The put-in-place power construction market is on the rise. It will increase 5 percent to almost $42.8 billion in 2007. It will increase another 6 percent in 2008 to more than $45.3 billion, and is predicted to reach almost $56.6 billion in 2011. Although new power projects have been a hot topic for quite some time, major spending has yet to materialize. We predict that the first of the major projects will begin in 2010 and 2011, bringing power construction to a completely new level. The types of power projects that will be constructed are varied.

The power segment includes electric, gas, oil and subsegments. The electric subsegment includes power plants (nuclear, oil, gas, coal and wood), nuclear reactors and hydroelectric plants. It also includes electric distribution systems, electrical substations, switch houses, transformers and transmission lines. Gas includes buildings and structures for the distribution, transmission, gathering and storage of natural gas. The oil sub-segment includes buildings and structures for the distribution, transmission, gathering and storage of crude oil.

The other segment includes wind and solar facilities, among other sources. The electric subsegment accounts for 71 percent of power construction, totaling $30.4 billion. Gas accounts for 19 percent totaling $8.1 billion.         

Oil and others account for 6 percent and 4 percent totaling $2.6 billion and $1.7 billion of put-in-place construction, respectively. We expect the power market to increase, and for the other subsegment to increasingly gain market share.

Transmission is as important a part of the power market as a generation. Underinvestment in transmission lines by utilities has caused several power failures, including 2003’s big blackout, which left 50 million people in the East and in parts of Canada without power. There have not been significant outlays on transmission lines for the past 20 to 30 years. However, transmission projects have been increasing rapidly since 2005 and are expected to remain at this new, higher level for at least the next five years.

Utilities are increasing their spending on transmission lines for several reasons. The first is financial. Transmission projects get a federal and state-regulated rate of return. The increasing use of power is generating more transmission, which increases usage fees. The Federal Energy Regulatory Commission (FERC) is also offering higher rates of return for some complex projects. The second reason is that these projects improve grid reliability. They could also reduce bottlenecks in the transmission path. Another important reason is to transmit renewable energy to consumers. Major projects have been announced in California, Connecticut, Kansas, Michigan, New Jersey, Texas and West Virginia.

Green Power
Increased transmission lines for renewable energy are extremely desirable. Green power is a hot topic right now and federal regulations are forthcoming. About half of the states in the nation have renewable portfolio standards that require utilities to use more power from renewable sources.

Recent legislative activity involving green power includes a recent House of Representatives committee’s changes to the Energy Title of the Farm Bill. It includes $2 billion in loan guarantees for biofuel production plants and biorefineries along with $15 million for the Forest Bioenergy Research Program. President Bush issued an executive order on May 14 that directs the EPA and the Department of Energy (DOE) to begin a regulatory process to increase the corporate average fuel economy standards and to implement an alternative fuels standard. These standards would reduce the amount of greenhouse gas emissions from burning fossil fuels. The Senate passed a law requiring that 36 billion gallons of renewable fuel be used by 2022.

There are several different types of renewable or green power. They include wind, solar, biomass, hydro and geothermal power. While these sources of power currently make up less than 2 percent of total power – and about 4 percent of total power construction spending – they are on the rise. Wind is the fastest growing source. According to the American Wind Energy Association, wind-power generating capacity increased 27 percent in 2006 and is expected to increase another 26 percent in 2007. The first wind farm was constructed in Altamont Pass, Calif., in 1981. Today, there is almost 12,000 megawatts of wind-produced energy in the United States. Wind power saw a huge increase in growth from 2001 to 2006. There are more than 600 wind farm projects in the planning, engineering, construction or operational stages. Texas and California have the most wind farms.

Solar power has great potential as it can supply large amounts of energy from just a few days of sun, although it is expensive and can be affected by the weather. Biomass power is a large source of renewable energy and is poised to provide more. Many biomass energy projects are under construction and many more are in the planning stages. It has a few drawbacks, including the fact that it requires inputs that can be used elsewhere and also demands land that could have alternative uses. Hydropower, especially on a smaller scale, is another large source of renewable energy. It is a good source because its input is in abundant supply and weather is not a factor. However, many of the most desirable sites for these projects are already developed. Geothermal power is very efficient and is a low-cost alternative once it has been installed. The disadvantages of this alternative are that exploration costs can be high and its sources can be remote from the owner and the power grid.

Conventional Wisdom
Traditional sources of power will continue to provide the largest amount of energy. New construction will include a growing number of renewable power projects. However, coal plants will probably be the largest source despite environmental concerns. The DOE’s Energy Information Administration, the percentage of power from coal is expected to decrease slightly, from 50 percent in 2005 to 49 percent in 2020 before increasing to 57 percent in 2030.

Many coal projects have been delayed until legislation regarding CO2 emissions is passed. These environmental concerns are so great that TXU, Kohlberg Kravis Roberts and Texas Pacific Group announced their intention to delay or scrap plans for some of the coal plants that TXU was planning to build. However, a large coal plant is currently under construction in Wisconsin and clean power technologies are advancing quickly. Exelon Corp. recently announced plans to apply for a combined construction and operating license for a new nuclear power plant. It will be located at one of two undisclosed sites in Texas. The application isn’t due until the end of 2008. FMI expects that if passed, construction of the $4 billion plant wouldn’t begin until at least 2010. This would be the first new nuclear power plant since 1996. Nuclear power also has some disadvantages. Security is the largest, while future projections of a dwindling experienced work force is another.

To predict put-in-place construction spending in the power segment, several key ones must be considered. The main economic indicators that influence the power market are CPI, homeownership rate, industrial production, new home sales, personal income, Producer Price Index, productivity, rental vacancy rates, government consumption and a lag variable of one year.

Power construction is predicted to begin taking off in 2010 or 2011 as many projects in the planning stages finally come to fruition. New CO2 emissions regulations are expected to be passed after the next presidential election. Growth will come from renewable sources and increased capacity in other sources.

Heather Jones is a construction economist in the research services group at Raleigh, N.C.-based FMI Corp. She can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it