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May 19, 2025

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The industry is 'on the brink of a paradigm shift'

By Tonya McMurray

3 takeaways

• The energy and utility industry is experiencing significant growth due, in part, to technological advancements, such as artificial intelligence.
• The industry faces challenges, such as regulatory changes and the need for modernization, but there are opportunities for innovation and collaboration to address these issues.
• The industry’s future looks promising with continued growth and the adoption of new technologies to improve efficiency and sustainability.

Unprecedented energy demand, technology innovation, shifting geopolitical dynamics, and a continued focus on renewable energy sources are sparking massive change within the energy and utility sectors, putting the industry on what global consultancy Guidehouse Inc. describes as “the brink of a paradigm shift.” At the same time, the industry is facing increasing fiscal pressure driven by infrastructure requirements, shifting federal funding, potential supply chain disruptions and the cost of extreme weather events.

These factors allow the industry and its diverse suppliers to innovate and capitalize on technological advances. At the same time, the industry faces the challenge of providing consumers with affordable and reliable energy — while keeping up with the need for new, more resilient infrastructure.

“From modernizing grids to funding critical infrastructure projects, leaders must confront complex challenges that demand bold innovation and strategic foresight,” Guidehouse stated in its “2025 Communities, Energy & Infrastructure Trends,” a report based on interviews with a global network of consultants and energy specialists in both commercial and public sectors. According to Guidehouse, “This moment calls for a redefinition of traditional models, focusing on resilience, cost efficiencies and transformative growth.”

Growing energy demand

The growth of artificial intelligence (AI), automation, electrification and resurgence in industrial reshoring have boosted demand for energy resources and highlighted the need for scalable energy infrastructure.

According to Deloitte LLP’s “2025 Energy, Resources, and Industrials Outlook,” generative AI, machine learning (ML) and cryptocurrency mining activities are placing increased demand on energy resources. A search on ChatGPT or another large language model requires 10 times the energy of a traditional search engine, creating unprecedented energy demand.

According to Deloitte, approximately 75% of the top 35 electric power utilities in the United States report increased energy demand from data centers. Data centers currently consume 6-8% of annual electricity generation, and Deloitte projects that this number will rise to 11-15% by 2030.

In Deloitte’s “2025 Power and Utilities Industry Outlook,” power and utility industry executives identified grid infrastructure limitations as the key challenge in providing reliable power to data centers. That concern was echoed in a February meeting among leaders from the Edison Electrical Institute (EEI), investor-owned electric companies, state regulators and other industry and regulatory stakeholders at the National Association of Regulatory Utility Commissioners’ annual Winter Policy Summit.

In a poll conducted at the beginning of the summit, nearly one in three representatives from electric companies and state commissions expressed concern about the increasing demand from data centers. At the same time, another 54% reported being somewhat concerned. Nearly 25% said significant infrastructure upgrades will be required in their territories to support projected growth.

Other factors driving increased energy demand are the growing push toward electrification of homes and businesses across the U.S. and growth in manufacturing fueled by government incentives and reshoring efforts, according to EEI. The Peterson Institute for International Economics reported that since the enactment of the Inflation Reduction Act and the CHIPS and Science Act in 2022, investment in American manufacturing has nearly doubled.

Meeting energy demand

To respond to the increased energy demand, utilities are adopting a multiprong approach — including enhancing operational efficiency, integrating multiple energy sources, implementing modern technologies for better grid management and adding advanced conductors to improve capacity and flexibility in the transmission system. Deloitte reported that some utilities are considering the addition of nuclear power as an energy source. Others are extending the life of existing coal and gas plants, while exploring cleaner alternatives.

Electric power utilities are incurring record capital expenditures to keep pace with the evolving landscape. Deloitte reported that 2024 capital expenditures were nearly $174 billion, with 42% allocated to transmission and distribution systems.

Oncor Electric Delivery Co. LLC — which operates the largest electric transmission and distribution system in Texas — recently announced a new five-year capital plan of approximately $36.1 billion for 2025 to 2029, more than triple its last five-year capital plan of $11.9 billion for 2020 to 2025.

Grace Hastings, supplier diversity manager for Oncor, said the company has seen ongoing growth in load demands from large commercial and industrial (LC&I) customers. At the end of 2024, Oncor’s LC&I queue — made up of customers seeking to connect to transmission infrastructure — exceeded 137 gigawatts, the equivalent of the energy needed to power more than 27 million homes.

These LC&I customer requests reflect a strong and diverse pipeline of industrial and commercial expansions beyond traditional data centers, she said.

Changing geopolitical landscape

As utilities face increased costs to update infrastructure to meet energy demands, they must also contend with a changing geopolitical landscape that includes changing priorities for government funding, potential supply-chain disruptions, evolving trade and tariff policies and shifting global alliances.

“Conflicts, sanctions, tariffs and economic policies could all have a direct impact on markets in 2025,” noted the Deloitte LLP’s “2025 Energy, Resources, and Industrials Outlook from Energy Intelligence Group Inc. This leading energy information company has studied the sector for over 70 years. “Gas markets will also be influenced by politics, from a friendlier environment for [liquified natural gas or] LNG approvals in the U.S. to the Ukraine conflict’s impact on European suppliers.”

The “2025 Energy Intelligence Outlook” noted that energy companies are revising energy security strategies to ensure reliability amid supply-chain disruptions that might result from geopolitical conflicts or changes to U.S. trade policy.

Extreme weather events

The increasing frequency and intensity of severe weather events such as hurricanes, ice storms and wildfires are putting additional pressure on electric utilities to enhance energy grid resilience. As a result, EEI reported that electric companies are focused on innovation and technology solutions. EEI member companies spend over $30 billion annually to strengthen the nation’s transmission and distribution infrastructure. Some expenditures include AI-enabled cameras, weather stations and advanced modeling programs to help companies better prepare for and respond to weather-related events.

According to Deloitte’s “2025 Power and Utilities Industry Outlook,” between January and August 2024, $53 billion was spent on extreme weather events — more than double the amount spent for the entire 2023 year. The frequency and cost of severe weather events led the Texas Legislature to enact a June 2023 law that allowed utilities to file System Resiliency Plans (SRPs) to promote measures that enable the electric infrastructure to withstand extreme weather conditions better.

Hastings said the Public Utility Commission of Texas approved Oncor’s first SRP in November 2024, which will allow it to accelerate grid upgrades and enhancements to reduce the impact and duration of outages caused by severe weather. The plan — an approximately $3 billion investment over four years — will also help Oncor address other physical and cybersecurity risks to its electric grid.

Alternative energy

While current federal policy favors oil and gas production, industry analysts expect the move toward alternative fuel options will continue.

Current federal policy will impact the move to low-carbon fuel options as the government “downgrades U.S. clean energy policy and promotes oil and gas,” according to the “2025 Energy Intelligence Outlook.”

It noted, “Momentum should still be maintained by advances in solar, wind and electric vehicle technologies led by China, but a two-track transition could increasingly emerge among the world’s top two economies. Geopolitics — including climate diplomacy, trade barriers and new alliances — will again feed into this equation.”

Outside the U.S., governments continue to set ambitious climate targets with more than 80 countries committed to net-zero goals, according to Energy Intelligence. Deloitte’s “2025 Renewal Energy Industry Outlook” reported that renewable energy saw a 30% increase in 2024 compared to a 13% increase the year before. Based on U.S. Energy Information Administration data analysis, Deloitte projected renewable energy will see a 34% growth this year, making it the fastest-growing energy source.

Despite that growth, fossil fuels still account for over 75% of primary energy consumption. Energy Intelligence projects that oil and gas will continue to meet most global energy demands in 2025.

Integrating technology

According to EEI, technology is helping utilities increase efficiency and provide better customer service across the industry with innovations that shorten design times, accelerate project completion times and optimize grid operations.

According to the “2025 Energy Intelligence Outlook,” decarbonization efforts are benefiting from technologies such as green hydrogen, carbon capture and storage and next-generation nuclear power. Deloitte’s “2025 Oil and Gas Industry Outlook” reported that the integration of AI and the Internet of Things has driven the development of smart fuel management systems to optimize inventory, reduce waste and enhance supply chain efficiency — while also allowing for the integration of digital technologies and data analytics to understand consumer behavior better and respond to customer needs.

Like many utilities, Oncor has installed automated devices over the last several years to enable the company to sense local operating conditions automatically and improve performance. For example, Hastings said, the company can use these devices to identify faulted areas of the network and reroute power to restore service or avoid outages quickly.

Capitalizing on opportunities

The changes in the energy and utility sector offer opportunities for minority-owned businesses to capitalize on emerging needs. Hastings said that diverse suppliers should continue to focus on innovation and responsiveness while demonstrating their ability to stay up to speed on modern technologies and industry changes.

“With rapidly changing technologies and a heightened focus on a safe and secure grid, suppliers must be able to display their cyber and digital readiness through understanding of utility technology trends — including meeting or exceeding cybersecurity standards and having policies and practices in place to manage sensitive data securely,” she said. “Diverse suppliers should also continue to provide innovative solutions that can improve operations, while being prepared to scale up quickly to meet demands.”

Diverse suppliers who can adapt to rapidly changing technologies and current trends will be poised to take advantage of the energy sector’s shifting needs.

To learn more about Oncor, visit Oncor.com.