Deloitte. yliyye Te) alate Mis ed industry outlookee 2022 power and utilities industry outlook BET iia me] melas ee ee eed ee re eee cee received clean energy encouragement from a new ‘administration. As the US economy began to emerge from its pandemic-induced recession, electricity sales rose 3.8% through August 2021 over the prior year.’ ‘Atthe same time, unprecedented and unpredictable Cee ee ear reliability and resiliency, and cyberattacks on critical ee ee eee eee eed Pee ee ee eet eros ‘annual capex records again, spending an estimated Se eee ee eee Eee renewables in 2021, up 9.2% from 2020.’ In addition, Se ter eae ret Reece eae ee net tet eee reel Natural gas continued to dominate the generation mix, ee eee are ees ee ee ee ee MT took a big step forward in its quest co provide cleaner electricity, adding 13.8 GW of wind and solar capacity ee en ee es er ee ces eee tet ee a ete ‘Agreement, targeting 100% carbon-free electricity by 2035, and providing further support through executive orders, regulatory rulings, and @ massive injection of. Infrastructure spending * Perea al peers stand the outlook and persnectives of or co [fe ee es pee ee an ee ae ore eo eeu ee Cement e e eaone ‘maintaining security, while keeping costs down. To tackle ths tall order, the electric power industry will Te eo et Ue me ce decarbonization, digitalization, and decentralization. eee ce ea? advance and markets to evalve. Industry spending will likely remain high, and renewable penetration could Pee eae ere ee pe ot tee aa eos Coes eee Aue cated Se eo eee See ee se eee) technologies, to harnessing flexible load and supporting building electrification. In the policy arena, while state eee cere ete eae one ere ce attr eens eee ee eee es further in 2022, well also be watching the potential eer ee sae ee) nett a 1 Pee ead 10 US executives and other senior leaders in September See eae Pe eee eea er ete pee eee eaSustainability Utilities expected to further flesh out decarbonization plans {sof mid-November 2021, 48 out of §5 US large investor-owned utes had committed to reduce carbon emissions, many by 7050," And nearly three out of four customer accounts were served by an entity with a 190% carbon reduction target—either an individual uty or a uilty owned by a parent company with a 100% target In 2022, mare utes wil kel jump on board and fim up commitments and strategies, driven by consumer support ‘opportunites for value creation,” environmental, social and ‘governance (E56) goals,” evolving sate clean energy mandates, and federal legislation, Even ouside of siate mandates, 2¢ utility paren: companies have adopted voluntary carbon-reducvion targets, vith 20 aiming for 190%." The administration's goal to reach 100% clean electricity by 2035 is anatner key driver, and well be watching federal poly, investment, and research sunpor that could help make is happen. ‘Ave tllties on track? The U: carbon emissions 40% since 2005, Progress has come largely from retiring coal-fired generation and replacing it with natural gas, wind, and solar; 56% of new generation capacity addea in the five years from 2016-2020 was wind and solar, rising to 8686 in the first eight morths of 2021." That progress may be why 86% of our power and utiles industry survey respondents said their company's on track to meet its decarbonization goals. But over 60% of US electricity is still generated by carbon-eritting sources," so there's along way to go. And, for many utities, significant gaps between their decarborization targets and their scheduled “oss fuel plant retirements, renewable additions, and flexibly requirements needed to acnieve full decarbonization mean the math does not yet ‘add up to reach their goals." What's holding them back? Utities are trying to thread the ddecarbonization needle while maintaining relabilty and affordabilty, a aificu taseas they boost variable renewables, To do t they're building a more flexible, modern grid—and that requires investment. n addiion, some utilties may face stranded costs of retiring fossil fuel-based generation ealier than planned And according to the Smart Electric Power Alliance, uilties will need to further transform their culture internally o manage these changes."* Whats more, igtal skis gaps are widening asthe power sector digits, mirroring gaps in the broader economy and sparking fierce competition for talent." Finally, as tne power sector approaches 808 to 85% clean electricity in the coming years, progress could slow unless nev tecnnologies, such as long-duration energy storage and green hyorogen, have been commercialized, US Department of EnerBy programs are already investing in reducing the cost ofthese technologies (see the D2 2022 renewable energy industry cutloos), Well be watching asthe federal government moves forward with infrastructure Investment and Jobs Act (JA) investment of sbout $23 bilion into these technologes as well as advanced nuclear and carbon capture and storage. Inthe next year, more utilities wil ikely announce decarsorization goals and interim targets, increase existing targets, ard flesh Dut their decarbonization strategies with strategic plans for implementation as stakeholder interest grows. Overall utility ES reporting may become more detailed and consistent as well ederal polcies wil Ikely become mare clear, as well asthe impact they may have on the transition, And technological advances are a wild card worth watching. 2022 poner ardutioas inary oso | 3Resiliency Unprecedented weather events driving new resiliency strategies he unprecedented frequency, intenshy, and unoted ctabily of extreme climate and weather events in 202) increasing focus on urilty resiliency strategies in 2022, Arecent unted 3,165 extreme weather events globally during the 2,546 events between 2000 and 2009, compared tj Inthe frst three quarters of 2021, the int toward a reper 20105 an 711 in the 1970s, States experienced 18 weather and climate disasters with losses exceeding $1 billon five years (2016-2020) was 16.2 disasters surpassing $1 bilo and the 198 AUS interageney report projected that fucure extreme events that can cause poner outages wil be more frequent and last longer."’ The majority of our power and utiles try Survey respondents have already noticed an impact, with 51% saying extreme weather has affected the relabilty of electricity itory more than usualin the past year, wile ‘unchanged nited er event. The annwal average for the es vflation-adjusted,"® 10-2020 annual average was 7. delivery in their 3895 saw the impai For electric utilities, reslency planning is key because extreme. events such as wildfires can impact both electricity supply and fle whammy, In adcition to wildfires, events waves, deep freezes, sea-level rise, floods, and more interse storms, Experts have made it clear that global ther patterns are in uncharted territory and planners can no longer use the past to predict the future.” In 2022, utilities are actively preparing for that uncertain demand—a costly di may also include hes One critical resiliency strategy 's grid hardering, wnich ranges, from replacing and reinforcing transmission and distribution infrastructure to burying wires underground. Non-wire alternatives are ako increasingly comm: "distributed energy resources (DER) such as rooftop solar, battery storage, and microgrids. Some utilties are mapping optiral DER locatio support grid resiliency, and many are looking to thiré-party DER ownership to reduce costs. In adation,utities are expectes to increasingly rely on smart meters and other control systems that Ip reduce demand during an emergency, combined with flexible load programs. ‘One of the biggest challenges Is the cast of resiliency investments, which can be a subject of debate between utiles, state and local governments, and regulators, Yet community resilence plans can also be a source of cooperation, and public-private partnerships can help fund resilence projects For example, a $500 mili project to bury some of the most vulnerable power distribution in the OF fed vy a publ partnership, with $250 million coming from the city and $250 milion through local lly Pepea's rates, policies such as the Federal Energy Regulatory Commission's (FERC) Order 2222 aim to ukimately bring more DER onto the gr which cauld contribute to longer-term resiliency, Well learn more as grid operators file'molementation plans by the end of April 2022, And the recently approved IJ allocates nearly $27 billion for investment in electric grd infrastructure security, raliailty, and lines wi ict of Columbia is fu rivate A the federal level 1 2022, many utlities wil likely revisit thelr disaster readiness and resilency plans, sometimes under new state regulatory requirements. Well also lixely see additional utilty data collection and long-term system mo reased collaboration with state and local stakeholders to plan and fund resilency Bas well asiDigital transformation 5G and cloud could expedite the clean energy transition As the electric power sector continues modernizing the gr visioning now 5G communications technologies and cloud can help growing wave of cannected devices and data, 5G refers to the fith generation ‘mobile comerunications technology, which can support up to a fed times more connected devices transmitting 8 thoussna ss more data at much faster speeds t sm harness the power oft technologies.” k enables utes to move data from smart meters, sensors, and other devices tothe laud, where they can mare effectively and efficiently analze and act on In the year ahead, many utiles wil likely prepare to benefit from y planning fr the services shey can provide ote survey of networking executives across industries globally, 5% ofr nts are already deploying 5G or running pi six percent of our power and uti'ties in report that 56 communications tech ys strategy, while 36% plan to incorporat vy study found that 39% of utlty respondents were prototyping SG solutions, bur only 13% had maved to commercial execution?* Some of the mest compelling areas where 5G can add value for ullties inchide stty survey responder ogies are incorpor + [eT -5G.can and manage the assets through + Smart grid modernization, automation, and control - 5's lowe-laceney capabilies allow for the adaption of mare smar interconnect of the grid + Utilities in the cloud - 56 helos drive cloud s¢opt’on, which can improve efficiency through always-on availabilty ans faster access to more data, assets, and systems + cybersecurity compliance considerations - 4s utes integrate a cloud infra their IT environment, SG can assist in integrating operational workloads, such as Bul Electric System Cyoe” System Information (BCS + Digital twins - Digtalwins allow utilities to visualize and ‘ontrol resources from an interactive one-to ‘one map. High-speed 56 data transmission can improve response times and overall system management + Unmanned aircraft - 5 i system (UAS), or drone, programs by establishing 2 permanent and relable connection and faster data transfer an enhance unmanned alrera ne challenge to implementing 56 technologies can be ¢o! the system is being built out” Weil kely see more utility p stacking use cases rom SG technology. Ang some ulilties wil ikely contribute to the 56 build-out by llowin transmitters to reside on utlty poles and other infrastructure Security is another consideration. Keeping in min that 5 are software-based and wire ropust cyber risk management ‘create more vak system designers can bul ‘om the start.Utilities increasingly turning to flexible load programs Yesterday's energy efficiency and demand respanse programs sginning fo transform inca real-time flexible load offerings that could become a cornerstone af utity resource plann ng, cast reductior ny strategies 2022, m tities wll ikely nckide flexible oad in their resource planning as a supply-side resource and to help meet decarbonieation targets, lectrlety demand through such programs is ak -e2 alternative to other supply resources, and can help avoid the cost of building new g: Hexible lad programs can alo to balance variable wind ana solar output In California, utlties and regulators see “exible load as a key tool for riding out events such fires without widespread outages” Reduci and cartoon vide the dispatchabilly needed Flexible load is enabled by new technologies, rarket develo and policies, Currently, about 70% of demand respanse capability comes from traditional commercial and industrial load reduction.” But gro customer f smart automated home technologies such as smart meters, smart thermostats, battery storage, smart appliances and electric vehicles is paving, the way for a new wave of flexible residential load programs. In 2022 and beyond, more smart vill kely be conn software and analytics autornated to respond to time-based utility ments, ing resident dito Legislators and regulators are supporting energy efficiency programs at unprecedented levels, and programs are growing, reply” a fast as they could,” Growth can be hampered by the need for improved aistribution syste x dynamic load fexbilty programs are not growing trol technologies, communications standards, and incentives for stakeholders, Some have suggested that the cost savings and grid benefits these programs provide could justify utlty cost recovery fo ization and customer incentives required grid mode? Flexible load programs wil likely year, with increasing deployment of distributed energy resource management systems (DERMS) and advanced distribution management systems (ADMS) to manage resources. Infact, power and utilties indy pondents said their company + use of flexible load programs Well also be tities to flle for additional time. ry survey re rates and to collaborate more closely with regional grid operat and DER aggregators to revise market rules and potentially Unleash more grawth, The value of load flexibility wil ely ise as renewables penetration increases ani electrify energy end uses, sconomy continuElectrification Building electrification is already impacting utility planning hile we know building electrification has enormous potential to boost electricty deman, many see the impact as far inthe future But building stock, building codes, and related polices vary widely across the country—and as with electric vehicles, the future is arriving sooner in some areas, In Calfornia and the Northeast, some utiles are already adjust 5 to support gro building electrification, ana mare wil ikelyfllow in 2022. More than tnree- wer and utiles survey respondents (76%) said their compary is preparing “or increased electricty demand as bullaing electrification rises ne Us buildings account fo early 40% ofthe countrys energy 1d nearly ha of homes are heated primarily with nacural gas” So, mary states and ‘muricipalties witn netezero carbor emissions goals see building eleetifiation as ctical In August 2021, California became the fst 6s building standards that make electric heat pumps and ppllances the default choice for new homes and small commercial buildings.” The state's 2022 buileing energy efficiency standards make electric heat pumps a mare costeffective choice than natural {g88 heaters and boilers in new homes of for major renovations starting in 2023. The code also requ res all new homes to be wited for electric applances, including electric vehicles,°> ‘Across the country, dozens of clties a the Northeast, have passed ordinances thac elthe his tren wl key co inue in 2022. New York State has approved nearly nal bilion dala in funding for heat pump: 20257 New jersey’ Energy Mast ough lan states that electrifying 9085 of the state's buildings by 2050 is required to meet is climate goals heastern cties where much of the new housing i electric, winter peak demand is already nigher than in, previous years. And some utlties are already changing selected substations from summer peaking to winter peakin beginning to plan for a future with two annual ‘ity demand peaks: summer and winter. In 2022, more Ltities wl likely reconsider maintenance schedules for assets that may be utlized for more of the year and therefore cotertilly have shorter Ife giles these areas a Looking inte 2022 and beyond, many exoect thatthe grid wil bbe able to handle increased electricty eemand, but additional investment may be needed in home weatherization and arid-resporsive appliances to help manage energy use and shape lead. Adcitionel energy storage wil kely be needed as well, bo infront of and behind the meter. Behn the-meter energy storage about 74% year ‘ver year in 2022, to more than one gigawatt, while utility scale storage s projected to increase about 239% to 5.4 GW." Unites wil Hikely {0 develop new rates and implement flexible load programs to incentvize behavior. the long run, many electrification as a way to increase electricity sales while reducing customer bills since the cost of system upgrades would be spread across a broader base capacity in the United States is projected to grPees: RRS & i = fo el oy y PS The clean energy transition powers on, with a potential policy boost In 2022, the electric power industry wil continue eee Ree ate See Brid. While today's challenges will likely persist, eee en eee eens ‘and federal policies, investment, and research into ree ee eo ee es the way. Corporate ESG goals and growing scrutiny eee ie eae tes Pe ee eee ey further refine decarbonization plans. Many will kely set more specific decarbonization goals, including interim targets and implementation timelines. And more power Peet Ene eens Peete er ee arts een eee eas Se eae eee poe te gee eee climate risk and recalibrate their strategies to address It. New state regulatory policies could also emerge that incentivize and enable cost recovery for resiliency Investments, In adsition, recently approved federal Reet eee oe a or loans to support grid resiliency and security projects. Cee manner te tec as eer eet a and cloud capabilities can enable the analytics, artifical eluents Peas eee ee Pace oC eer eee tes See ce ees eee ec er aes following progress on FERC Order 2222 implementation eee er ae eee eee et ees Pee et eee ee Pee et eae ne es ee eee ed Unevenly across the country, but for utilities that see the additional electricity demand and revenue, it ee ee eee ieee ae ac? eee Se a and impact ofthe I as well asthe progress of the Coo ee nee ce as ee ec Cn rad and decarbonize the grid, develop next-generation a ee Pee e ne eee ee ee ee re Tm ee arg coon cae Re eee net ee ees that could accelerate the clean energy transition, Together these enabling technologies and policies cence ee cre aa ene ey tall orderLet’s talk Jim Thomson Kate Hardin Vice Chair - US Power, Utilties & Renewables Leader Deloitte LLP Jamthomson@detoit 1813 230 3714 Executive Director Deloitte Research Center for Energy & Industrials Deloitte Services LP Khardin@deloitte.com 1 677 437 3332 hy) | Key contributor Suzanna Sanborn, senior manager, Deloitte Research Center for Energy & Industrials, Deloitte Services LPEndnotes 1. US Energy information Aaminisration 8 “rc Poner Moh, Sols ef leony o Ukimete Customers: cessed October 2, 2021 2. SAP GlebalMarket ntligance, "RRA Financial Focus, Ul eapal fexpendsures update aot 6 2021 2. Alec Panar Monthly average Price of Electr to Leas CCstorers accesses October 27,2021 4. A lec Power Monihly et Censration by Energy Source, aeassed (Cetaber 27,2021 ‘5. Federal Erergy Regulatory Commision ergy resteuctur up ‘ogust 2020, p. a August 2021 4 restr 6. TheWhte House, “Upsstes Fac: she: span estat na cos act® August 22021 7. smart Elec Power allance “uty Carbo" Reducion Trackers? stcessed November 2021 8 to 9. Stanley Porter and Kate Harn, 20g the energy wanston om Fee oste cient elo ght May 27,2026. 19, Z2qyme and National Publc Utes Cour Uy dearbenzaton has ‘an arefuncenainy, September 2027.03 Aecoragto te std, 55% Gr ivestoronned uty respondents si ity shrerolaes apy e5G fnterato thar busiress, ara 80% report the estar ate ase or 12, Federal neegy Regulatory Consson office of Ferg Projects, "FrergyWitosucture Update = Rew geveration inser ew Ou Sd expansion Agus. 2077 an December 2029, 2019, 20°8, 2017, 13, CIA lect Power Monthy, Net Severaon by Cerny Source, aecessee (eaves 27,2021 14, Stanley one ea, iy decorbonzavon seeps Renew reshape ona POs alae Wigs, September 2020, 9.8 15, Sma cherie Power Aliance 202% Ut tansfrmarion profile executive Sommoy9 1 16, Jim Thomson ea, he seavbonzed poner worjorce. Dpto an eves, Delonte sighs June 2021, pp 10-1" 17. World Mereorolgleal Organization *ietebies casters increase Deer pas So years coven mare shmage bu fener deaths August 3, 2021 18. Naonal Centers fo Eevtonmenta formation "9 Muimoie dates noaagow accessed November 10,202" 19. United Sates Global Change Research Progam, "V5 Clie Reserce Yoolet hone a, 2021 26, Ethan Howlin 750, ONE eee tess roa forename aug Shrug taathrk a fRerels hy ect? Qty Be October Sna0d4 rad mera pimps of Anencoe tue Clmatecnage Shee epee’ NewYork Tes February 6.2021 a 22 22 2s, 26 a 6 2 28 2» 0 Det of Columbia Pomer ine Undergrouncing 3 PLUG) Neca deplugintacom,secessed October 202"; 2C gov Ofie ef the Cy Administ, ayo Sone" Ponca sak groutescr ss00 lento undergreune power Ines ne Ds press release, June 2.2019, 17th US Congress, 3.3684 —nasructare rwestment ans Jobs Ac accursed October 2021 US. Deparmers of nergy, Ofc af Scenes, ow 56 may boa Sclanceresearehy Aust 18 2021 Jack ria at al, écclrang enters ingovavon 9nd ronsermaton {itn SG and Wiss Dao to) of Advanced Virals Adopt, Cb io, 202K. Gaur Gopal Semra Barutenu, and Crristne Coun,“ poser (hls tan ornate fess ted, January 2020, 66 state uty regulatory commissors are approaching uty requests to Sin vate base on aceseeyrase 0385 ofa fess Ben Herz shargel“tsergy relably resilence.exceme weather and Biter unastes favre gis eae 3" Woo Maceenae August 3, 202%; Calorie Publ tes Commission (ePUQ, Ion et forgo edp sure gr eab itso res eles, March yan Heke al, ne narona| poten load esl: Value and ‘Moet patesi thsugh 206, The Brae Group juve 2019, 9.25 American Counc for an Energy#tlent Eonamy (ACEFER ray eteey sy aves0. ces accetmed October 202" Herman K-Trbish, “wo baer to utty an customer sags wh Fexble ass ano row regubors con" Ub Di, Januay 6, 2021 Frodconmental ana Foray uy sta, 3 Kings ane bo Wo Eire accessea October 2021 hgh Lawrence and Chip Beey “US souseholds’ Heat, Ssupmen: choses are dverse and sory by mae region Today 9 Ferg, Ape, 2047 Jeff John *atfornia takes bol steps to make electric the uetot ose lortew bs kt Conagy Meda, August 11, 2027 to Catfrnia Energy Commisson, ery Commision adopts upestes Bulng stonaardstoimprove ficiency. teave emis os Fm Names Sesioiinesses? press eease gust 1°, 2024 aloe Gryennald ar! Mina Le, 2020: al» yur for bling ee EMSS Rucorinouted conten: in Greenfz, December 30,2020, Justin Gerdes, *o, hat exacly is bullsing elation tei, ane 2020, eeetech ‘Grunwald a ee, "2020- Wot yea or bln electcation? Wood Macken US enery storage moritor,Q2 202%, accessed Sootember 2024 19H US Congress, 183684 ~ nastuctre Fwestment apt ods Act And faves dace seer acessed Getober 2021 2022 pone anduttoes ry obo [10Deloitte. ee err epee te eet erry ee eee ee ee oe eee en eee een eee ee eee ee pee ee ee eee eee eee ee oe eae eee ee eee enn oe eset tat eee eee cer ents en ee eee eee eee eee eae ee ene aren eee ee eee eee es ee eee ee orcs Cee eee ee ere ee ee ee oe Ce ee en eer eed Baterrinoei ne sere nine! rer eee eee ee Ce eee ge ea eet ee ee ede eee eet ee eee ee eet res eee eee eee ee Procerarennere tenn yah eee neentin emer ertoarry eee eee eens ee et ee ee ene ee en eens etd eee eee mene