Energy Transition, Part VII: How to Spend It – Electric Grid and Communications Infrastructure

The Cowen Insight

We present our proprietary analysis of electric grid CapEx with the initiation of coverage for electric grid and communications infrastructure (E&C). We see an inflection in infrastructure spending approaching, particularly for the electric grid and communications. This creates a very attractive backdrop for E&C services. With the help of Cowen’s TMT and Washington Research Group teams, we analyze historical and projected spending and expect crystallization of fiscal stimulus in the coming months.

Increased Spending After Years of Infrastructure Underinvestment

The U.S. has underinvested in infrastructure for decades. However, recent high-profile failures exposed the need for repair. Combined with a more ambitious agenda toward Energy Transition and upgrades to communications infrastructure, we see a base level of increasing investment.

Through our analysis of utility CapEx plans, we find spending on electric transmission and distribution increasing from ~$63B per year in 2020 to ~$75B in 2025. While a healthy increase, we show how $75B may be $10B too low to adequately maintain the grid. Additionally, collaboration with Cowen’s Communications research team reveals an increase in spend across their coverage from $74B in 2020 to over $80B in 2022/2023 owing to 5G and broadband initiatives.

In addition to this base level of spending, the federal government is attempting to pass a record stimulus, which includes significant contributions to the grid and communications. Cowen Washington Research Group sees a ~$579B bipartisan bill passed in September/October, plus a $3.5T reconciliation bill in November as the most likely outcome. The bipartisan bill seeks to allocate $73B to the grid and $65B to toward broadband. Further support may come through reconciliation.