Financing the Fundamental

Business-Energy-Editor-Laura-Sanchez

Infrastructure matters to each of us. Its underlying support is vital to our economy, our quality of life, our safety, and our communities. From roads and bridges, to rails, ports, pipes, the power grid, and broadband, America’s infrastructure is the foundation for every aspect of our daily lives. And that foundation is in need of repair.  But how will we fund this elaborate reconstruction? How will extensive nationwide renovations affect our workforce and our economy?

As many of you know, Infrastructure Week (May 16–May 23) is a national campaign that aims to elevate infrastructure as a critical issue in America. More than 100 affiliate organizations from all sectors of the nation’s economy and civil society have come together to create discussion, discover solutions, and promote infrastructural renewal. Forester Media, the publisher of Business Energy, is an Infrastructure Week affiliate. We’re honored to help lead the conversation.

To initiate the discussion, we recently reached out to industry experts with four questions regarding the state of our infrastructure. Here Laurent Vernerey, President and Chief Executive Officer, North America Operations, Schneider Electric, offers his perspective.

Business Energy (BE): Which infrastructure projects should be given priority? Roads and bridges? Dams and levees? Water supply? Electrical grid?

Laurent Vernerey (LV): The state of aging infrastructure is critical. It’s difficult to separate the sum of its parts when there is so much interconnectivity. Certainly for Schneider Electric, we consider a safe, secure, reliable and modern electrical grid to be extremely important. When we consider the energy water nexus, the energy used on constructing roads and bridges, and other infrastructure projects, energy is a foundational element. Nonetheless, our focus is on our communities—residents, businesses, industry—all of which require infrastructure that is operating on all cylinders, whether it’s efficient water use, a reliable electrical grid or advanced transportation systems.

We believe electricity is where infrastructure begins. Everything else happens as a result of having the availability of safe and reliable electricity. Other infrastructure projects are important as well but without the availability of safe and reliable power for construction and use of those projects, the return on investment will be limited. Think of infrastructure like building a house. Water, dams and levees, and roads and bridges are the walls and roof, but without a solid foundation, your structure is weak. Safe and reliable electricity is the foundation on which strong homes are built.

BE: Is there a solution to long-term infrastructure funding?

LV: Governments are taking a new, harder look at their energy sector. Whether for reasons of security of supply, price stability, opening of markets, pricing transparency, or economic cost of blackouts, they are investing, regulating, and supporting this industry but more can be done.

Financing will continue to be an issue. We are seeing the investor community show more interest in infrastructure projects, and we see Green Banks emerging more. These will be the major needle-mover. We have to look for the financial community and creative investment strategies to spur additional investment.

The other strategy we need to think about is energy efficiency. Today energy is seen as a fixed cost, and capital expenditure dollars are leveraged for improvement activities. In the energy efficiency framework, energy savings and be leveraged to reinvest dollars back into other infrastructure projects. This creates an operational expenditure investment path versus incremental dollars. We believe technology can drive efficiency in the operation of infrastructure. By interconnecting information technology and operational technology to produce action information, we can drive results. Standardization will also help lower cost and help accelerate adoption and proliferation.

BE: What kind of harm is the current state of our infrastructure doing to the economy and the community?

LV: There are too many constraints on our existing networks. Our aging infrastructure is limited. Generation capacity is limited. Network extension is limited. It’s difficult to integrate intermittent and distributed generation sources like wind and solar power. We need new solutions to solve the energy equation.

Most importantly, the cost of outages, leaks and breaks—any downtime caused by the state of our infrastructure—to residents, businesses, industrials, and the government can have lasting effects. Additionally the cost to FEMA and the US government for infrastructure rebuilding efforts after a natural disaster can be staggering. This can add significant budgetary pressures.

Electricity demand is growing all over the world. In developing economies, demand is driven by demographics, industrialization, and urbanization. In mature economies, it’s driven by consumption that’s making it harder to manage the peak. We need to fight climate change; we need to reduce our CO2 emissions and be more sustainable.

Interestingly, our infrastructure is also an opportunity for the economy. Infrastructure modernization brings new technologies, which means new jobs and skilled labor. As our trades population ages-out and fewer people are interested in these jobs, how do we support the service labor needs required to maintain these systems? Are we prepared as a community for how this work will get done?

BE: What can various government entities—from local to Federal—do to attract private sector support and investment?

LV: Public policy has to provide a framework that paves the way, and the private sector has to lead. Government should focus on setting a clear vision for what our infrastructure should look like and spur investment to drive innovation into the system. At the same time, government should understand that its role is to not be overly prescriptive, but set aspirational goals and let the private sector innovation engine lead.

Regulatory certainties are also important. Greater certainties around the revenue stream to recoup capital investments make projects more easily bankable. For example, the Supreme Court upholding FERC 745 and giving the commission the authority to regulate demand response programs in wholesale markets is important. FERC goes beyond simply eliminating barriers to demand response resources. It encourages demand response resources to enter the market. This should cut wholesale energy prices by billions every year. The prosumer is square in the plan of demand generation and peak shaving, so that value stream will be there. Because FERC 745 is a federal guideline, there will be more opportunities for standardization. This will help lower cost and help accelerate adoption and proliferation.

BE: Thank you, Laurent.

To see all of Forester Network’s 2016 Infrastructure Week content, click here.BE_bug_web

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