Five priorities for US utilities in 2024
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The year 2023 has reaffirmed the position of electric and gas utilities as the epicentre of the energy transition. Innovations have been achieved across the sector, including in the domain of artificial intelligence and digitalised flexibility driving efficiency gains, which then brings to question what the priorities will be in the coming year.
According to West Monroe, in the US specifically, there are five priorities for utilities in 2024:
- decarbonisation and integrated electrification and gas planning;
- decentralised and virtual power supplies;
- transmission infrastructure needs;
- resiliency and security objectives;
- system operations digitisation.
The Chicago-based management consulting company underpins in their 2024 Outlook: The Future of the Energy & Utilities Industry energy cost and affordability for each of these five key areas, providing a lens through which utilities can view the complexity and challenges awaiting them in the new year.
Decarbonisation and integrated electrification and gas planning
Although there are currently 23 states in the US, plus the District of Columbia and Puerto Rico, with 100% clean energy goal, the report states that more collaboration, coordination and planning among and between electric and gas distribution utilities are needed to determine the optimal mix of energy sources to achieve decarbonisation goals.
Accommodating large-scale renewables is a complex and challenging task; according to West Monroe, it will require a portfolio of resources to work in concert — including traditional generation, energy efficiency, and demand response. Achieving this will require digital technology, data, and analytics, among other resources on energy system operations and the electric and gas distribution side.
The report calls on electric and gas regulators to collectively band together to create the right incentives to support these efforts while maintaining the integrity and affordability of energy systems.
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Decentralised and virtual power supplies
Harnessing the potential of distributed energy resources (DERs) through energy management programmes such as virtual power plants (VPPs) will enhance the efficiency and responsiveness of utilities in 2024.
But realising this potential, states West Monroe, hinges on enhanced coordination to ensure a seamless and demand-responsive energy ecosystem.
Specifically, the report states that continued fostering and incentivising of DER product creation, adoption, optimisation and integration will be a key challenge. Low penetration of DERs, complex VPP enrolment, lack of standardisation in VPP operations, lack of integration into utility distribution system planning and incentives and lack of integration into wholesale energy markets, specifically, will be key hurdles to overcome.
For the industry to continue on its current path and overcome such challenges, the report calls for planning to be more advanced and more specific to help distribution utilities anticipate system upgrades that will be needed for future waves of electrification and capacity constraints. As this rollout takes place, stakeholder management and whole systems thinking will be key.
Transmission infrastructure needs
If there is one key priority that 2023 has highlighted it is that, globally, the power grid requires colossal investment and attention to keep pace with decarbonisation targets.
In the US specifically, the report states that meeting decarbonisation goals requires significantly more power transmission capacity to move renewables into load centres where they can be used, reduce congestion charges on existing lines, and strengthen the power grid. However, cost, complexity and siting and permitting for increased transmission capacity are challenges.
According to West Monroe, the public has tended to oppose these projects despite being the ultimate beneficiary. Compounding this, developers have to compete for the right to build transmission lines across long distances, while distribution utilities are only able to develop new transmission within their service areas, adding inefficiency to the process.
As a resolution, the report calls for ‘Smart-siting’ strategies that focus on existing rights-of-way and previously developed and underused lands to speed up the process, minimise environmental impacts, maximise regional benefits and increase access to clean energies. Complementing this, active engagement with host communities by host utilities, project developers and policymakers is crucial for the success of new transmission projects.
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Resiliency and security objectives
According to West Monroe, incorporating digital advancements strengthens grid resilience and reduces costs, but it also exacerbates cybersecurity risks, demanding a multifaceted approach that encompasses skilled labour, robust third-party vendor protections and business partnerships.
In mind of this, states the report, utilities must effectively manage third-party risks, IT/ OT isolation, and governance challenges to segregate critical infrastructure and protect essential functions from cyberattacks. These challenges have exacerbated the demand for skilled labour, leaving the industry grappling with a talent shortage in critical security disciplines.
The report adds that utilities can respond by improving their governance through protection-level agreements (PLAs), whereby the chief information security officer guarantees a certain amount of risk tolerance in exchange for the investment dollars needed to accomplish the data or analytics initiative. And although utilities are starting to employ these PLAs, they are under-resourced and in need of a more collaborative, coordinated approach to tackling the cybersecurity issue.
Digitising system operations
Although progressive utilities are digitising operations, the report states several challenges when doing so, including the regulated nature of the industry and the task of bringing employees along on the digital journey, relating to change management challenges from the historically cautious nature of their workforce.
According to the report, this underscores the importance of planning for digitization in advance as it requires a lengthy period for acceptance and successful adoption by all stakeholders.
