By Anthony Catachanas, Chief Executive Officer at Victory Hill Capital Partners

Throughout its history, the United States has gone through numerous economic cycles. Each boom has seen significant advancements in the development of infrastructure and technology only to be reined in by the subsequent bust. We saw this at the beginning of the 20^th century, and again after the Second World War. After years of under-investment, the US is now standing on the verge of yet another infrastructure revolution, one that will require trillions of dollars of investment to upgrade the country’s ageing energy systems and grids into the 21^st Century.

The scale of the challenge is unprecedented and will only be possible if regulation and capital, both public and private, can align. We are seeing early indications of this, meaning we are set to enter a once in a generation opportunity for institutional investors to capitalise on a boom that could mirror or even exceed the growth of the U.S, the early 1900s and post-war boom eras

An Inviting Regulatory Landscape

Regulatory changes are already underway but the patchwork quilt of differing local state regulations and systems pertaining to energy and utilities make this a huge undertaking.

In North Carolina, for example, the same company is the state-wide operator, utility player and distributor for its power system. Its monopoly means it owns most of the state’s power infrastructure and manages all distribution. However, there are discussions within State authorities to open its market to more players, boosting competition and creating a huge opportunity for infrastructure investors.

Other states, such as California and Texas, are examples of how this modernisation and liberalisation process across energy markets works. According to McKinsey, Houston is expected to be the energy transition capital of the world by 2040, inspiring others to follow suit.

Many of the States that are in the process of liberalising their energy markets have experienced a wave of capital investment from private energy groups domestic and overseas that want to access the numerous incentives that the Inflation Reduction Act (IRA) will bring to the clean energy sector in particular. As jobs are created and productivity increases, manufacturing is near-shored back to the Unites States, many southern States in particular seem to be embracing the IRA and for the right reasons and regardless of political leaning.

From State to Federal Approach

The effect of the IRA is only now beginning to trickle into smaller closed markets, creating a ground swell that is attracting unprecedented capital flows to traditionally unloved U.S. infrastructure and creating significant investment opportunities. The amount of infrastructure and capital required to execute this is enormous – trillions of dollars at least.

Some States can build the grid system through digging trenches in the ground rather than pylons. Many urbanised areas have historically run wires above-ground, making grids easier to deploy through the simple erection of posts. In more remote rural areas this proved challenging, and often they naturally revert to distributed generation for example rooftop solar energy. This will clearly need to be factored into government thinking as they try to channel more capital to improve the grid system going forward, as this will have a bearing on State-wide distribution.

In this way we expect demand for both utility and distributed energy to rise across the U.S. in particular. Consequently, key decision-makers need to revisit strategies for how they target improving infrastructure beyond replacing it. The change brought about by this process will mean distributed renewable technologies will come to the fore as they are designed to able to plug into an improving grid, which will complement upgrades in utility generation. This will provide more diversified sources of power ultimately improve energy access, grid stability and energy security. The exact mix of technologies will need to be considered carefully on a State by State basis.

For global institutional investors, this change and how it is integrated will open opportunities for investing across the U.S. energy market. The federal government will need to make sure people partaking in this agenda are well-capitalised and experienced investment firms.

Balancing the grid

The energy grid is underinvested and States such as Texas and California, which are both experiencing increased commitments to build more offshore wind capacity, which in turn will create more pressure on an aging State grid infrastructure. According to Climate Central’s WeatherPower Year in Review 2022 report, clean energy produced by the U.S. skyrocketed, with wind and solar producing enough power for 64 million average American homes – California produced the most solar energy and Texas produced the most wind energy in 2022.

While the country looks set to increase wind capacity, decision-makers must note that wind is the least reliable and the most intermittent source of renewable energy. While it develops more capacity to modernise the grid system, the country must also be aware of the downfalls of too much reliance on intermittent sources. Instead, it needs a balanced grid system, with pluralised and diversified technologies.

Lessons from the UK

As the U.S. embarks on a new boom, it needs to learn from experience of markets like UK. The US could learn a lot from the UK about developing a more balanced grid system from a wider range of technologies. Renewables are inherently intermittent energy sources, and the U.S. must consider a combination of sources such as offshore wind, utility-scale and distributed solar generation, battery storage schemes, carbon capture and reuse, compressed air storage facilities, as well as adding more pumped hydro capacity.

Crucially, as the regulatory environment  continues to play its role in incentivising private capital to participate in US energy markets, there needs to be checks and balances done on entrants so that they can commit to seeing investments by , ensuring energy consumers – and the environment – do not suffer.