by GDS Associates, Inc | December 15, 2022 |
The federal government calls the Bipartisan Infrastructure Law (BIL), a.k.a. Infrastructure Investment and Jobs Act (IIJA), a once-in-a-lifetime investment for a good reason. This 2021 law provides a multi-billion-dollar opportunity for states and utilities, regardless of size, to capture federal funds and use them for investments in grid reliability including efforts to reduce outages related to climate-induced events. Funds will be released in blocks focusing on various aspects of electric utility grid operations.
Electric Power Grid Resilience has become the federal government’s key infrastructure improvement focus. Part of the new BIL initiative is rooted in the federal government’s desire to prepare the country to withstand more frequent and damaging weather-related events. Another aspect is meant to reduce the negative impacts of those events on residents and businesses. The federal government expects at least 40% of the electric infrastructure investments to be devoted to improving service amongst the most disadvantaged communities across the country.
Several blocks of funds have already been announced. Some are of particular interest to the electricity sector. The first block of funds was released for the National Electric Vehicle Infrastructure Formula Program (“NEVI Formula”). This block is the most significant of all the funding programs and is typically managed by state departments of transportation in coordination with state energy offices. About 85% of all IIJA funds to states will go to this infrastructure modernization program.
The NEVI Formula allows for $1 billion per year for five years to fund eligible entities, including states, metropolitan planning organizations, local governments, political subdivisions, and tribal governments through formula grants. The goal is to strategically deploy electric vehicle (EV) charging infrastructure and establish an interconnected network of EV charging facilities that will facilitate data collection and increase customer access and reliability of the EV charging network. Funding for this initiative is only provided to government entities (grantees), so they pay for up to eighty percent of the cost of installing an EV charging station. That pot of money will go to the operators of the charging stations (subgrantees).
Most of the expected subgrant recipients will be private companies already in the transportation fuel business. Utilities will play a significant role in the program’s success. After years of at growth, thanks to efficiency, the transformation of the transportation sector will lead to new load growth for the incumbent utilities. The federal government created the Joint Office of Transportation and Energy to manage the NEVI Formula program. More details may be found at https://driveelectric.gov/.
The second collection of funding opportunities is more specific to the electricity sector. $47.2 Billion in government funds will be allocated to improvements in critical infrastructure cybersecurity to address critical infrastructure needs, waste management, flood and wildfire mitigation, drought, and coastal resiliency, ecosystem restoration, heat stress, and weatherization. This block of funds is explicitly allocated for electric grid resiliency. Examples of portions of interest to electricity operations include:
Preventing Outages and Enhancing the Resilience of the Electric Grid (IIJA 40101): This section of the law attempts to reduce events in which electric grid operations are disrupted, preventively shut off, or cannot operate safely due to extreme weather, wildfire, or a natural disaster. There is $5 Billion in funding available for outage prevention. Most of these funds will be managed by state energy offices and tribal governments (grantees) as formula grants, but to get the funds, the grantee must provide a fifteen percent match. Up to 95% of state grants will flow down as subgrants to eligible entities (subgrantees). While large investor-owned utilities will need to provide a 1:1 match to get the non-reimbursable funds, small IOUs, cooperative and municipal utilities selling less than 4 TWh of electricity per year will only need a 33% match to receive the grants. In states that cannot come up with their fifteen percent match, they will likely seek equivalent money by increasing the subgrantee match.
States and tribal governments can receive funds annually for five years. They will be required to manage implementation, which can extend past the five-year funding horizon. DOE allows these grantees to apply for the first two years in their first request. This two-for-one approach is meant to accelerate deployment and provide certainties to utilities that the funds are allocated. Some projects eligible for this grant include vegetation management, pole replacement, reconductoring, hardening of power facilities, and many other measures to prevent outages. Most utilities should have little trouble with the matching funds given that these preventive maintenance measures are likely already in the operating plans for the 5-year grant cycle that starts in 2022 and ends in 2027. Once funded, projects can be completed in up to ten years.
Upgrading Our Electric Grid and Ensuring Reliability and Resiliency IIJA Section 40101(c ) and Electric Grid Reliability and Resilience Research, Development, and Demonstration -IIJA Section 40103: This section provides another $5 Billion in federal funds to establish a competitive grant program that supports research and development related to electric grid resilience and reliability. The purpose of 40103 is for eligible entities to “coordinate and collaborate with electric sector owners and operators.”
This funding set is for competitive grants for eligible parties, excluding states and Indian Tribes. Utilities should pay close attention to these two sections of IIJA because they represent different opportunities. Although utilities can’t apply both funds to pay for a high-cost project, the vast needs for infrastructure modernization allow interested utilities to seek these non-reimbursable funds for different projects.
Deployment of Technologies to Enhance Grid Flexibility (IIJA Section 40107): This section also provides another $5 Billion in federal funding and is the evolution of the existing Smart Grid Investment Grant (SGIG) program. The SGIG program, established by the Energy Independence and Security Act (EISA) of 2007, provides up to 50% of the eligible costs for qualifying electricity provider system-upgrade projects selected on a competitive basis. The new law allocates additional funding to get to the $5 Billion level. The sections on the Program Upgrading Our Electric Grid and Ensuring Reliability and Resiliency and Deployment of Technologies to Enhance Grid Flexibility/Smart Grid Investment Matching Grant Program continue the focus on grid resilience. These sections were announced during the first week of September as requests for information (RFI) which allowed parties to participate in the design of these programs. These three programs will be called the Grid Resilience and Innovative Partnership, or GRIP. The hope is to maximize the synergies, benefits, and impacts of the three programs, supporting the development of more comprehensive and regional resilience strategies. The GRIP programs will be announced in January 2023 after feedback is collected and will likely be competitive grants. Typically, entities eligible to receive grants include electric grid operators, electricity storage operators, electricity generators, transmission owners or operators, distribution providers, fuel suppliers or other relevant entities that may help reduce disruptive events.
Utilities and state governments should focus on and target one or several of these synergistic programs. For example, the “Update Energy Modeling Capabilities through Building Electrification” section is still under development, and presents opportunities for innovation and better data analytics. There is much more to learn from the law, as with the rest of IIJA.
State governments receive guidance from the DOE national labs to help them grasp the opportunities at their doorstep. The path for utilities is less straightforward.
One approach is to hone in on one funding opportunity and get guidance from the state on how to pursue the funds. Each state is developing requests for proposals (RFPs) or calls to projects (CP) to be released in the first or second quarter of 2023. Each state will have the inherent terms and conditions they used in the past. If a utility has worked with a state energy office, it will be familiar with most of that contract language. The new portion of the RFP will reflect the outcome of the conversations they had with state utility trade associations and the utilities themselves. Any utility that has not been a part of that conversation should reach out to their state energy office as soon as possible.
Pooling resources to research the grant and submit persuasive RFP responses may prove more cost-effective. So, another approach is to look for synergies with neighboring utilities or between utilities and their G&T business partners. This approach is especially true for the smaller cooperative and municipal utilities because the opportunity cost of applying for a grant may exceed the value of the gift. This approach is also valid for large operators with a common interest in upgrading facilities that are not owned by them but affect the grid's reliability.
Finally, a third approach is to look at all the pots of money and understand the intention behind them. Utilities with a broader view of reliability and investments over time may want to explore ways to capture as much free federal dollars as possible to improve the service in their territories. At GDS, we would be delighted to partake in that conversation and help utilities keep track of the opportunities.
For more information or to comment on
this article, please contact:
Julio Rovi, Managing Director
GDS Associates, Inc. - Orlando, FL