An oft-overlooked theme of the push to rapidly deploy artificial intelligence throughout the economy has been the enormous power draw of new data centers.
It’s led to calls to invest more in nuclear energy as modular reactors can reduce the impact on the energy grid due to their possible proximity to the centers themselves.
But coupled with the Biden administration’s move away from traditional carbon-based fuels, like coal, and toward alternative energy sources, such as wind and solar, investors are increasingly waking up to the underinvestment in our energy infrastructure and the opportunity in energy transmission stocks.
And one thing that hasn’t kept pace with the construction of new wind and solar farms is the transmission infrastructure to support it. Still needed are the countless miles of power lines used to transmit the newly generated electric power to consumers.
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While renewable electricity capacity additions broke records in the last few years, power transmission installations have fallen woefully short of what is needed to back the alternative energy revolution.
An article by National Mining Association spokesman Conor Bernstein in the April 2023 issue of Coal Age magazine drew attention to the brewing energy transmission crisis. Despite the ongoing shuttering of the existing U.S. coal fleet, Bernstein wrote, “The infrastructure required for renewable energy to reliably support American households and businesses simply doesn’t exist.”
To support this contention, Bernstein cited analysis by researchers at national labs, the U.S. Energy Department and Princeton University that conclude a rapid increase in transmission rates is imperative for maintaining an electricity grid based on intermittent power. Yet “that uptick is simply not materializing: in fact, it’s slowing,” he said. Quoting at length:
“According to the Federal Energy Regulatory Commission, high-voltage electric transmission line additions totaled just 552 miles in the first 11 months of 2022, less than half the previous year, and far below what’s needed to facilitate an accelerated move to wind and solar power.”
He further noted that according to the National Renewable Energy Laboratory, “The U.S. needs to add up to 10,000 miles a year of high-voltage transmission to hit the Biden administration’s target of a renewable-dominant grid by 2035.”
As the game of “catch up” begins apace to increase the nation’s energy transmission capabilities, a few big players in transmission infrastructure construction are poised to benefit from what is likely to be a boom in this space in the coming years. At least three of them are standouts worthy of consideration for investors.
3 Transmissions Stocks Addressing the Energy Crisis
MasTec (MTZ) is one of the nation’s top transmission line construction companies, specializing in high-voltage and extra-high-voltage transmission systems from 760kV and down. Its customers include energy firms, pipeline operators, wireless providers, broadband operators and government entities.
While MasTec sees long-term opportunities in communications and pipeline services, it expects much of its future growth will be led by high customer demand for renewable power generation, power grid transmission, distribution and civil infrastructure, which it sees lasting well into the next decade.
To facilitate this growth, the company recently acquired Infrastructure and Energy Alternatives (IEA), a leading renewable energy and infrastructure solutions service provider, which MasTec believes will allow it to increase the scale and capacity needed to meet growing customer demand for clean energy.
Quanta Services (PWR) is a major player in the eco-friendly electricity grid space, providing end-to-end solutions in the electric power sector, generating station and substation construction, as well as transmission lines for pipeline, industrial and telecom customers. It’s also America’s biggest electrical contractor based on annual revenue.
Through its ownership of Blattner Holdings, it also offers utility-scale renewable energy infrastructure solutions, giving Quanta major exposure to the energy transition. Quanta finished Q1 of 2024 with a record backlog of $29.9 billion—which the firm expects to significantly increase as renewable energy transition momentum builds.
It further believes the tailwinds driving the firm’s sales are long in duration and can create multiyear earnings growth potential.
MYR Group (MYRG) through its subsidiaries offers electrical construction services for transmission and distribution lines, substations, commercial and industrial buildings and renewable energy. It’s the nation’s second-largest electrical contractor by annual revenue, behind Quanta.
MYR Group entered this year with a near-record backlog and saw Transmission and Distribution revenues grow by 10% over last year’s quarter. Management emphasized that its nearly $2.5 billion backlog puts the firm in an excellent position for success in the coming year.
The top brass further stated, “Bidding activity remains healthy across both of our business segments, demonstrating positive signs for continued long-term growth.” Much of the demand for its transmission infrastructure services is from the health care, water, wastewater treatment and transportation industries, the company said.
Additionally, the firm sees opportunities in electric vehicle (EV) charging stations, solar and battery storage projects.
All three of these stocks look poised to benefit once the U.S. begins addressing its energy transmission needs.
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