will continue to be building of tens of thousands of public and private charging stations.”
Freeman sees an increased focus on grid reliability and resiliency as utilities cope with the impacts of climate change. At the same time, decarbonization efforts are underway. The U.S. Energy Information Administration forecast says utilities plan to expand solar capacity by 30% (31GW) in 2024. Wind capacity is expected to increase by 5% in 2024 (7GW). Wind and solar are expected to account for 18% of total generation in 2024, while electricity generation from coal will fall to 17%. According to EIA, 2024 will mark the first year where solar and wind generation will overtake electric power generation from coal.
Simonson says cost and regulatory hurdles have led to cancellations and deferrals of major projects. “Solar power generation projects are facing delays in getting U.S.-made components. Both wind and solar have challenges with transmission capacity and storage until the power is needed. I expect spending to increase in 2024 but probably not as much as I would have said a year ago.”
“Large scale generation is not something you can ramp up in a very short period of time,” says Freeman. “That's a new area of challenge, and just being able to meet demand in an increasingly electrified world has our clients’ attention.”
According to Simonson, The Census of Construction shows from October 2022 to October 2023 spending (In current dollars not adjusted for inflation) on the total Power category climbed 16%. However, because that number combines electric power with oil and gas, it masks significant differences in the segments. “Electric power construction—combining generation, transmission and distribution—soared 21%, including a 56% jump in spending by public power agencies, while gas/oil construction slumped 8%,” he says.
Oil and Gas
Global oil consumption will rise by 1.1 million barrels per day(bpd) in 2024, according to a December 14 report from the International Energy Agency, up 130,000 bpd from its previous forecast, citing an improvement in the outlook for the U.S. economy and lower oil prices. In the US, EIA’s Short Term Energy Outlook calls for net exports of US crude oil and petroleum products to reach a record high of almost 2 million b/d in 2024, up from around 1.8 million b/d this year and 1.2 million b/d in 2022. According to EIA, the growth is primarily driven by an increase in US crude oil and hydrocarbon gas liquids production. The agency expects the Brent price to increase from an average of $78/b in December 2023 to an average of $83/b for all of 2024.
Natural gas remains the leading source of electric power in the US, accounting for 39% of electric power sector electricity generation in 2023. EIA expects that to fall to 37% in 2024.
“One of the biggest drivers for gas is demand from Europe for LNG,” says Simonson. “That has led to a new round of investment in gas liquefaction trains and export terminals and some pipeline investment.” In addition, Simonson says that pressure to curb methane releases and to pipe it is leading to some investment around well sites.
In Deloitte’s survey of oil and gas executives in July 2023, more than a third of respondents cite operational efficiency and direct emissions reductions as pivotal metrics for assessing energy transition progress. In addition, around 37%-44% of surveyed executives will look to invest in low-carbon fuels adjacent to their core or complement their primary operations, such as natural gas, carbon capture and storage (CCS), biofuels and hydrogen.
Water and Wastewater
According to Simonson, water and wastewater were among the fastest-growing categories for construction spending in 2023. The Census of Construction totals (not adjusted for inflation) increased 29% from October 2022 to October 2023 for sewage and waste disposal and 16% for water supply. The numbers were boosted by funding of state revolving funds through the Infrastructure Investment and Jobs Act. That law also provides for discretionary grants for some agencies to replace lead pipes and upgrade treatment systems to deal with “forever” chemicals or other problems. This funding will continue to support investments in water infrastructure in 2024.
The frequency and intensity of extreme weather events such as droughts and floods, have made climate resilience a priority for the U.S. government and water operators. The Department of the Interior recently announced the availability of up to $50 million for water conservation and efficiency projects to enhance the resilience of the West to drought and climate change. Both water scarcity and water quality are issues. An estimated 2.2 million Americans live in homes without running water or basic plumbing.
Freeman sees an opportunity for utilities to incorporate technology when making infrastructure improvements. “Sensors can help identify where problems are so you can proactively maintain your assets. With advanced technology you are no longer guessing or waiting for a pipe to burst.”
Cybersecurity is another pending threat to water utilities. The EPA listed cybersecurity as one of its top management challenges for 2024. Ninety-seven percent of public water systems serve fewer than 10,000 customers and have small operational budgets with limited access to security staff. The Cybersecurity and Infrastructure Security Agency (CISA) recently began offering a no cost vulnerability scanning service subscription.
Utilities in 2024 will face a myriad of challenges brought on by climate change and efforts to reduce carbon emissions. With growing support for investments that reduce reliance on fossil fuels and improve resiliency, Freeman is optimistic that utilities will be ready to meet the challenge.
“These folks are passionate about these challenges that we're discussing,” says Freeman. “They're making the right investment decisions. They're truly trying to advocate for their customers.”
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