Underground Construction - January 2022 - 15

Power distribution
Th e power distribution segment of
underground construction will experience
continued growth and investment in 2022.
Two trends are driving the growth in this
segment, and both will increase their pace
under a new administration concerned
about renewable energy: sustainability
and resiliency. FMI projects that power
distribution spending will grow 26 percent
in the coming fi ve years to repair existing
infrastructure and to prepare for a more distributed
generating environment. Th e South
and West Regions of the United States are
anticipated to have the greatest growth
due to population trends and renewable
generation concentration. Also, intense, and
unpredictable weather events in 2021 point
toward an increasing focus on utility resiliency
strategies in 2022. Th e most common
solution is the transition from overhead to
underground infrastructure, which bodes
well for underground contractors.
Another factor contributing to the
growth in the segment is the increase in
electric vehicles throughout the country.
Electric utilities are deploying billions in
capital to accelerate the charging infrastructure
around the country. Over 22
million electric vehicles are expected to
be on the road by 2030 and signifi cant
upgrades to the charging infrastructure are
needed to support them.2
Natural gas transmission,
distribution
Th e outlook for the natural gas
transmission segment diverges
meaningfully from the other underground
services. Th e Biden administration has
been very clear about their desire to shift
from fossil fuels and expansion of new
oil and gas transmission infrastructure
will be limited. FMI expects repairs and
improvements to existing infrastructure to
have a stable outlook as demand for natural
gas to heat homes and provide reliable
power remains. Despite the need and the
relatively low emissions from natural gas,
the message from the Biden administration
has been clear on this front and growth
from large opportunities is not expected.
For the gas distribution contractor,
repair and replacement will remain
consistent at similar levels to 2021. North
American gas local distribution companies
continue eff orts to remove cast-iron
and bare steel in 20-year replacement
programs. Nearly every LDC in the United
States is under some form of accelerated
replacement program with multi-year
capital investments being made to address
leak-prone infrastructure. However, some
of the challenges the transmission industry
is feeling on the regulatory side will impact
distribution contractors as well. Democrats
in the House of Representatives passed a
methane tax that would create a fee for
natural gas use. If the bill went into eff ect,
it would raise the cost to heat homes
and attempt to accelerate the change to
electric HVAC, water heaters, ovens and
stoves. Additionally, " No New Gas Main "
legislation has occurred at the municipal
levels in New York and California and
could impact local contractors.
Communications infrastructure
Th e communication construction segment
is knee-deep in the deployment of fi ber to
support the 5G rollout by major carriers
around the country. Current expectations
are that by 2025, over half of all mobile
users will be relying on 5G connections. To
facilitate this, micro cell deployment and
the " densifi cation " of the current network
is a necessity. Th e underground segment
will benefi t as fi ber is the backbone that
makes the small cell network function.
Th e emergence of 5G wireless technologies
marks the next great shift in telecom
infrastructure (i.e., from wireline to fi ber).
$45 billion dollars is also earmarked
for fi ber-to-the-home construction in
rural and underserved markets in the
infrastructure bill. Additionally, networks
necessary for self-driving vehicles, grid
hardening, and the internet-of-things
will drive demand for increased fi ber to
support the complex data demand.
Water/wastewater
Investment in our nation's water infrastructure
took a defi ning step forward in
2021. Over $100 billion is directed at water
resources and revitalized private sector
interest could result in signifi cant growth.
Federal water infrastructure funding
will be directed foremost into bolstering
state revolving funds, accelerating lead
line replacement, improving storage and
resilience infrastructure for droughts, and
addressing emerging contaminants. Real
legal consequences for failure to maintain
clean drinking water have resulted in a
necessary emphasis on repairing those
lines that need it most.
Growing population centers have
struggled to keep pace with the growing
volume of wastewater demand and
Both infl ation 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 profi tability due
to labor, material and equipment
costs throughout the year.
FIGURE 2: YTD UCC Index. Source: FMI Research, S&P Capital IQ; as of December 13, 2021
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15
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Underground Construction - January 2022

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