Navigating Grid Modernization: Balancing Challenges and Opportunities in the U.S. Energy Sector
As energy managers, utility companies consistently work to reconcile the need for grid expansion with various competing priorities, such as operating and maintaining aging infrastructure, integrating renewable energy sources, and enhancing both resiliency and reliability.
Welcome to the realm of “grid modernization,” which embodies the challenges and potential of upgrading and reinforcing outdated infrastructure. This endeavor involves preparing for both current and future risks, ranging from cybersecurity threats to outages caused by climate change, while also seizing new opportunities.
What is the perspective on grid modernization across the United States? Black & Veatch’s 2024 Electric Report—an expert analysis based on a survey of nearly 700 stakeholders in the U.S. electric sector—offers critical insights.
The Rise of Renewables
When asked about the anticipated factors that will drive grid modernization in their organizations, survey participants identified renewable energy integration as the most pressing current driver, with 57% citing it. This was followed by low-probability, high-impact events, such as extreme weather, at 43%. The reliability of renewable energy at scale poses challenges for utilities due to the unpredictability of these energy sources. Utilities prefer to maintain control over their energy availability, but the increasing prevalence of distributed generation complicates this control.
These challenges can be approached from two different angles. A utility focused solely on distribution would view these issues in terms of behind-the-meter applications, such as microgrids or individual distributed energy resources (DERs) like rooftop solar. In contrast, a transmission utility would consider the implications of large-scale solar and wind installations aiming to connect to the transmission network. In summary, distribution operators are concerned with visibility and control, while transmission systems focus on ensuring adequate capacity to manage operations.
Interestingly, while building and transportation electrification currently accounts for just 29% as a driving factor, it is emerging as a significant concern for utilities over the next three to five years.
There is considerable uncertainty surrounding the nature of electrification and its demand implications. Nevertheless, electrification is inevitable; the only uncertainty lies in its timeline. Some of this uncertainty is influenced by political factors. Additionally, demand for electric vehicles (EVs) has slowed—possibly due to high interest rates and their price points. However, this decline is outweighed by the energy-intensive demands of new data centers being developed nationwide to support artificial intelligence applications.
While some regions are progressing in building electrification, others are experiencing increasing resistance. For example, where discussions are underway about banning natural gas, opposition to such proposals is growing. This situation creates a dilemma for utilities.
Overall, utilities are primarily focused on immediate challenges rather than what may arise five to ten years down the line, especially given ongoing demands for expansion and maintenance. This focus is understandable; utilities must report to regulators, making it challenging to convince them that now is the time to plan for the future impacts of building and transportation electrification.
A Hopeful Outlook on Regulations
Survey participants were asked about the current challenges posed by regulations and their outlook for the future. More than half (54%) reported that regulations are currently very challenging, with an additional 26% finding them somewhat challenging. Interestingly, while 80% view regulations as very or somewhat challenging now, that figure is projected to decrease to just 61% over the next five years.
While this forecast may seem optimistic given the ongoing struggles related to rate cases and various siting proposals, two Federal Energy Regulatory Commission (FERC) orders issued in early 2024 signal positive changes.
One order—No. 1977—grants FERC the authority to site inter-regional transmission lines of national significance if states fail to act, which is a significant step in advancing essential transmission projects. Numerous merchant transmission line proposals have languished for over a decade, awaiting state or local regulatory approval.
The other FERC action, No. 1920, focuses on long-term transmission planning and cost allocation. FERC aims to have transmission owners incorporate the necessary infrastructure into their plans to support renewable energy and increased load growth, rather than responding reactively to expansion needs. This order may strengthen the case for future transmission siting and development before local public utility commissions (PUCs).
FERC’s efforts to streamline regulations in these crucial areas are a positive development.
The Quest for Funding
The demand for capital expenditures (CapEx) remains a significant driver for all organizations. Additionally, the tension between CapEx and operations and maintenance (O&M) often arises, as funding for new expansion projects (which generate additional revenue) competes with the need to maintain existing assets. Although today’s CapEx will eventually lead to tomorrow’s O&M, the pressures utilities face can obscure this connection.
Despite this, O&M emerged as the most critical challenge for organizations in modernizing the grid, with 62% of respondents citing concerns about ongoing maintenance costs as their primary challenge, compared to 56% who highlighted competition for capital.
Utilities are actively seeking technological solutions to reduce O&M expenses. For instance, they are increasingly using sensors to identify problems and deploying drones for inspections. The drive to minimize O&M spending to allocate more resources to CapEx is likely intensifying due to the substantial work required to expand the grid in response to growing demand.
A Rapidly Evolving Landscape
Utilities have long practiced integrated resource planning (IRP), which provides a long-term outlook on their regions and the anticipated CapEx needs to address projected changes. In the past, an IRP was typically updated every five to ten years, given relatively stable growth and economic conditions. However, many utilities now update their IRPs biennially or even annually. This increase in frequency is essential due to the skyrocketing demands on utilities and the uncertainty surrounding customer load growth, driven by expanding data centers, clean technology adoption, and electrification.
As utilities navigate the immediate future and plan for the decades ahead, they must continuously seek the right balance between affordability, equity, reliability, and sustainability.
Welcome to the realm of “grid modernization,” which embodies the challenges and potential of upgrading and reinforcing outdated infrastructure. This endeavor involves preparing for both current and future risks, ranging from cybersecurity threats to outages caused by climate change, while also seizing new opportunities.
What is the perspective on grid modernization across the United States? Black & Veatch’s 2024 Electric Report—an expert analysis based on a survey of nearly 700 stakeholders in the U.S. electric sector—offers critical insights.
The Rise of Renewables
When asked about the anticipated factors that will drive grid modernization in their organizations, survey participants identified renewable energy integration as the most pressing current driver, with 57% citing it. This was followed by low-probability, high-impact events, such as extreme weather, at 43%. The reliability of renewable energy at scale poses challenges for utilities due to the unpredictability of these energy sources. Utilities prefer to maintain control over their energy availability, but the increasing prevalence of distributed generation complicates this control.
These challenges can be approached from two different angles. A utility focused solely on distribution would view these issues in terms of behind-the-meter applications, such as microgrids or individual distributed energy resources (DERs) like rooftop solar. In contrast, a transmission utility would consider the implications of large-scale solar and wind installations aiming to connect to the transmission network. In summary, distribution operators are concerned with visibility and control, while transmission systems focus on ensuring adequate capacity to manage operations.
Interestingly, while building and transportation electrification currently accounts for just 29% as a driving factor, it is emerging as a significant concern for utilities over the next three to five years.
There is considerable uncertainty surrounding the nature of electrification and its demand implications. Nevertheless, electrification is inevitable; the only uncertainty lies in its timeline. Some of this uncertainty is influenced by political factors. Additionally, demand for electric vehicles (EVs) has slowed—possibly due to high interest rates and their price points. However, this decline is outweighed by the energy-intensive demands of new data centers being developed nationwide to support artificial intelligence applications.
While some regions are progressing in building electrification, others are experiencing increasing resistance. For example, where discussions are underway about banning natural gas, opposition to such proposals is growing. This situation creates a dilemma for utilities.
Overall, utilities are primarily focused on immediate challenges rather than what may arise five to ten years down the line, especially given ongoing demands for expansion and maintenance. This focus is understandable; utilities must report to regulators, making it challenging to convince them that now is the time to plan for the future impacts of building and transportation electrification.
A Hopeful Outlook on Regulations
Survey participants were asked about the current challenges posed by regulations and their outlook for the future. More than half (54%) reported that regulations are currently very challenging, with an additional 26% finding them somewhat challenging. Interestingly, while 80% view regulations as very or somewhat challenging now, that figure is projected to decrease to just 61% over the next five years.
While this forecast may seem optimistic given the ongoing struggles related to rate cases and various siting proposals, two Federal Energy Regulatory Commission (FERC) orders issued in early 2024 signal positive changes.
One order—No. 1977—grants FERC the authority to site inter-regional transmission lines of national significance if states fail to act, which is a significant step in advancing essential transmission projects. Numerous merchant transmission line proposals have languished for over a decade, awaiting state or local regulatory approval.
The other FERC action, No. 1920, focuses on long-term transmission planning and cost allocation. FERC aims to have transmission owners incorporate the necessary infrastructure into their plans to support renewable energy and increased load growth, rather than responding reactively to expansion needs. This order may strengthen the case for future transmission siting and development before local public utility commissions (PUCs).
FERC’s efforts to streamline regulations in these crucial areas are a positive development.
The Quest for Funding
The demand for capital expenditures (CapEx) remains a significant driver for all organizations. Additionally, the tension between CapEx and operations and maintenance (O&M) often arises, as funding for new expansion projects (which generate additional revenue) competes with the need to maintain existing assets. Although today’s CapEx will eventually lead to tomorrow’s O&M, the pressures utilities face can obscure this connection.
Despite this, O&M emerged as the most critical challenge for organizations in modernizing the grid, with 62% of respondents citing concerns about ongoing maintenance costs as their primary challenge, compared to 56% who highlighted competition for capital.
Utilities are actively seeking technological solutions to reduce O&M expenses. For instance, they are increasingly using sensors to identify problems and deploying drones for inspections. The drive to minimize O&M spending to allocate more resources to CapEx is likely intensifying due to the substantial work required to expand the grid in response to growing demand.
A Rapidly Evolving Landscape
Utilities have long practiced integrated resource planning (IRP), which provides a long-term outlook on their regions and the anticipated CapEx needs to address projected changes. In the past, an IRP was typically updated every five to ten years, given relatively stable growth and economic conditions. However, many utilities now update their IRPs biennially or even annually. This increase in frequency is essential due to the skyrocketing demands on utilities and the uncertainty surrounding customer load growth, driven by expanding data centers, clean technology adoption, and electrification.
As utilities navigate the immediate future and plan for the decades ahead, they must continuously seek the right balance between affordability, equity, reliability, and sustainability.
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