Wired for Change? Why the Utility Industry Needs Digital Tech

The utility sector is navigating a storm of challenges. Surging demand is colliding with escalating concerns over grid reliability. Meanwhile, others are calling for enhanced efficiency and environmental stewardship. 

Meeting these challenges is tough. The power industry is grappling with a complex array of obstacles, including rising costs, limited capacity, and workforce shortages. Amidst these challenges, digital technology emerges as the most promising path forward. Yet, the power sector's full embrace of digital innovation remains on the horizon. 

Navigating Demand and Sustainability Targets   

Most people don't think about the utility industry—unless there is an issue with reliability and resiliency.   

But providing regular service is becoming more challenging. Countries around the world are encouraging their citizens to buy electric cars and businesses to use electric equipment. The global electric fleet is expected to reach 77 million in 2025, up from 20 million in 2022, according to Statista.  

Electric use changes are also challenging the grid. “And the grid is only getting more complex to operate as distributed energy resources introduce an influx of new information and variables into the system,” says McKinsey.  

Not surprising. The grid is being relied on and tested in ways it has never been before. The answer to the issue would be to update the grid. This is a massive undertaking.  

“In order to achieve climate goals set by global governments, more than 80 million kilometers (49.7 million miles) of electric grids have to be added or refurbished by 2040, which is the equivalent of the entire existing global grid, according to the Oct. 17 IEA report,” and reported on by Business Insider.  

The article went on to cite a report from the Institute of Electrical and Electronics Engineers that estimated it would cost over $2.5 trillion by 2035 to update the grid in the U.S.  

Tight Budgets and an Aging Workforce 

Finding the budget to make the changes necessary to the grid on a global scale would be difficult in the best of financial times. Government budgets are typically stretched, and politicians specialize in kicking the can down the road. Making the necessary budget decisions to meet the tremendous costs of updating the grid is unlikely.  

Soon, finding the funds to invest in the grid will probably be more difficult, based on a report from the World Bank. According to a World Bank press release, “… between 2022 and 2030 average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2% a year. For developing economies, the decline will be … from 6% a year between 2000 and 2010 to 4% a year over the remainder of this decade.”  

But if updating the grid is a priority, other challenges persist. One is manufacturing. Since the pandemic, supply chain issues have plagued the world. Supply chain issues have moderated in 2023, though some challenges remain.  

Manufacturing electric transformers, essential for the grid, remains a significant issue. David Blackmon, an energy-related public policy analyst,  said“…we have a crisis in [the] supply of electric transformers for our power grid. Transformers are an integral part of every electricity project in America—around the world, really—and they're in very short supply. It's taking up to four years to source new supplies of these transformers.”   

Then, there’s the labor issue. Like many industries which require employees to do hands-on work, the utility industry is facing workforce challenges. In addition, the industry relies heavily on older workers. Up to 55% of the electric and natural gas public utility workforce may retire by 2030. This type of turnover would strain the labor force beyond its current tight levels.  

The Growing Value of Data and Analytics 

Utility companies that lean into digital platforms perform better.  

McKinsey did a deep dive into utilities and digital tools. They note that “the utility industry barely takes advantage of digital,” and “… digital has not yet fully infiltrated the utility industries…”  

Some utilities have adopted digital technology and have experienced improvements in key outcomes. McKinsey cites the following use cases as evidence: 

• 25% to 30% field productivity improvement from Artificial Intelligence (AI)-powered scheduling  
• Up to an 80% capital reallocation based on machine learning (ML) insights in asset health  
• 30%+ improvement in customer satisfaction in select journeys  
• 2%-5% increase in heat rate or yield for fossil as well as renewable generation assets  
• 30%+ improvement in reliability and resiliency outcomes within existing spend levels

Nearly every major utility is incorporating digital, data, and analytics to some degree, notes McKinsey. But without a comprehensive strategy, they are doing it piecemeal. Operating in this matter limits the benefits of applying technology.