Emerging Trends in Grid Modernization: Navigating the Complexities of a Changing Energy Landscape

As the electric grid transforms to meet the demands of the 21st century, utilities, policymakers, and industry stakeholders face the intricate challenge of updating an aging infrastructure. This summer, the Northeast Clean Energy Council (NECEC) spoke with 30 organizations involved in grid modernization to discuss emerging trends. Here are two to keep an eye out for.

1. The need for regulatory reform and financial incentives

One of the most significant issues utilities face today is the aging infrastructure of the electric grid. Many grid components are nearing or have exceeded their intended lifespan, posing reliability and safety risks. Utilities must strike a delicate balance between maintaining and upgrading this infrastructure while keeping costs and customer rates affordable.

Compounding this challenge is the regulatory environment in which utilities operate. In the United States, most utilities are subject to a traditional cost-of-service (COSR) model, where profits are tied to spending rather than value delivery. This model often makes it difficult for utilities to justify significant investments in reliability-centric upgrades, as these may not directly translate to increased revenue or lower costs for consumers.

The misalignment between the COSR model and modern policy objectives is evident. One renewable energy project developer expressed frustration working with utilities, citing that the energy system’s incentive structure makes it challenging to work with them. Similarly, two technology startups emphasized wanting change management for utilities to adopt distributed grid technologies.

Utilities share this sentiment. Several representatives from investor-owned utilities highlighted the need for regulations and financial incentives to prioritize energy efficiency and affordability. They also called for utilities to share the cost of infrastructure upgrades.

Progress is being made in this area. There are increasing calls among utilities seeking government funding for pilot projects to help drive smart utility development. Additionally, utilities and regulators are increasingly exploring Incentive-based regulations (IBR) to align utility incentives with public policy goals. IBR tie utility revenues to performance metrics rather than solely to capital investments. For instance, following the enactment of legislation requiring utilities to adopt IBR, Connecticut regulators recently approved an initial IBR framework, joining Hawaii in implementing this innovative utility regulation approach. This trend will continue as more states seek ways to incentivize grid modernization and clean energy adoption.

2. An increasing role for trade organizations in a complex stakeholder environment

Grid modernization requires unprecedented collaboration among diverse stakeholders. As the number of generation sources increases, so does the complexity of managing the grid. Utilities, which once had centralized control, now face the task of integrating and managing numerous dispersed generation points. Given that most utilities in the Northeast region are no longer vertically integrated and do not own generation assets, they have since transitioned to becoming energy delivery companies. Additionally, grid modernization efforts often need to cross multiple regulatory jurisdictions, and permitting in various jurisdictions can alter project prioritization and expected benefits.

This decentralization complicates grid management and reliability. Sophisticated coordination and advanced technologies are necessary to ensure a stable and efficient power supply. The modern energy industry has gotten so layered and complex that no single entity can drive change alone.

Grid modernization will require extensive collaboration among diverse stakeholders to succeed. Successful grid modernization projects often require consensus among utilities, regulators, policymakers, technology providers, and community stakeholders. As multiple perspectives must be considered in decision-making processes, a growing need for coalition-building can lead to inefficiencies and delays.

Mission-driven trade organizations like NECEC have a crucial role to play. Several interviewees emphasized the importance of NECEC in supporting discussions around proactive planning, cost allocation, and flexible interconnection. One of the largest renewable energy project developers and a startup both mentioned wanting to see NECEC highlight successful case studies from the Northeast and other parts of the U.S., like Texas or California.

Similarly, an interviewee from an investor-owned utility company highlighted the importance of NECEC’s involvement in working with state representatives to expedite the clean energy transition—citing NECEC’s role in providing feedback and support for a collaboration between highway authorities and utilities for EV charging infrastructure. Finally, NECEC’s three-part grid modernization events have received positive feedback from attendees, who expressed a desire for similar events convening stakeholders from various sectors to discuss key issues.

Conclusion

Grid modernization is a multifaceted endeavor that touches on the technical, economic, regulatory, and social aspects of our energy systems. The trends of addressing aging infrastructure, navigating regulatory reforms, and fostering stakeholder collaboration will continue to shape the evolution of our electric grid. Achieving a modern grid will require innovative thinking, significant investment, and cooperation among all players. By understanding and adapting to these trends, we can work towards creating an electric grid that meets the needs of a rapidly changing world while ensuring reliability, affordability, and sustainability for all.