2024 utilities sector outlook brings three key opportunities

Despite an established landscape of challenges, several developments have enabled confidence in utility decision-making moving forward.

In brief

• Delivering affordable, reliable and sustainable energy continues to be paramount.
• New developments across the operating landscape will challenge those three goals.
• To overcome, utilities need to capitalize on three opportunities in the coming year.

Despite an ever-evolving energy landscape, three core priorities remain for US utilities: providing reliable, affordable and sustainable energy. The utilities sector outlook for 2024 requires balancing traditional and novel funding approaches to progress these priorities. In fact, utility executives are better positioned than ever before to confidently make the transformational decisions needed for the future. To start, utilities should focus on three key opportunities:

“Since utilities sit in various stages of the energy lifecycle, we are seeing them focus on a range of solutions and assets as well as investing in the infrastructure needed to truly embrace the energy transition.”

Step 2: Maximize newly available capital — such as funding through grants and tax credits — to accelerate the energy transition for power and utility companies.

Utilities are consistently in the position of prioritizing capital investments, given the need for resiliency-related infrastructure investments and the implication for customer affordability. However, groundbreaking legislative changes during 2021–22 at both the federal and state levels are unlocking funding and financing for the sector. 

For example, the 2021 Infrastructure Investment and Jobs Act (IIJA) and the IRA of 2022 will eventually deliver $97 billion in funding to companies researching, developing and deploying clean energy projects and technologies. As 2023 came to an end, the first grants were awarded from the Department of Energy — including $3.5 billion earmarked for 58 projects designed to expand capacity for wind and solar, harden power lines against extreme weather and develop microgrids. Another $7 billion in grants was announced for the creation of hydrogen hubs across the country. The opportunity is far from over; clean energy grants will continue for at least five years, and the tax benefits will likely extend further.

“These legislative moves provide funding streams that will unleash a wave of investment across the US. It’s really a once-in-a-lifetime opportunity for utilities to make much-needed enhancements.”

The availability of federally funded capital for these types of groundbreaking investments should give utility executives the confidence and ability to make capex decisions today that will deliver significant value for years to come — especially considering that rising interest rates have made many forms of private financing more expensive.

Utilities can turn to other sources of capital, too. The last few years have seen record-setting rate case requests, but state regulators are generally willing to allow utilities to raise revenues for needed and prudent grid investment. Cost takeout can also help free up cash for investment and can actually lead to transformational outcomes, especially when utilities implement creative models that deliver meaningful benefits to customers around affordability and service levels. And utilities that receive grants and tax subsidies to help with grid buildouts or hardening can redeploy the capital originally planned for those activities into different projects.

Additionally, the strategy driving capital allocations should not be overlooked. Rather than seeking IIJA grants or IRA tax benefits piecemeal, utilities should first determine which opportunities align with their long-term strategy.

“Determine what makes the most sense from a competitive or skill set standpoint, whether it entails participating in renewables, energy storage, hydrogen, electric vehicles — or perhaps just focus solely on traditional transmission or distribution. Make those decisions now and tailor your capital strategy to that vision.”

Step 3: Modernize technology to progress the business.

Newly available funding and financing can be leveraged to improve field and customer operations, optimize the back office, and protect the enterprise holistically, which will in turn optimize utility service. The IIJA grants announced in late 2023 included millions of dollars for utilities to integrate distributed energy resource management systems and advanced distribution management systems that are needed for grid modernization (e.g., supporting interconnections of rooftop solar panels and electric vehicles) and will provide data-driven insights needed to forecast, aggregate and dispatch customer-generated electricity.

Those needs aren’t the only areas ripe for technology modernization. As utilities receive funds to enable distribution improvements, they should also evaluate how to shift funds previously earmarked for grid modernization toward other priorities across their organizations.

For example, utilities lag their peers in other industries in implementing state-of-the-art enterprise resource planning platforms and customer information systems. For years, product vendors have pushed utilities to upgrade their systems and move to cloud and managed services to increase efficiency, improve resiliency, and provide much-needed security of data and grid reliability. But adoption has been slow, primarily due to cost issues and regulatory resistance.

Those delays in modernization mean that utilities today often find themselves overwhelmed with choices and the sheer magnitude of potential investments. Trying to do too much too soon can have negative impacts on both finances and performance and make developing a workable roadmap trickier.

“The right service provider can be invaluable in helping manage technology change. The key is to begin with the end in mind and understand what steps you need to take to get there. It can be a challenge in today’s world, with emerging technology constantly changing the landscape.”

One major opportunity is the introduction of tools that utilize artificial intelligence (AI) to enhance the operating environment. These emerging tools are particularly relevant for customer-facing technologies that make it easier and more beneficial for consumers to understand, predict and adjust their usage.

“The right tools can help customers become savvier about their usage, but it must be done in a way that protects actual data. It’s one of the areas where smart utilities are investing resources today, knowing that the payoff can be significant down the line.”

The rapid growth and acceptance of AI is an opportunity — and a risk — that every utility should be exploring today. It can help utilities improve their efficiency, accuracy and ability to process and analyze huge amounts of data seamlessly.

 “That should be of interest to anyone in a utility C-suite.”

A shorter version of this article was originally published by Public Utilities Fortnightly on January 3, 2024.