Load growth is sluggish, energy prices and interest rates have risen, and concerns over grid reliability and resiliency are increasing. Each of these factors has put a strain on U.S. utility companies.

Meanwhile, utilities aim to reduce their carbon footprints and offer renewable energy sources to meet customers’ expectations better. However, certain industry disruptions and challenges make meeting these goals uncertain. These disruptions are further amplified in public utility companies, which face greater scrutiny from regulators.

With the industry facing increasing disruptions, utility companies are closely examining their approach to maintaining reasonable operating costs and service reliability. They’re making major new investments to upgrade their infrastructure (to support service reliability and to enable renewable energy sources to consumers) and deploying technology to improve their resiliency and efficiency.

What challenges do utility leaders face today? What transformative moves and adjustments are they making to adapt to changing market forces and technologies? Let’s dive in to discover the answers.

Disruptive Forces Reshaping the Utilities Sector

Utility Companies Are Transforming

From meeting regulatory standards to mitigating cybersecurity risk to critical infrastructure, the utility sector is grappling with several challenging dynamics and disruptive forces, including:

1. Regulators Pushing For Decarbonization and Renewables

Countries worldwide are pushing toward reducing carbon emissions and feeling urgency to address climate change. Regulators are increasingly pushing utilities to offer renewable energy sources like wind, solar, and hydroelectric power.

Regulators are encouraging or mandating utility companies to incorporate renewable energy sources in multiple ways, for instance, by implementing Renewable Portfolio Standards (RPS), offering tax breaks, subsidies, and other financial incentives to utility companies and developers to invest in renewable energy projects, using feed-in tariffs (FITs) and Power Purchase Agreements (PPAs).

2. Energy Storage Capacity Advancements

Advances in energy storage capacity, particularly in battery technology, are revolutionizing the energy sector. Lithium-ion (Li-ion) battery demand increased by about 65% in 2022 and continues to grow as advancements make batteries more efficient, longer-lasting, and with higher capacity. Energy storage is critical for managing renewable energy sources’ intermittency and maintaining grid stability.

3. Digitalization and Smart Technology

From smart grids and smart meters to the Internet of Things (IoT), digitalization and smart technologies are becoming more prevalent in the industry. These devices enable utilities to gather real-time data on energy consumption, grid performance, and customer behavior. This enables companies to optimize asset management, increase grid reliability, and enhance customer engagement.

4. A Broader Attack Surface, More Frequent Cyber Attacks

As utilities modernize their infrastructure, they become more vulnerable to cyberattacks. According to a report from Armis, cyberattacks in the utility industry increased by more than 200% in 2023. One reason for the rise in attacks is that the attack surface has widened, thanks to the adoption of cloud-based software systems, smart meters, and IoT devices. Cybercriminals recognize that utilities can’t afford lengthy service disruptions and are quite willing to pay ransomware fees.

5. Climate Change Makes Grid Modernization Urgent

With climate change contributing to more frequent and severe storms, wildfires, and other natural disasters, the need for grid modernization has significantly increased. In response to these challenges, utilities have invested in more resilient infrastructure to withstand natural disasters and avoid widespread outages.

6. Regulators and Consumers Pushing For Energy Efficiency

There is a continuous push for energy efficiency, both from a regulatory standpoint and from consumers looking to reduce costs and environmental impact. Regulatory frameworks are becoming more stringent in their mandates to curb energy consumption and lower greenhouse gas emissions. At the same time, consumers are more conscious of their energy usage and are looking for ways to lower utility bills. In response, utilities must expand their energy efficiency programs and empower consumers with energy-saving tools.

7. Advances in Artificial Intelligence and Machine Learning

According to one report, the global AI market (software and hardware) is projected to reach $7.8 billion by 2026. AI and machine learning advancements are expected to impact the utility industry profoundly. For example, utilities can use these technologies for predictive maintenance, demand forecasting, optimizing grid operations, finding customer insights, and automating customer service. AI can help utilities improve operational efficiency and service quality/predictability.

Utilities are Shifting their Approach to Business Operations

People working in office environment

In response to the disruptors above, utilities are changing how they think about their business operations. Below, we’ll discuss some key ways utility companies are shifting their processes to respond more effectively to industry challenges.

  • Innovative business models. Utilities are exploring new business models to create additional revenue streams. This includes offering energy management services, partnering with tech companies, or expanding into home automation and security. These new models are redefining how utilities engage with consumers and deliver value. By leveraging digital technologies, utilities can empower consumers with more control over their energy choices and unlock new revenue streams and business opportunities.
  • Increased focus on investments and return: Major grid and service reliability investments mean utilities must track the ROI, which involves monitoring, evaluating, and reporting on investment performance to ensure they align with company objectives. But it’s not just about the numbers: Those metrics help utilities make more informed decisions, prioritize resource allocation, and improve strategies.
  • Become more lean: Efficiency requires effort from everyone in the organization, meaning utilities need to encourage employees in all departments to find ways to improve processes and reduce waste. As employees make suggestions, leaders need a scalable way to gather ideas and track their benefits.
  • Focus on cost efficiency: Operating in regulated markets means utilities must stay cost-efficient to be competitive. All eyes are on utilities, so companies must closely monitor benefits and costs at both corporate and facility levels. This requires accurate financial forecasting for companies to anticipate challenges, optimize resource allocation, and make more strategic decisions.
  • Improve customer satisfaction: Customers today are more energy-conscious and have many companies to choose from; utilities must find ways to tie customer satisfaction initiatives back to customer satisfaction scores. For example, by collecting and analyzing data on customer satisfaction, utility companies can identify improvement areas, gauge the effectiveness of business initiatives, and benchmark their performance against industry standards.
  • Implement AI and machine learning effectively: As utilities continue to use AI and machine learning to improve their operations and drive innovation, they’ll need to find a way to manage AI ideas effectively. This involves prioritizing the most promising use cases, measuring the benefits of AI-powered solutions, and regularly checking in on deployed AI projects to ensure they still deliver business benefits.

Shibumi: Empowering Utilities  to Transform

The utility landscape is still changing. With more technological advancements, regulatory changes, and shifting consumer preferences, utilities need a strategic way to respond to these disruptions or risk losing competitiveness. That’s where a robust strategic portfolio management system like Shibumi comes in.

With Shibumi, utilities have the tools to govern their transformation investments rigorously and drive and monitor continuous improvement initiatives. By centralizing data on Shibumi, utilities can facilitate more effective collaboration and provide key stakeholders with real-time visibility into major investments’ and projects’ performance. Additionally, Shibumi’s flexibility and scalability can help utilities evolve as necessary and effectively manage all types of critical business or project data.

For utilities looking to enhance operational efficiency, mitigate risks, and deliver more value to both customers and stakeholders, there’s Shibumi. Learn how our platform lets you easily track transformation investments and continuous improvement programs. Request a demo today.