During the next four years, and possibly extending into the next decade, President Obama’s proposed Energy for America Plan could change the direction of construction projects in the energy and power plant industry. With a $150 billion pledge to help build a clean energy future, the plan incorporates strategies from people such asoilman T. Boone Pickens and formerVice President Al Gore, who endorse energy independence and clean energy through the use of natural gas and wind power, plug-in hybrid cars, and a carbon tax or cap-and-trade system to limit greenhouse gases.
The proposed plan initiatives that would have the biggest impact on the construction industry include:
- accelerating private sector investment in commercial-scale zero-carbon coal facilities;
- constructing the Alaska natural gas pipeline;
- transitioning to a new digital electricity transmission grid;
- advancing the next generation of biofuels and fuel infrastructure;
- instituting a federal Renewable Portfolio Standard, with 10 percent of electricity derived from clean, sustainable energy sources by 2012 and 25 percent by 2025;
- extending the federal Production Tax Credit for five years;
- promoting the supply of domestically produced energy;
- improving new building efficiency by 50 percent and existing building efficiency by 25 percent during the next decade;
- improving energy efficiency of existing federal buildings by 25 percent during the next five years; and
- devoting substantial resources to road and bridge repair, as well as to investments that increase walking, biking and other transportation alternatives.
These initiatives, many of which require new infrastructure construction, could help offset the loss of projects involving traditional coal-burning plants displaced by the clean energy mandate.
As construction firms begin to transition through the technical construction challenges associated with new, more complex facilities, executives should take care in managing the increased risks inherent in these types of projects. One way to manage the risk is through the company’s insurance policy, which can provide efficient methods to transfer risk and minimize exposure.
Construction executives should ensure their builders all-risk insurance policies meet the contractual requirements of each project and provide adequate coverage for transit and offsite storage of materials. Transit and offsite storage coverage can be useful on large projects, such as road projects, that require materials to be stored in multiple locations or that require contractors to use lay-down yards and offsite warehouses. Builders all-risk insurance may cover the risks of warehouse fires and materials lost in transit.
A company’s insurance policy also should have coverage extensions that include “expediting expenses” to help keep project timetables intact during a project delay caused by an insured event. Expediting expense coverage can provide extra money for overtime, express freight and increased shifts for employees to get a project back on schedule and help companies avoid possible contractual penalties. Coverage extensions also should be reviewed to account for tax credits that may have been planned.
Contractors should evaluate their insurance policies before participating in the following construction opportunities:
- The U.S. Department of Energy’s mandate to enter five public/private partnerships to develop commercial-scale coal-fired power plants using carbon-capture and storage technology. This initiative would promote private-sector investment in the development of zero-carbon coal-fired facilities.
- Tax incentives and government contracts to ensure development and construction of advanced biofuel energy sources, such as cellulosic ethanol and biobutenol, that produce synthetic petroleum from sustainable feedstock. The plan aims to make 60 billion gallons of advance biofuel capacity available by 2030.
- Development of a new digital electricity transmission grid and installation of new electricity transmission lines necessary for renewable energy sources, such as wind and solar, in remote areas of the country. American Transmission Company alone announced $2.8 billion in construction and maintenance projects in its operating areas during the next 10 years.
- Government pressure on oil companies to develop 68 million acres of unexplored land, or face losing their leases. This would promote increased domestic drilling activities and create a need for additional storage facilities.
- Construction of the Alaska natural gas pipeline, which would yield a 7 percent increase in the national natural gas supply. With $18 billion waiting for use through loan guarantees from Congress, this promises to be the largest federal construction project to come out of President Obama’s plan.
While it is unlikely that all the proposals presented in the plan will be considered by Congress, elements of this plan likely will spur investment, upgrade the nation’s infrastructure and create exciting, as well as challenging, opportunities in the construction industry.