The industry will likely seek to harness new policies, technologies, and market innovations as they navigate an evolving landscape of opportunities, complexity, and challenges.
Solar energy, resources, and industry outlooks for the 2024 year are strong. This article by Jim Thomson, Kate Hardin, and Suzanna Sanborn gives a good read on how the power sector is preparing for an accelerating electricity demand.
In 2023, the US power and utilities industry raised the decarbonization bar, deployed record-breaking volumes of solar power and energy storage, and boosted grid reliability and flexibility—with a healthy assist from landmark clean energy and climate legislation. All of this will likely continue in 2024. Industry fundamentals were mixed, with electricity sales projected to end 2023 down about 1.2% year over year (YoY), due largely to mild winter weather. Supply chain knots began to unwind, but shortages of steel, aluminum, transformers, and other components and materials still managed to disrupt the industry and boost costs.
Wholesale electricity prices eased in many regions as natural gas costs for power generation fell about 53% YoY in 2023, compared to the previous year. But not all utilities purchase electricity in wholesale markets and fuel costs are just one part of customer electricity bills, so price movement may not correlate closely. Record-high capital expenditures of almost US $171 billion in 2023 for the largest electric and gas utilities to modernize and decarbonize the grid, combined with robust future spending requirements and rising interest rates, can exert upward pressure on customer bills. Mounting costs for weather and climate disaster recovery, wildfire prevention, and cyber and physical security programs can also contribute to increases that are often ultimately passed along to customers. Therefore, despite lower fuel costs, average US retail electricity prices are forecast to rise 1.9% YoY by year-end 2023. For the residential segment, the YoY price jump could be even higher—at about 4.7%—and that follows a roughly 10% increase in 2022.
In 2024, electricity prices are expected to remain steady, and sales are expected to rise about 2%, while supply chain snarls will likely continue unraveling. Momentum for the clean-energy transition will likely carry over into 2024, building on multiple drivers.
1. Electrification: The power sector is preparing for accelerating electricity demand
The electric power industry is preparing for as much as a tripling of US electricity demand within the next couple of decades. Electrification of the transportation, building, and industrial segments continues to pick up speed in many parts of the country. At the same time, growth of data centers using energy-intensive applications such as AI is expected to further boost demand. Some utilities in high EV adoption areas have already raised projections, with Southern California Edison increasing its estimate from 60% load growth by 2045 to 80%. More will likely follow in 2024 and beyond.
2. Resource planning: Evolving electric grids may require new planning tools and strategies
A critical element of modernizing and decarbonizing the electric grid is addressing reliability risks. Those risks are likely to continue evolving in 2024 as the electric power industry focuses on emerging resource adequacy solutions. Some of the approaches expected to gain traction in 2024 include harnessing distributed energy resources (DERs) in virtual power plants (VPPs); improving distribution system planning (DSP); and integrating DSP with bulk system planning—or integrated resource planning (IRP).
3. Climate: Heat and drought are disrupting power sector operations, but change may be coming
Extreme heat and drought conditions will likely continue to disrupt power sector operations in 2024, but the industry may be inching toward less water-intensive power production over time. The summer of 2023 was one of the hottest on record, and forecasters expect this trend to continue. The American West is drier than it’s been in 1,200 years, and researchers say the region is in a decades-long pattern of aridification and is likely to get hotter and drier. Droughts and extreme heat conditions can threaten to reduce power output just when consumers are retreating inside to “crank up the AC.”
4. Capital planning: Utilities seek to balance record-high investments with customer affordability
As power and utilities sector capital expenditures reach new heights and continue to rise well into 2024, companies are exploring a variety of funding sources to help foot the bill. S&P’s sample group of large energy utilities is expected to spend nearly US$171 billion in 2023, up more than 18% YoY, and projected to rise further in 2024 to 2025. Costs are mounting to upgrade and modernize the grid, harden it against severe weather, prepare for rising demand, and source more renewable energy. Rising interest rates and inflation could continue to boost costs in 2024. By the end of the third quarter of 2023, regulated electric and gas utilities had 63 and 52 rate cases pending, respectively, potentially representing about US$24 billion in rate increases across the United States. But after a 25% average residential customer bill increase over the last five years, utility regulators may be more likely to challenge and limit rate increases. One variable to watch is fuel costs. Wholesale natural gas price declines can flow through to customer electric bills, often through automatic fuel adjustment clauses, which can help offset other increases in the bill. But the reverse can also happen when fuel costs rise.
5. Artificial intelligence: Generative AI could help address core power industry challenges
The power sector is on the verge of entering a transformative era, led by generative AI, a subset of AI that has the potential to eventually help address core power industry challenges. Generative AI, a technology that creates new content in the form of text, code, voice, images, videos, and processes, can potentially help improve electric power industry reliability, affordability, efficiency, sustainability, and health and safety. Power and utilities companies are embracing this innovation, with at least 16% of the top 25 utilities already in the initial stages of integrating generative AI into their operations, as indicated by quarterly earnings call transcripts.
