Today’s electric grid faces a confluence of trends that will dramatically change how it needs to be built and managed for the next several decades.
New forecasts project total U.S. electricity demand rising by nearly 16% in the next five years, after growing less than 2% in any five-year period since the late 1990s. Over 200 gigawatts of capacity from distributed energy resources will be added to the grid through 2028; these more diverse and decentralized sources will represent almost three-quarters of the capacity additions from bulk generation anticipated in the same period. And with extreme temperatures and storms becoming more frequent, weather-related power outages have been rising over the last decade and wildfires started by electrical equipment are claiming an outsized share of burned acres.
The grid’s continued reliability cannot be taken for granted any longer — it is simultaneously becoming more overloaded, more complicated, and more vulnerable. Measures like adding more storage to better integrate renewables or enacting permitting reform for new generation and transmission would be helpful, but won’t do enough to address the grid’s underlying technical limitations.
Bridging those gaps will require more investment in startups developing technologies with the potential to transform how the grid works. While these kinds of companies have previously been deemed “un-investable” or have faced slower growth prospects than venture capital typically calls for, the grid’s rapid change is shifting those dynamics and creating important opportunities that shouldn’t be overlooked.
An extensive menu serving appetites for grid upgrades
When considering the range of grid technologies, establishing a framework is helpful.
First are methods for improving capabilities of existing grid infrastructure, also known as grid-enhancing technologies, or GETs. Compared to the multi-year timelines and high costs of building new grid assets, GETs are appealing because they can deliver benefits much more quickly.
Examples include LineVision’s dynamic line ratings, which can increase transmission line capacity by up to 40%, or NewGrid’s topology optimization software, which identifies grid reconfigurations that can save millions in costs by avoiding congestion. Recent Federal Energy Regulatory Commission orders require GETs to be considered in near-term and long-term planning processes, which is another tailwind driving adoption.
Next are situational awareness and automation solutions, which provide greater visibility into the grid.
Tools like Camus Energy’s grid-orchestration software allow utilities to more precisely simulate and control the impacts of increasingly prevalent DERs, via options like managed EV charging programs. Meanwhile, GridWare’s vibration sensors can mitigate wildfire risks from vegetation contacts on distribution poles and wires — and is a compelling capital alternative as utilities’ struggles with high operational expenses for vegetation management.
The final category comprises the devices or tools that make building new grid infrastructure easier, faster, or cheaper. Examples include Infravision’s drone-based powerline stringing systems, or GridUnity’s software for utilities to streamline interconnection processes. These are key because projections suggest that the grid will need to expand faster than ever before, and there will be plenty of demand for any solutions that can accelerate that buildout.
Grid tech startups and the mandate to innovate
The utility business model depends on the ability to recover predictable costs of service through the ratemaking process, where consistency is the path of least resistance. But today, utilities now face a changing operating environment where business as usual won’t suffice.
The grid is experiencing more physical and cyber security threats, and massive costs from a growing number of billion-dollar weather disasters have pushed some utilities into bankruptcy in recent years. As electricity rates continue to rise, utilities are under more regulatory scrutiny and financial pressure to prove that they should keep their customer relationships and ratebases.
And unlike in previous decades, customers have other options: grid defection is becoming more economical in more places, and utility municipalization efforts are leading to serious consternation and costly public relations campaigns.
Despite this pressure, developing new technologies and upgrading systems for rapidly changing conditions aren’t part of most utilities’ standard operating procedures.
But early-stage companies have more freedom than utilities to experiment. They can move more rapidly than incumbent vendors to develop solutions for specific pain points — after all, it is their reason for existing and their path to success.
Today’s grid tech startups also have a unique opportunity to grow quickly in response to a market pull. Last September, Jigar Shah, then-director of the Department of Energy’s Loan Programs Office, said utilities have become more proactive in reaching out “about the fact that they really need help” — and have recognized that “broad culture change” is needed to deploy technologies in support of their goals.
While DOE’s policies may shift in the coming years, utility priorities aren’t likely to change much; they still need to provide safe, reliable power. Their sales cycles may still take longer than in other industries, but all parties will benefit from more intentional searches for new solutions, hopefully leaving pilot purgatory in the rearview.
Making the case for investment and adoption
The market for grid tech is massive. In 2024, the 44 major investor-owned utilities in the U.S. together spent nearly $100 billion on transmission and distribution capex alone. These companies serve roughly three-quarters of the country’s utility customers, but there are also over 2,000 co-ops and publicly-owned utilities that also face the challenge of managing evolving grids — and, given their smaller budgets, have an even greater need to procure the most cost-effective external solutions.
Globally, an estimated $21.4 trillion will need to be invested in the power grid by 2050 to reach net zero, or around $600 billion each year for most of the 2030s. These may seem like lofty numbers, but signs of progress are starting to appear. In September, 39 partners in the global Utilities for Net Zero Alliance committed to invest $56 billion per year specifically into grid modernization from 2025-2030 as part of a broader net zero roadmap.
Startup investments are also gaining momentum. While the total number of utility venture capital deals has mirrored declines in overall VC activity since the post-pandemic boom, the share of deals relating to grid modernization has been rising in the last two years.
Modernizing the grid is crucial to both meet rising power demand and to improve the resilience and flexibility of our evolving energy systems. Entrepreneurs, investors, and grid operators should all take notice — the window of opportunity to commercialize technologies to enable the next generation of the grid won’t be open for long, and the time to act is now.
Edward Yang is a Clean Energy Leadership Institute fellow and an investor at Prelude Ventures, which supports early-stage startups with the greatest potential to mitigate climate change. Prelude is an investor in Latitude Media. The opinions represented in this contributed article are solely those of the author, and do not reflect the views of Latitude Media or any of its staff.
