Utilities Are — Cautiously! — Learning to Love Startups

Electric utilities aren’t exactly known as innovators. Until recently, that caution seemed perfectly logical — arguably even preferable. If the entity responsible for keeping the lights on and critical services running decides to try out some shiny new tech that fails, heating, cooling, medical equipment, and emergency systems will all trip offline. People could die.

“It’s a very conservative culture for all the right reasons,” Pradeep Tagare, a vice president at the utility National Grid and the head of its corporate venture fund, National Grid Partners, told me. “You really can’t follow the Silicon Valley mantra of move fast, break things. You are not allowed to break things, period.”

But with artificial intelligence-driven load growth booming, customer bills climbing, and the interconnection queue stubbornly backlogged, utilities now face little choice but to do things differently. The West Coast’s Pacific Gas and Electric Company now has a dedicated grid-innovation team of about 60 people; North Carolina-based utility Duke Energy operates an emerging technologies office; and National Grid, which serves U.S. customers in the Northeast, has invested in about 50 startups to date. Some 64% of utilities have expanded their innovation budgets in the past year, according to research by National Grid Partners, while 42% reported working with startups in some capacity.

The innovators on these teams are well aware that their reputation precedes them when it comes to bringing novel tech to market — and not in a flattering way. “I think historically we’ve done a poor job partnering with too many companies and spreading ourselves thin,” Quinn Nakayama, the senior director of grid research, innovation, and development at PG&E, told me. That’s led to a pattern known as “death by pilot,” in which utilities trial many promising solutions but are too risk-averse, cost-conscious, and slow-moving to deploy them, leaving the companies with no natural customers.

It doesn’t help that regulators such as public utilities commissions understandably require new investments to meet a strict “prudency” standard, proving that they can achieve the desired result at the lowest reasonable cost consistent with good practices. Yet this can be a high bar for tech that’s yet untested at scale. And because investor-owned utilities earn a guaranteed rate of return on approved infrastructure investments, they’re incentivized to pursue capital-intensive projects over smaller efficiency improvements. Freedom from the pressure of a competitive market has also traditionally meant freedom from the pressure to innovate.

But that’s changing.

Closing the Gap

To help bridge at least some of these divides, National Grid Partners set up a business development unit specifically for startups. “Their sole job is to work with our portfolio companies, work with our business units, and make sure that these things get deployed,” Tagare told me. Over 80% of the firm’s portfolio companies, he said, now have tie-ups of some sort with National Grid — be that a pilot or a long-term deployment — while “many” have secured multi-million dollar contracts with the utility.

While Tagare said that National Grid Partners is already reaping the benefits from investments in AI to streamline internal operations and improve critical services, hardware is slower to get to market. The startups in this category run the gamut from immediately deployable technologies to those still five or more years from commercialization. LineVision, a startup operating across parts of National Grid’s service territories in upstate New York and the U.K., is a prime example of the former. Its systems monitor the capacity of transmission lines in real-time via sensors and environmental data analytics, thus allowing utilities to safely push 20% to 30% more power through the wires as conditions permit.

There’s also TS Conductor, a materials science startup that’s developed a novel conductor wire with a lightweight carbon core and aluminum coating that can double or triple a line’s capacity without building new towers and poles. It’s a few years from achieving the technical and safety validation necessary to become an approved supplier for National Grid. Then five or more years down the line, National Grid Partners hopes to be able to deploy the startup Veir’s superconductors, which promise to boost transmission capacity five- to tenfold with materials that carry electricity with virtually zero resistance. But because this requires cooling the lines to cryogenic temperatures — and the bulky insulation and cooling systems need to do so — it necessitates a major infrastructure overhaul.

PG&E, for its part, is pursuing similar efficiency goals as it trials tech from startups including Heimdell Power and Smart Wires, which aim to squeeze more power out of the utility’s existing assets. But because the utility operates in California — the U.S. leader in EV adoption, with strong incentives for all types of home electrification — it’s also focused on solutions at the grid edge, where the distribution network meets customer-side assets like smart meters and EV charging infrastructure.

For example, the utility has a partnership with smart electric panel maker Span, which allows customers to adopt electric appliances such as heat pumps and EV chargers without the need for expensive electrical upgrades. Span’s device connects directly to a home’s existing electric panel, enabling PG&E to monitor and adjust electricity use in real time to prevent the panel from overloading while letting customers determine what devices to prioritize powering. Another partnership with smart infrastructure company Itron has similar aims — allowing customers to get EV fast chargers without a panel upgrade, with the company’s smart meters automatically adjusting charging speed based on panel limits and local grid conditions.

Competing Demands

Of course, it’s natural to question how motivated investor-owned utilities really are to deploy this type of efficiency tech — after all, the likes of PG&E and National Grid make money by undertaking large infrastructure projects, not by finding clever means of avoiding them. And while both Nakayama and Tagare can’t deny what appears to be a fundamental misalignment of incentives, they both argue that there’s so much infrastructure investment needed — more than they can handle — that the friction is a non-issue.

“We have capital coming out of our ears,” Nakayama told me. Given that, he said, PG&E’s job is to accelerate interconnection for all types of loads, which will bring in revenue to offset the cost of the upgrades and thus lower customer rates. Tagare agreed.

“At least for the next — pick a number, five, seven, 10 years — I don’t see any of this slowing down,” he said.

And yet despite all that capital flow, PG&E still carries billions of dollars in wildfire-related financial obligations after its faulty equipment was found liable for sparking a number of blazes in Northern California in 2017 and 2018. The resulting legal claims drove the utility into bankruptcy in 2019, before it restructured and reemerged the following year. But the threat of wildfires in its service territory still looms large, which Nakayama said limits the company’s ability to allocate funds toward the basic poles and wires upgrades that are so crucial for easing the congested interconnection queue and bringing new load online.

Nakayama wants California’s legislature and courts to revise rules that make utilities strictly liable for wildfires caused by their equipment, even when all safety and mitigation procedures were followed. “In order for me to feel comfortable moving some of my investments out of wildfire into other areas of our business in a more accelerated fashion, I have to know that if I make the prudent investments for wildfire risk mitigation, I’m not going to be held liable for everything in my system,” he told me.

And while wildfire prevention itself is an area rich with technical innovation and a central focus of the utility’s startup ecosystem, Nakayama emphasizes that PG&E has a host of additional priorities to consider. “We need [virtual power plants]. We need new technologies. We need new investments. We need new capital. We need new wildfire-related liability,” he told me.

Utilities — especially his — rarely get seen as the good guys in this story. “I know that PGE gets vilified a lot,” Nakayama acknowledged. But he and his colleagues are “almost desperate to try to figure out how to bring down rates,” he promised.