Analysis
5 minute read
Countering headwinds through innovation, investment, and industry convergence
In 2023, supply chain snags, rising costs, and extreme weather are likely to continue plaguing the power and utilities sector. But promising trends in innovation and investment, buoyed by recent legislation, can help the sector fulfill its mission to provide increasingly secure, reliable, clean, and affordable electricity. Our 2023 outlook examines the latest power and utilities industry trends to help your company tap opportunities across the entire clean energy economy.
Dr. Thomas Schlaak
Kate Hardin
Jim Thomson
Electric power sector weighs promising trends amid cost and climate woes
2022 was a year of perils and promise for the electric power sector. US electricity sales continued to rise as the pandemic recovery progressed, increasing 3.6% in the first eight months compared to the prior year.1But costs also spiked, largely due to natural gas prices more than doubling on global shortages exacerbated by Russia’s invasion of Ukraine. Extreme climate events—from droughts to hurricanes, heat waves and wildfires—continued to test regional grid resilience.2In response, the industry and policymakers worked to bolster reserves, deploy energy storage and microgrids, harden infrastructure, and strengthen flexible load options.3
In 2023, these promising developments will likely evolve further. But providing secure, reliable, affordable, and clean electricity could become even more challenging. Inflation, high fuel costs, and supply chain snarls may keep electricity prices elevated, while extreme weather, cybersecurity threats, and the growth of variable renewables and distributed energy resources may continue to require innovative management to ensure grid reliability. Despite these challenges, new technologies and supportive policies could ripen opportunities in 2023 and help the industry achieve its goals. Explore the five trends that will likely influence the direction of the industry over the next 12 months
Five power and utilities industry trends to watch
Grid Modernization
Utilities increasingly plan to roll out the next wave of advanced metering infrastructure (AMI).
Many of the more than 115 million “smart” electricity meters deployed at US customer sites since 2000 are beginning to show their age, and utilities are increasingly developing replacement plans.4 AMI 2.0 features faster processors, more memory, modular communication capabilities, and longer-lasting batteries.5 Residential meters are becoming edge computing devices that can better understand how electricity is being used or generated behind the meter. And that could be increasingly important as consumers add solar panels, electric vehicles, or battery storage and seek to interact with the grid.
ESG Reporting
Environmental, social, and governance (ESG) reporting continues to gain momentum
Enhanced ESG reporting and decarbonization commitments will likely progress further in 2023, as companies see a growing need to identify rapidly changing environmental and societal disrupters and address them. Currently, US company disclosures and metrics aren’t uniform, and third-party review or assurance is not widespread. But that could begin to change in 2023, as the SEC proposed a new rule in March 2022 that would require public companies to annually disclose certain climate-related financial statement metrics, information related to climate-related risks, and greenhouse gas (GHG) emissions in public disclosure filings.6
Grid Flexibility
Battery storage deployments set to accelerate despite supply chain snags
US battery storage is poised for faster growth in 2023, as renewables’ share of generation rises, extreme weather events become more frequent, and new legislation continues to improve its value proposition. Battery storage costs are expected to continue rising in 2023, though that trend could reverse longer term and is unlikely to dampen demand. Supply chain kinks could continue into 2023, largely due to the paucity of battery and critical mineral suppliers and concern about unethical labor practices, especially in cobalt mining.7 But alternate battery technologies could scale up for the electric vehicle (EV) market, helping reduce the demand for lithium-ion batteries.8
Decarbonized Fuels
Power and utility companies see opportunities to reap value from clean hydrogen
There has been a frenzy of activity in green hydrogen, and it’s likely to accelerate in 2023 and beyond, partly due to new incentives in the Inflation Reduction Act (IRA).9 “Clean” hydrogen prices will likely become competitive with conventional hydrogen in many US regions,10 though its use may still be infeasible for applications that require new transportation, storage, and other infrastructure. Power companies are evaluating hydrogen options with an eye to those most immediately economically feasible. Producing clean hydrogen using excess renewable or nuclear generation is often an attractive option.
Transportation electrification
Utilities likely to sharpen focus on preparing for electric vehicle growth
Utilities will likely accelerate their EV planning and programs in 2023, as US EV market share exceeded 6% of new car sales in H1 2022, the IRA offered new EV tax credits, and federal and state governments set ambitious goals for EV penetration.11 Some of the thornie*st challenges to meeting these goals could be for the auto and battery industries to produce enough EVs and batteries, given supply chain constraints and IRA tax credit eligibility requirements for EVs.12
Access the archive
- 2021 power and utilites industry outlook
- 2022power and utilities industry outlook
- Midyear 2020 power and utilities industry outlook
- 2020 power and utilities industry outlook
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Dr. Thomas Schlaak
Deloitte - Global
Dr. Thomas is the Global Power, Utilities & Renewables (PU&R) Sector Leader. With more than 25 years of experience, he has served leading German and European utilities, electricity and gas transmission system operators, and international energy companies. He has supported clients in crafting their digitization and decarbonization journeys, leveraging market and scenario modeling. He co-leads Germany’s cross-business sustainability initiative and consulting PU&R sector and previously served as the Central European PU&R leader. He is a frequent speaker at industry conferences as well as a repeated author on Future of Power topics.
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Kate Hardin
Deloitte - Global
Kate Hardin, executive director of Deloitte’s Research Center for Energy and Industrials, has worked in the energy industry for 25 years. She leads Deloitte’s research team covering the implications of the energy transition for the industrial, oil, gas, and power sectors. She has served as an alumni expert at Yale’s Center for Business and Environment, and she is also a member of the Council on Foreign Relations.
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Jim Thomson
Deloitte - Global
Jim serves as the vice chair, US Power, Utilities & Renewables leader, as well as a lead client service partner for Deloitte Consulting LLP. A consulting principal based in Tampa, Jim has more than 30 years of consulting experience working with global power, utility, and renewable energy clients. He is focused on delivering solutions to complex and critical challenges within the industry and brings a strong passion for making a difference with some of our largest power, utility, and renewable energy businesses and their customers.
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