Underground Construction - January 2022 - 14

Daniel Shumate | Managing Director, FMI Capital Advisors Inc.
2022 Utility & Communications
Construction Outlook, Update
Uncertainty felt like the only certainty
over the past year as the industry performed
quite well despite labor, material,
COVID delta variant and regulatory
challenges that were on the minds of
every contractor. With the passage of
the Infrastructure Investment and Jobs
Act that has been a topic of discussion
for almost 10 years, optimism around
the underground markets is nearing
all-time highs. Approximately half of the
bill is spending on infrastructure that
the Federal Government would do in any
given year; however, over $550 billion in
new spending is expected to occur under
the act. Spending on power infrastructure,
high-speed internet, clean drinking water
and resilient infrastructure will all benefi t
the underground construction segment.
New construction put-in-place in the
U.S. market is forecast to grow 3 percent
in 2021 on the strength of the residential
sector. Millennials have begun to buy
single family homes due to the extended
working from home and growth in
families and were the driving force behind
the sector in 2021. In 2022, the water,
wastewater, communication and power
segments are all expected to see increases
in construction put-in-place. Th e largest
challenges for the construction industry
will be tied to the commercial building
markets. Meaningful declines in spending
on commercial building will limit the total
growth of the construction segment and
could impact some of the underground
work that would support this type of
construction.
Within the utility and communications
segments, capital plans by owners
of power, gas and communication
infrastructure continue to grow. Th e
two themes that are most common
amongst investor-owned utilities and
municipalities that will defi ne 2022 are
resiliency and renewables. Spending tied
FIGURE 1: Estimated U.S. Construction Put-in-Place1
14 JANUARY 2022 | UCONonline.com
to the hardening of the grid, the resiliency
of our water supply, and the real-time
awareness of grid issues are key areas of
investment for utilities. Additionally, the
continued push at the Federal and state
level to increase renewable generation as
a percentage of energy supply will impact
the power and gas markets.
With the amount of spending on
utility-related infrastructure expected to
grow again in 2022, one pressing question
remains, who will do the work? Creativity
abounds around this challenge. Growth
of technical schooling, automation of
tasks and a generation that is waking up
to the challenges of student debt are all
positive trends for the industry. However,
competent, productive crews require years
of training and experience, and companies
will struggle to keep pace with the volume
of work that will be required in the power,
communication and water segments.
Both inflation and its cure (tightening
of monetary policy and raising interest
rates) will make an impact on both the
stock market and the underground
construction industry. Contractors will
feel tightening profitability due to labor
costs, material costs (and availability)
and equipment costs throughout the
year. Owners are actively developing
strategies to ensure their employees
have sufficient supplies and equipment
to address their customer demand. This
would have been unheard of in 2019. The
cure for inflation will also be challenging
for utilities and municipalities alike. The
cost to finance projects to repair our
infrastructure and build a grid centered
on clean energy will increase, and the
burden to the average induvial through
tax increases or rate base increases may
slow infrastructure progress.
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Underground Construction - January 2022

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