Aluminum stands to benefit from planned upgrades in both U.S. and overseas electrical grids, being the material of choice for transmission cables and many of the towers that support them.
"For the first time in a decade there are long-term strategic projects being planned" for the nation's transmission grid, Roger W. Gale, president and chief executive officer of energy consultancy GF Energy LLC, Washington, said. "There will be a great deal of projects on the drawing board for the next 10 years," which should lead to greater market share for aluminum products. "I think most of the high-voltage cable will be aluminum. There's no question for the cable and for a large number of the towers the material of choice will be aluminum."
Projects are planned for both New England in particular and the Northeast in general, but potentially the biggest projects are in the West, where there is an effort under way to bring coal in "by wire"—generating power in coal-fired plants away from population centers and supplying it to demand centers via overhead transmission lines.
"These are the biggest projects by voltage, but they are also the most politically challenging in terms of environmental and right-of-way issues," Gale said. Most communities do not want such projects nearby, playing the perennial "not in my backyard" game.
Tony Rizzuto, an analyst at Bear Stearns & Co. Inc. in New York, also sees aluminum gaining from increased grid building. "The aluminum market will benefit—it's all tied to infrastructure," he said. "We see very good growth. North American cable producers are sold out and we see similar conditions abroad."
In reviewing Alcan Inc.'s earnings, Citigroup analyst John H. Hill singled out the cable business as one of the bright spots in the company's engineered products business unit, noting that aluminum is benefiting from substitution for copper. The cable business is part of Alcan's Engineered Products Group, which posted record earnings in the first quarter, but Alcan and other major cable producers do not break out figures for cable sales in their results.
One thing that might impact aluminum's growth in the power transmission market is the difficulty in capitalizing large projects, especially those crossing state lines where they might be subject to different regulatory systems, said Patricia DeMarco, an independent energy consultant in Pittsburgh.
Projects that cross state lines can bring up difficult questions, like who will pay for what portion of a project. Further, if a project crosses states in which one has deregulated electricity and the other does not, which set of rules will govern? "I think there is a need for increased transmission capacity, but we are facing difficulties in the adding of capacity," DeMarco said.
In addition to the difficulty in capitalizing such projects, DeMarco said that resistance at the local level to such projects has become much more rigorous, both for environmental and aesthetic reasons. Many localities have become much more organized in their opposition to large infrastructure projects in their midst. Some point to the negative environmental impact of burning fossil fuels to generate electricity, as well as studies that suggest the presence of high-voltage power lines can have adverse health effects on wildlife, livestock and humans.
Still others maintain that such large infrastructure projects are a blight on the landscape, as evidenced by the rising opposition to offshore windfarms in highly traveled tourist areas such as Martha's Vineyard, the Florida coast and California's Malibu coastline.