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Bridging the Gap in President Trump’s Infrastructure Plan

July 13, 2017

 

Though only a few pages long, President Trump’s infrastructure plan clearly hinges on one major assumption: leveraging private dollars. The 2018 budget request of $200 million is a fraction of the $1 trillion President Trump wants pumped into infrastructure. The hope is that private dollars can be leveraged to make up the difference.

 

The plan itself does not go into detail about the variations of the different infrastructure projects and how they can leverage private dollars. It appears that the overarching goals are to divest existing federal assets, allow states to divest of existing assets, remove federal road blocks for states and local projects, and selectively invest federal dollars in new projects.  The factsheet highlights that 4/5ths of infrastructure spending happens at the local level; which means that the majority of potential projects, or investments, are controlled by the state or local government. Which brings into question how states will approach having private dollars supporting public projects.

 

The other major question is how many of these potential projects are truly “investable”? Private money needs two things; contracted, or at least definable, revenue and above market returns. Projects like needed repairs for existing infrastructure, projects that serve rural or economically disadvantaged populations, or higher risk projects will be difficult, if not impossible, for deployment of private dollars.

 

One area that the federal government can champion now, requiring relatively little investment on their part, is distributed energy. Producing, storing, and controlling energy at the point of use (i.e. “behind the meter”) or at the distribution substation level provides a multitude of benefits. A large propagation of distributed energy resources would harden the overall power security, reliability, and resiliency of the energy system in the U.S. That is one reason the Department of Defense has been working for years to expand distributed energy at their facilities across the country.

 

Organizations that implement these projects at their facilities can reap the benefit of cost savings, cost control and increased power quality. Those benefits ultimately support their bottom line and makes real progress on sustainability goals. These systems can also be a tool for grid operators to help with macro grid security, system balance, and real-time feedback on grid conditions. All concerns that need to be addressed by any infrastructure budget, but areas that distributed energy could reduce, at least in a small part, some of the needed upgrades.

 

The best part is that these projects are “investable” when developed and defined correctly. They are already a growing asset class for many investors and there is strong momentum underpinning this growth. If the federal government wants a cheap and easy win, then they should seriously consider ways to better support these types of projects. Continuation of the various investment tax credits (ITC) is only a minor boon to distributed energy. A better approach would be to foster existing state and public utility commission programs, or encourage instituting new ones, that provide regulatory coverage, economic incentives, and a clear project pathway. Another way is to offer federal incentives for the users/adopters of on-site distributed energy, not just the asset owners.

 

From the latest American Society of Civil Engineers Infrastructure Report Card, there is a $2 trillion investment deficit in U.S. infrastructure and included in that is a $177 billion investment deficit in the American energy grid. These are huge dollar amounts and though distributed energy can only make a small dent in these numbers, it is low hanging fruit that is poised to make an immediate impact. Support of distributed energy can have a cascading effect. It can enable more private dollars investing in more projects, which in turn allows companies operating in the U.S. more cost control and competitiveness, and can be a resource in bolstering the security of the national power grid. Can this entice this administration enough to mobilize leadership on a quick win program?

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