Recently, I read an interesting article in The Epoch Times discussing the condition of the U.S. power grid. It was not a confidence-inspiring read. However, the grid’s challenges offer some investment opportunities.
The article is quite long, and you can read it here. Here are some data points that caught my attention:
● The U.S. power grid is 40 to 100 years old. It is estimated that $1.4 trillion must be spent to expand and upgrade the grid by 2030. Another $1.6 trillion will be needed for the following five years.
● In 2024, Goldman Sachs estimated that AI demand would increase the power needed by 160% by 2030.
● Transformers are a major problem when it comes to upgrading and expanding the electrical grid. 70% of power transformers are greater than 25 years old. The average age is 35 years old. Older transformers are prone to failure or require significant maintenance.
Here are a couple of direct quotes from the article:
● “The National Infrastructure Advisory Council report states that one large power transformer manufacturing facility in the United States reported a five-year wait time for new orders.”
● “Jerry Poon, principal engineer at Red Dog Engineering, said he has also found this to be the case. ‘I work on electrical system design and upgrades for commercial and multifamily projects, and transformer availability has become one of the biggest constraints on getting power online right now,’ Poon told The Epoch Times.”
● “It’s not unusual to hear 12- [to] 18-month lead times for distribution transformers that used to be available in a fraction of that.… In some cases, projects are ready to go except for that one piece of equipment. When that happens, everything downstream stalls—energization, inspections, tenant occupancy, all of it.”
It appears that stocks of companies that produce transformers should be very attractive investments. Here are a couple of ETFs in that space that should do very well:
● First Trust Clean Edge Smart Grid Infrastructure ETF (GRID) has $10.7 billion in assets and is up 56% over the last year.
● Tema Electrification ETF ( VOLT) has assets of $700 million and a 12-month gain of 76%.
As noted above, the required build-out of the power grid will take years. Despite the recent gains, tucking shares of these two ETFs into your portfolio could produce additional gains for the next five to 10 years.
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