With Trump beginning his second term in 2025, the utility sector faces some uncertainty. While the Biden administration focused on funding to improve energy efficiency, reduce climate pollution, and lower overall energy use, President-elect Trump wants to boost U.S. oil and gas production and reduce environmental regulations.
Energy needs continue to grow
One certainty is that U.S. power consumption will reach record highs in 2024 and 2025, according to the U.S. Energy Information Administration (EIA). EIA projected power demand will rise to 4,093 billion kilowatt-hours (kWh) in 2024 and 4,163 billion kWh in 2025.
Eric Chung, a Partner in West Monroe Energy & Utilities Practice doesn’t expect drastic changes when it comes to distribution spending needed to maintain reliable grid infrastructure. “Most electric utilities are regulated at the state level,” he says. “Many states like Massachusetts and Illinois have aggressive decarbonization goals. The biggest obstacle is customer affordability. Utilities have the complicated challenge of providing safe and reliable service at the same time they need to invest in additional capacity and support modernization.”
Driving electricity demand are data centers that process enormous amounts of data from artificial intelligence (AI). Census Bureau data shows that spending on data centers put in place in the first ten months of 2024 totaled $22.8 billion, a 56% increase from January 2023 to October 2023. Ken Simonson, Chief Economist for Associated General Contractors expects further dollar increases in data center construction spending in 2025, though he says, “a 56% increase would be hard to repeat.”
Tech giants Amazon and Google recently announced they would invest in small nuclear reactors to power data centers. And Microsoft plans to restart the Three Mile Island nuclear power plant to fuel its data centers. “It will take time to get approvals for new designs and to reopen power plants,” said Simonson. “I doubt nuclear will contribute to the construction totals for 2025.”
Trump announced a new energy council, led by North Dakota Gov. Doug Burgum (also selected to head the Interior Department). According to a written statement from Trump, “The Council will oversee the path to U.S. energy dominance by cutting red tape, enhancing private sector investments across all sectors of the economy, and by focusing on innovation over longstanding, but totally unnecessary, regulation.” Trump tapped another oil industry executive to lead the Department of Energy: Chris Wright, President and CEO of Liberty Energy. Both appointments will need to be confirmed by the Senate.
Will funds for clean energy continue to be dispersed?
A key piece of legislation signed into law during Biden’s administration, the Inflation Reduction Act has already resulted in $100 billion in grants according to a recent statement by Biden’s senior advisor for international climate policy John Podesta. According to the Clean Investment Monitor, $272 billion was invested across the U.S. in the manufacture and deployment of clean energy, clean vehicles, building electrification, and carbon management technology in the U.S. in the past year, up 24% from 2023. A record $71 billion of this investment occurred in the third quarter of 2024, a 12% increase relative to the same period in 2023. Trump has threatened to repeal the law, but most analysts believe a full repeal is unlikely. A report from Crux and Power Brief states that “The IRA makes significant use of tax credits, which are extended until 2032 or until when the electric power sector emits 75% less carbon than 2022 levels. Material changes to the credits would require new legislation. Any changes to tax law are almost always made looking forward and with some phase-in period.”
Clean energy projects may also be able to benefit from the Internal Revenue Service’s “safe harbor” provision, which allows projects that have begun work or undertaken at least 5% of the project cost to qualify for tax treatment under existing law.
The report also points out that the Inflation Reduction Act includes support for a wide range of technologies, including battery storage, biogas, carbon capture, nuclear, domestic manufacturing, and mining critical minerals.
Fossil fuel companies may benefit
While clean energy may face new challenges under Trump’s administration, the fossil fuel industry, particularly natural gas, including liquefied natural gas (LNG), could benefit, particularly if Trump follows through on his pledge to reverse Biden’s moratorium on new LNG export permits. However, the impacts won’t be immediate.
“Gas infrastructure change does not happen overnight,” says Chung. “When there is direction to promote LNG infrastructure, we will see significant opposition from the federal level down to the local level.”
A new EPA rule recently finalized under the Biden administration requires oil and gas companies to pay a federal fee for emitting methane gas above certain levels. That rule is likely to be challenged by industry groups and the new administration. In a press release, the American Petroleum Institute called the rule a “wrongful approach to methane policy making.”
While Trump is expected to loosen regulations and make cuts at the U.S. Environmental Protection Agency (EPA), most analysts believe that it would be politically challenging to recover any unspent funds allocated under the Infrastructure Investment and Jobs Act (IIJA).
Among other investments, the law provided approximately $50 billion for water infrastructure, the largest investment in U.S. history. In October the EPA reported it had allocated $6.2 billion in investments for Fiscal Year 2025 to help communities upgrade water and wastewater infrastructure.
Tariffs and other supply constraints
Construction input prices have been relatively stable in 2024, but there is concern that proposed tariffs could result in higher prices in 2025, not only for imported goods but for U.S. competitors. Trump wants to add a 10% to 20% tariff on all non-domestic goods sold in the U.S. and a 60% tariff on goods from China. This could bring another element of instability to utility construction projects in 2025.
The electric utility industry is also facing a shortage of distribution transformers. The American Public Power Association reports that 80% of public power utilities have significantly lower inventories of distribution transformers than in 2018, and 30% reported a high risk of running out of stock in a month. Lead times to purchase new distribution transformers have grown from three months in 2018 to more than two years.
Labor challenges
Construction firms and utilities will continue to face a shortage of skilled workers in 2025 as workers retire. AGC recently reported that 94% of firms had openings for craftworkers in 2024, up from 85% in 2023. Similarly, 92% of construction firms had openings for salaried positions in 2024, compared to 86% in 2023. When asked about their experience “finding qualified workers,” the U.S. Department of Energy’s 2024 Employment report showed 76% of employers across energy technologies reported at least “some difficulty finding qualified workers,” down from 85% in 2022. Similarly, a 2024 report from the American Water Works Association found worker shortages to be one of the top 10 concerns among leaders in the industry.
As we head into 2025, utilities and their contractors may find that increased enforcement of immigration law exacerbates the labor challenge. According to U.S. Census data, 29.2% of construction industry workers and 20.4% of workers in transportation and utilities are foreign-born. “The industry is more vulnerable than most to anti-immigrant employment policy,” says Simonson.
Construction Spending Forecast
According to ConstructConnect spending on power infrastructure will decline by 13% in 2025. However, this still represents a strong level of spending since the sector experienced 74% growth in 2024. ConstructConnect expects fewer larger power projects (over $1 billion) in 2025. Construction of water and wastewater facilities is expected to increase by 1% in 2025.
In summary, a new presidential administration brings with it the potential for new regulations that will shape investments and decarbonization efforts for both utilities and their contractors. What isn’t likely to change is the need for skilled workers to meet the growing demand for energy and clean water.
|
U.S. Type of Construction Forecasts ($ in Billions USD) |
||||
|
|
Actual |
Forecast |
|
|
|
|
2023 |
2024 |
2025 |
% + or - |
|
Power Infrastructure |
$ 16,410 |
$ 28,516 |
$ 24,677 |
-13% |
|
Water and Sewer Treatment |
$ 48,215 |
$ 57,801 |
$ 58,205 |
1% |
Sources: Actuals - ConstructConect Insight; Forecast- Oxford Economics and ConstructConnect.
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