The U.S. grid capex upcycle may extend into the 2040s

Overview

The report summarizes the views of an expert with experience at the U.S. Department of Energy and in grid modernization on the U.S. grid investment cycle, data center grid interconnection, equipment supply and demand, and regulatory policy. The core conclusion is that long-term underinvestment in the United States, aging infrastructure, and load growth driven by data centers, electric vehicles, heat pumps, and manufacturing reshoring will drive grid capex to maintain double-digit growth over the next several years and may create a long-term upcycle extending into the 2040s.

Core views

U.S. grid capex is not close to a cyclical peak; new transmission, interconnection expansion, and equipment replacement demand that has not yet fully begun jointly provide long-term support. Although self-generation by data centers can alleviate grid connection queues, stability and reliability still make grid connections irreplaceable. Equipment shortages will not fundamentally block investment, because utilities typically place orders in advance and lock in capacity, while regulated businesses can pass higher capex on to end customers. Grid interconnection pauses in Texas and New York have local political and power price backgrounds and are currently insufficient to change the overall capex trend.

Analysis framework

The report is centered on an expert interview and combines U.S. Department of Energy transmission planning, historical capex growth, equipment supply and demand, data center grid interconnection models, state-level regulatory events, and federal policy direction to qualitatively assess the duration of the capex cycle, equipment pricing power, and key execution risks.

Methodology notes

• Industry cycle analysisGrid capex cycle framework

  Assess the position of the capex cycle based on the investment gap, asset aging, load growth, and replacement demand.

  U.S. grid investment was insufficient in the 2010s, while many transmission lines and substations were built in the 1970s and 1980s and have already exceeded their designed service life of about 25 years; new connections and transmission construction have higher priority, and the equipment replacement cycle has not yet fully started.

• Supply-demand analysisPower equipment supply-demand and pricing analysis

  Assess the pricing and profitability environment through equipment delivery capacity, capacity lock-in, and cost pass-through mechanisms.

  Transformers, switchgear, and combined-cycle gas turbines are in tight supply. Utilities place orders in advance and lock in production slots, while also passing capital costs on to customers through regulatory mechanisms, making them relatively less sensitive to equipment prices.

• Scenario analysisData center power supply pathway analysis

  Compare differences between self-generation and grid connection in terms of reliability, construction speed, and long-term use.

  Self-owned power sources can serve as temporary solutions during grid connection queues, but most data centers still need to rely on the grid over the medium term for stable and reliable power supply, with self-owned power plants more likely to become backup facilities.

• Policy and regulatory analysisPermitting and cost allocation assessment

  Evaluate the impact of federal and state-level policies on transmission construction, data center interconnection, and renewable energy projects.

  At the federal level, there is bipartisan consensus on expanding high-voltage transmission, and FERC Order No. 1920 promotes improvements in regional cost allocation; however, permitting for transmission and generation projects remains complex, and the current administration is more cautious on renewable energy approvals.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Asian high-voltage transmission and distribution equipment manufacturers

  Potential beneficiaries of U.S. grid expansion and global equipment shortages

  Strengths

  Longer order cycles, strong equipment prices, and supply chain diversification may bring new export opportunities.

  Weaknesses

  Entering the U.S. regulated utility supply system requires certification, capacity assurance, and a long-term customer track record.

  Comparison

  Suppliers from emerging markets such as India and Brazil may receive more attention, while Chinese suppliers face higher geopolitical access barriers.

  Risks

  U.S. localization requirements, trade restrictions, project approval delays, and raw material cost volatility.

• U.S. regulated utilities

  Direct implementers of the grid capex cycle

  Strengths

  Can pass through higher capex through regulated asset base expansion and rate mechanisms.

  Weaknesses

  Rising capital intensity and execution bottlenecks such as permitting, cost allocation, and labor shortages.

  Comparison

  Their investment cycle is more stable than the pace of data center construction and is also supported by aging facility replacement and electrification demand.

  Risks

  Electricity price increases triggering political intervention, lower regulatory returns, and an expansion of interconnection pause measures.

• Data centers and cloud service providers

  Important sources of incremental power load and grid interconnection demand

  Strengths

  Can use self-generation to alleviate short-term grid connection queues and obtain more reliable long-term power supply after connecting to the grid.

  Weaknesses

  Constrained by interconnection queues, regional power costs, and state-level regulatory restrictions.

  Comparison

  Self-generation is better suited as a transitional or backup solution; long-term stable operations still depend more on grid connections.

  Risks

  Local political resistance, interconnection pauses, cost allocation disputes, and rapid increases in electricity prices.

• U.S. renewable energy project chain

  Potential source of demand for transmission expansion, but policy support is divided

  Strengths

  New high-voltage transmission can ease congestion and improve cross-regional power dispatch capability.

  Weaknesses

  Solar approvals are slowing, and offshore wind projects continue to face significant difficulties.

  Comparison

  The current administration is more inclined to extend the life of existing coal-fired and gas-fired units to ensure baseload supply.

  Risks

  Permitting delays may weaken the pipeline of new projects toward the end of this decade.

Key data

• Utility capex growthDouble-digit compound growth over the past two to three yearsThe expert expects double-digit annual growth to be maintained over the next several years.
• Annual transmission line construction requirementAbout 5,000 milesThe annual requirement proposed by U.S. Department of Energy planning studies; actual construction last year was about 1,000 miles.
• Potential duration of the upcycleAt least into the 2040sJointly driven by long-term underinvestment, asset aging, electrification, and insufficient interstate transmission capacity.
• Reference lifespan of aging grid equipmentAbout 25 yearsMany transmission lines and substations built in the 1970s and 1980s have clearly exceeded this lifespan.
• New York electricity price changeUp about 68% since 2019The report cites CNBC data and views this abnormal increase as an important backdrop to local restrictions on data center connections.

Impact & implications

Long-term grid expansion, connection demand, and equipment replacement are favorable for high-voltage transmission, transformers, switchgear, and related engineering service providers to maintain high order visibility and pricing power. Asian equipment companies may benefit from global supply chain diversification, but entry into the U.S. regulated utility market still depends on certification, customer relationships, and geopolitical review. For utilities, capex growth can expand the regulated asset base, but may also push up customer electricity prices and intensify political pressure. The impact of fluctuations in data center construction pace on the long-term grid investment cycle may be lower than the market fears.

Risks

• Permitting processes for transmission lines and generation projects are complex, especially at the federal level.
• Cross-regional high-voltage transmission cost allocation mechanisms may still delay project decisions.
• Supply of transformers, switchgear, gas turbines, and raw materials remains tight.
• Shortages of electricians and engineers are structural and difficult to significantly ease in the short term.
• The pass-through of high capex to end-user electricity prices may trigger local political opposition and regulatory intervention.
• More states may restrict data center grid connections, but the scope and intensity depend on political factors such as midterm elections.
• Slower renewable energy approvals may weaken the pipeline of solar and wind projects toward the end of this decade.
• Geopolitical review may limit some Asian suppliers from entering the U.S. regulated utility market.

What to watch

• Whether U.S. utility capex guidance can continue to maintain double-digit growth.
• Changes in the gap between annual transmission line construction volume and the planned requirement of about 5,000 miles.
• Delivery lead times, capacity expansion, and price trends for transformers, switchgear, and gas turbines.
• The proportion and timeline of data center self-generation projects ultimately converting to grid connections.
• Whether grid interconnection restrictions in Texas and New York expand, and whether other states adopt similar measures.
• Changes in data center, electricity price, and grid construction policies after the midterm elections.
• Cross-regional cost allocation and transmission approval efficiency after the implementation of FERC Order No. 1920.
• Progress of 765kV high-voltage transmission projects in regions such as MISO and CAISO.
• Certification progress and geopolitical restrictions for Asian equipment suppliers entering the U.S. market.