Investment Institute

How volatile summer climates spur potential energy infrastructure investment opportunities

  • 10 August 2023 (5 min read)

The impact of unpredictable weather patterns highlights the potential for investment opportunities in resilient energy infrastructure.

Summer has become a record-setting season in the U.S., bringing storms and heat waves, high energy demand, and grid blackouts and brownouts from coast to coast. Throughout the year, increasingly volatile weather patterns have devastating and far-reaching impacts on U.S. communities and the economy.

Building for resilience has never been more critical, which is one reason the Biden administration has allocated $26 million for reliable energy infrastructure, along with nearly $400 billion in incentives as part of the Inflation Reduction Act. A legislative commitment like this bodes well for investors looking to the long term. Further, it encourages investors to focus on key solutions like microgrids, green buildings, and grid modernization in support of the U.S. energy transition.

The new normal: widespread, increasingly frequent weather-related outages

With extreme weather comes an increase in power outages. Heat waves have emerged as a significant threat, pushing electricity grids to their limits.

California: In September 2022, power demand in California reached a record high of 52,061 megawatts (MW),1 forcing the California Independent System Operator to impose its highest-level energy emergency and request residents preserve power to avoid blackouts.2

Texas: In May 2022, the Electric Reliability Council of Texas (ERCOT) issued power conservation notices amid unseasonably hot weather and high demand.3 In June 2023, power usage reached an all-time high at 80,828 MW, a record which lasted just under a month, as power use reached 81,351 MW in early July 2023.4

Storms, hurricanes, tornados, and floods regularly cause outages as well. Even wildfires can reduce power access. In June 2023, smoke from Canadian wildfires caused a major drop in solar generation across New England and the Mid-Atlantic. At the most extreme point, New England solar farms produced 56% less energy at peak demand times week over week5 while PJM Interconnection LLC’s solar farms saw capacity drop from 5,000 MW to 3,400 MW.6

The importance of resilience

Outages regularly impact residents, businesses, transportation systems, emergency services, and more, costing the U.S. economy an average of $150 billion annually.7  Examples in recent years abound:

Between 2011-2013, the U.S. experienced 300 electric grid disturbances.8

In 2020, the U.S. saw a record-breaking 22 weather and climate events that cost over a billion dollars, and 2021 came close, bringing 20 significant events.9

In 2022, the U.S. saw 18 weather and climate events, which resulted in $165.1 billion in damages.10

With the cumulative cost of weather- and climate-related disasters reaching an alarming $2.57 trillion from 1980 to July 2023,11 it’s clear that we need increased resilience. In turn, there is potential opportunity for investors in the development of infrastructure capable of withstanding extreme weather events and ensuring uninterrupted power supply.

The Biden administration’s Bipartisan Infrastructure Law aims to address infrastructure vulnerabilities. The administration has allocated $26 million to the Department of Energy for projects that can lead to a more modern, resilient, and efficient power grid in the U.S.12 Meanwhile, the Inflation Reduction Act has set aside nearly $400 billion to help build resilient and sustainable electrical infrastructure and lower U.S. carbon emissions.13 And, these federal commitments further solidify the long-term potential for investors considering the space, locking in resources and incentives for years to come.

Resilient solutions for the energy transition

As weather-related outages become more common, it’s become clear that the U.S. urgently needs resilient solutions, including:

Microgrids: Microgrids generate power locally – independently of the utility grid – making them a reliable backup energy source for sites like hospitals, manufacturers, and data centers during grid failures and blackouts. The U.S. Department of Energy states that by 2035, microgrids will be “essential building blocks of the future electricity delivery system to support resilience, decarbonization, and affordability.”14 Microgrid manufacturers, installers, and service providers could be in high demand and present potential investment opportunities, as the global microgrid market is expected to grow from $23.2 billion to $82.3 billion between 2022 and 2030.15

Green buildings: Green buildings are built for resource efficiency, waste and emission reduction, and sustainable material usage. They typically incorporate efficient insulation, renewable energy integration, and advanced cooling systems, making them cost-effective. Building owners report operating cost savings of 13.6%, while increasing sale value up to 11%.16 The green buildings market is expected to grow at a compound annual growth rate (CAGR) of 9.50%, reaching $1,312.12 billion by 2030 while creating jobs – and potential investment opportunities – in green building materials, design, construction, and engineering.17

Grid modernization: To ensure large-scale electrification efforts are effective, the U.S. must modernize its grid. Currently, 70% of U.S. transmission and distribution assets are near the conclusion of their anticipated 50-year lifespan.18 Upgrading and optimizing power grid infrastructure with smart grids and intelligent sensors will enhance the system’s ability to withstand and recover from disruptions. The U.S. government has set a goal to have a 100% clean electricity grid by 2035 and is devoting $13 billion toward grid modernization projects, opening the door for significant private investment, such as around utility company initiatives.19

Building for resilience, taking action for the future

Volatile summer climates are the new normal and the risk of weather-related power outages is high throughout the year. Developing resilient and sustainable infrastructure could help the U.S. avoid the many economic and societal costs of power disruptions and outages.

Today’s innovative solutions – including microgrids, green buildings, and grid modernization –are emerging as promising investment opportunities. By aligning investments with proven solutions, investors can contribute to a more sustainable and resilient future while potentially capitalizing on emerging market opportunities.

References to companies are for illustrative purposes only and should not be viewed as investment recommendations.

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