Several promising trends for utilities will likely continue next year, but they may be blunted by challenges such as rising retail electricity prices, according to a report released last week by Deloitte, a consulting firm.

“Supply chain snags, rising costs and extreme weather are likely to continue plaguing the power sector,” Deloitte said in the Dec. 7 report. “But promising trends in innovation and investment, buoyed by recent legislation, can help the sector fulfill its mission.”

Some developments likely to continue into 2023 are an increase in renewable energy deployment, funding from the $1.2 trillion Infrastructure Investment and Jobs Act to support grid modernization and clean energy and electric vehicle sales that grew to 6.3% of light-duty vehicle sales in the first half this year, according to the report.

“The amount of change that we will be seeing is unprecedented in our industry,” Jim Thomson, Deloitte Consulting vice chair, US Power, Utilities and Renewables leader, said in an interview. “Our utility industry is ready for this moment. It's just a matter of figuring out the right way to go about it and make sure we're not jumping when we should really be starting by walking to make sure we know where we're going before we try to get to the end game too fast.”

Next year, the 47 largest U.S. electric and gas utilities plan a record-breaking $169.4 billion in capital spending, Deloitte said, citing S&P Global Market Intelligence.

“But as customers struggle with bill increases, affordability could become elusive,” Deloitte said.

While elements of the energy transition will likely provide long-term cost benefits, it will still put near-term upward pressure on electric rates, according to Thomson.

“Any increase in rates right now in certain parts of the country would be a tough pill,” Thomson said, noting the infrastructure act and Inflation Reduction Act will only partly pay for the energy transition. “The key will be how to make sure that you know the customers aren't bearing a disproportionate amount on their backs through rates.”

One option for advancing the transition without increasing rates may be for utilities to work with large corporations, technology companies and others to jointly fund projects, Thomson said.

Deloitte expects utilities will push further into rolling out a new round of advanced metering infrastructure, known as AMI. The 115 million “smart” electricity meters installed since 2000 are showing their age, the firm said.

AMI “2.0” features faster processors, more memory, modular communication capabilities and longer-lasting batteries, Deloitte said.

“Residential meters are becoming edge computing devices that can better understand how electricity is being used or generated behind the meter,” Deloitte said. “And that could be increasingly important as consumers add solar panels, electric vehicles or battery storage and seek to interact with the grid.”

Deloitte expects battery storage installations will grow more quickly next year, despite rising costs.

Utility-scale battery installations are set to almost double this year to nearly 6 GW from 2021, and forecasts indicate deployments could jump to nearly 10 GW next year and 12 GW in 2024, according to Deloitte.

“Battery storage costs are expected to continue rising in 2023, though that trend could reverse longer term and is unlikely to dampen demand,” the consulting firm said.

Supply chain disruptions could continue into 2023, largely due to a lack of battery and critical mineral suppliers and concern about unethical labor practices, especially in cobalt mining, Deloitte said.

Alternate battery chemistries, such as lithium iron phosphate, could scale up for the electric vehicle market, helping reduce demand for lithium-ion batteries, Deloitte said.

With EVs making up a growing share of new vehicle sales in the second half of this year and the Inflation Reduction Act providing new EV tax credits, utilities will likely accelerate planning for the growing EV market in 2023, according to the report.

“Some of the thorniest challenges to meeting these goals could be for the auto and battery industries to produce enough EVs and batteries, given supply chain constraints and IRA tax credit eligibility requirements for EVs,” Deloitte said.