As the energy sector undergoes a profound transformation, utilities are at the forefront of a dual challenge: modernizing the grid to support a cleaner, more distributed energy future while delivering reliable returns to shareholders. The surge in capital outlays for grid upgrades, battery energy storage systems (BESS), and distributed energy resources (DERs) is unprecedented. Navigating this new era requires a sophisticated, dynamic approach to capital planning—one that is data-driven, digitally enabled, and agile enough to respond to evolving regulatory, operational, and financial realities.
Driven by energy transition mandates and policy incentives, utilities are expanding their capital investment budgets at a historic pace. Distribution investments have more than tripled since 2003, and transmission investments have grown fivefold. Looking ahead, North American electric utility investments are forecast to exceed $3.4 trillion between 2024 and 2050, with capital flowing into grid modernization, BESS deployments, and the integration of DERs such as solar, wind, and electric vehicles.
While these investments are essential for reliability and decarbonization, they introduce new complexity. Utilities must manage a growing portfolio of long-term projects, each with its own regulatory, operational, and financial considerations. The challenge is to ensure that every dollar invested not only strengthens the grid but also maximizes shareholder value.
Utilities operate under regulatory frameworks that allow them to earn a return on equity (ROE) for capital deployed in service of ratepayers. However, the gap between authorized and achieved ROE is widening—often due to a lack of discipline and visibility in capital planning and reporting. Inaccurate forecasting of capital expenditures, plant additions, and project timelines can erode returns, leaving value on the table for shareholders. For example, overspending on plant additions relative to plan may not be recoverable through customer rates, directly impacting ROE. Similarly, weak controls over project financing mechanisms—such as construction work in progress (CWIP) and allowance for funds used during construction (AFUDC)—can lead to missed opportunities for shareholder earnings.
To close the ROE gap and unlock value, utilities must embrace dynamic capital planning (DCP). Unlike static, annual planning cycles, DCP is an integrated, continuous process that connects operational, financial, and regulatory data in real time. This approach enables utilities to:
Crucially, DCP does not require expensive, multi-year system replacements. Utilities can achieve significant gains by connecting existing systems through agile, low-code digital platforms that provide end-to-end visibility and control. These solutions can be live in as little as six to twelve months, delivering rapid value and improved transparency.
A robust digital ecosystem is the backbone of dynamic capital planning. By integrating operational, financial, and regulatory data, utilities can:
Cloud-based platforms and AI-driven analytics further enhance agility, enabling utilities to optimize investments, manage risk, and capture emerging opportunities in volatile markets.
Grid modernization and storage investments are not just technical upgrades—they are strategic levers for growth and value creation. By adopting dynamic capital planning and leveraging digital tools, utilities can:
As the energy transition accelerates, utilities that invest in dynamic, digitally enabled capital planning will be best positioned to deliver on their dual mandate: powering the future reliably and profitably.
Publicis Sapient partners with leading utilities to design and implement dynamic capital planning solutions that drive transformation and unlock shareholder value. Connect with us to learn how your organization can thrive in the era of grid modernization and storage.