Last Word – 2023 Crystal Ball…Opportunity Abounds for Underground Utility Construction
As 2022 came to a close, everyone wanted insight into what 2023 might hold. In a word: Opportunity!
We stand on the precipice of the largest wave of underground utility construction activity in all utility markets over the next three to seven years. Students of history will recognize that opportunity is created out of disruption, not stability, and the anticipated growth will be uneven and bumpy rather than smooth. This disruption originates from the pandemic aftermath with a concept of VUCA: Volatility, Uncertainty, Complexity, and Ambiguity.
COVID19 and the subsequent lockdown, supply chain challenges, geopolitical conflicts, political instability, cascading inflation, potential recession, etc. have ushered in this VUCA period. While I expect a short and shallow general economic recession in 2023 that will continue the VUCA disruptions, all of the utility construction markets will exhibit a floor of activity supporting these markets. The Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), Broadband Equity, Access, and Deployment (BEAD) Program funding, state funding source, along with underlying safety and customer demand, construction activity will exhibit much faster growth in 2023-2024 and serve as the described floor in each utility construction market.
As you plan for 2023, some VUCA examples and the corresponding opportunities to consider include:
- Opportunity: Unrelenting demand for streaming and wireless data usage is growing exponentially; Only 50 percent fiber penetration to U.S. households; $2.7 billion Digital Equity Act and the BEAD program of $42.45 billion are budgeted and will be spent regardless of economic or political conditions.
- Volatility: First of its kind decision by the Federal Communications Commission (FCC) in August 2022, rejecting Starlink’s Rural Digital Opportunity Fund (RDOF) application for $885.5 million to deploy satellite broadband service, will now likely go to fiber installation.
- Uncertainty: November 2022 rollout of untested and unchallenged FCC broadband penetration maps – everyone agrees the old maps were flawed, not everyone will agree on the method chosen to formulate the new maps.
- Ambiguity: 24 states lack a formal broadband office to support rollout of federal funding (AL, AK, AZ, DC, DE, HI, ID, IA, MI, MS, MT, NE, NV, NH, NJ, ND, OK, PA, SC, SD, TN, TX, VT and WY).
- Opportunity: Current government, environmental, social push to electrify everything; Electric reliability efforts including significant undergrounding with the states of FL and VA leading the way with how to economically and efficiently underground electric assets and achieve much higher reliability.
- Complexity: Extreme weather events — including droughts, hurricanes, flooding, heat waves and wildfires — will continue demand improved reliability using multiple strategies that are complicated to plan for, design, obtain regulatory approval, construct and then operate. These strategies will include energy storage, distributed generation, microgrids, infrastructure hardening, load management, and undergrounding just to name a few.
Gas Distribution & Pipeline:
- Opportunity: Continue replacement of at-risk natural gas distribution assets for safety reasons for at least another 10 years; A “green” future that requires the collection, transportation via pipeline, distribution and/or storage of renewable natural gas, hydrogen or hydrogen blending, and carbon dioxide.
- Complexity: The integration of hydrogen and renewable natural gas into the natural gas system and the transport of hydrogen via pipeline introduce a series of complex technical, design, or construction challenges that are just now getting attention.
- Ambiguity: Is it the product in the pipeline or the pipeline itself that is facing government, social, and environmental attacks to not permit these facilities? The capture, transport, storage or use of carbon dioxide to reduce greenhouse gas emissions can only be accomplished via pipeline. Will the Summit Carbon Solutions, Navigator CO2, and ExxonMobil development efforts receive broad support or attack?
- Opportunity: The combination of federal funding and unexpectedly flush state and municipal budgets will result in one of the most robust construction spending growth rates exhibited in the sewer market in over a decade
- Volatility: The supply chain challenges and compliance with the federal funding requirements will slow the implementation of spending in 2023 after which faster growth will occur.
- Opportunity: Water scarcity and extreme weather events — including droughts, hurricanes, flooding, and heat waves — demand newer, more robust, and more efficient water infrastructure.
- Uncertainty: The federal money associated with the removal of lead service lines is a drop in the bucket as lead pipe intensity is scattered across the United States. Is additional state or federal funding forthcoming to chase this effort to the finish line?
Opportunity abounds yet the VUCA environment will punish firms who sit still and choose to pine for the stability of the past and take no transformative action to pursue these opportunities. As you prepare your strategy, tactics, business plans, and teams for 2023 and 2024, push to prepare for and access these opportunities. Fortune favors the bold…will you lead and transform or be left behind?
Mark Bridgers is a consultant with Continuum Capital, which provides management consulting, training, and investment banking services to the worldwide energy, utility and infrastructure construction industry.