Why can't utilities innovate?

U.S. electric utilities face a significant challenge as they grapple with rising electricity demand and increasing public dissatisfaction over soaring residential rates. With demand climbing for the first time since the 1970s, utilities are under pressure to invest heavily while keeping costs down. However, their historical reluctance to innovate—evident in their meager investment in research and development—poses a barrier to effectively meeting these demands. Experts argue that the solution lies in embracing new technologies and methods to enhance service delivery and reduce costs.

Quinn Nakayama from PG&E and Hannah Green from Microsoft highlight the disparity between the rapid advancement of technology and the slow pace of utility adoption. While utilities in Europe have successfully implemented grid-enhancing technologies, U.S. counterparts lag due to regulatory frameworks and outdated operational models. The discussion emphasizes the need for utilities to rethink their organizational structures and processes to foster a culture of innovation, which includes hiring skilled personnel capable of integrating new technologies into existing systems.

The conversation also touches on the financial dynamics within the utility sector, where capital expenditures are favored over operational expenses. This creates a disincentive for adopting cost-saving technologies, as utilities earn returns on capital investments but not on savings generated from operational efficiencies. Experts suggest that utilities must shift their mindset to view technology as a critical component of infrastructure investment, rather than a secondary concern. By aligning innovation with strategic goals and embracing a collaborative approach with technology partners, utilities can better navigate the complexities of modern energy demands.

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When it comes to innovative new grid technologies, every utility wants to be the third in line to try them. None of them want to be the first to take risks and iron out new processes. That's one reason grid-enhancing technologies, better software, and smarter internal procedures stay stuck in pilot purgatory, even as the industry faces the biggest buildout since rural electrification. PG&E's Quinn Nakayama and Microsoft's Hanna Grene discuss what's actually blocking utility innovation — and Quinn offers a novel proposal for paying someone to go first. Chapters: 00:00 – Introduction 03:44 – Why grid-enhancing technologies stall in the US 07:54 – Selling grid software into utilities: what goes wrong 11:08 – From a pipes-and-wires company to a technology company 12:38 – Pilot program hell and the last 30 percent 15:04 – Innovation as a bolt-on, and the three muscles 17:47 – The digital spine, data quality, and smart meters 23:56 – Org chart versus work chart 25:09 – Strategy, structure, people, process, technology 29:24 – Build, buy, and the ecosystem skill set 36:15 – Data leakage, shadow AI, and paying twice 41:12 – Why utility product cycles run five to seven years 46:27 – Human in the loop, and EPRI's SAFERai.power 49:06 – Advanced market commitments and the kingmaker problem 53:22 – EPIC, and whether software counts as infrastructure 01:00:05 – The CapEx incentive problem and final advice 1:04:34 – Digital Infrastructure as Capital Spend 1:06:53 – Final Advice