The utilities sector is experiencing major transformation as the world shifts to sustainable sources of power and cleaner water resources. Renewable energy, for its part, is expected to grow rapidly in the coming years, driven not only by technological innovation but also firm policy support. On the other hand, water sustainability remains a crucial issue for all of those inhabiting this planet, and clean water will continue to be on high demand, especially since around 4 billion people live in countries experiencing high water stress and extreme weather environments, like droughts, could aggravated that.
With that said, below are some trends investors should be looking out for in the utilities sector over the next 12 months.
While electricity prices have moderated, price pressures remain
The Fed’s fight against inflation is coming to a close. Not only have the prices of normal consumer goods fallen, but energy prices have also begun to ease. According to the latest Bureau of Labor Statistics report, household energy prices have come down sequentially and are only elevated slightly over the last 12 months. Moreover, utilities piped gas prices fell nearly 11% on a year-over-year basis.
In a recent analysis by Deloitte, they point out higher capital expenditures by utilities companies to modernize the electric grid as well as elevated interest rates will continue to place modest, upward pressure on consumer electricity prices going into 2024. That’s all to say, while utilities prices are certainly not as elevated as they were in 2022, there is still some way to go before prices reach normalcy.
Companies will affirm grid decarbonization
Another trend investors should be sure to watch in 2024 is grid decarbonization. In August 2022, the Biden Administration signed into law the Inflation Reduction Act (IRA) to incentivize the use of renewable energy, including solar energy. The administration pursued this particular set of policy measures at the time in order to help quell the rally in oil and natural gas prices due Russia’s invasion of Ukraine. About a year after its signage, investors had already planned at least US$122 billion of investment in clean energy–generation projects and more than US$110 billion in new clean-energy manufacturing.
Investors should expect power and utilities companies to continue pursuing decarbonization efforts, especially as strong policy incentives, such as those embedded in the IRA, remain intact.
Utilities companies will leverage AI to deal with grid challenges
Generative AI has captured the imaginations of business leaders, government officials and ordinary people. In fact, ever since OpenAI released ChatGPT, companies across sectors have desired to jump on the AI bandwagon in order to build out new products of their own or to create efficiencies in existing business processes. Utilities companies are also formulating plans to leverage generative AI. Throughout their earnings calls in 2023, utilities company executives have spoken about AI-enabled customer service that would help address power outages and billing issues as well as summon help in an emergency.
Similarly, companies have foreseen using generative AI to optimize maintenance schedules and provide guidance on maintenance history. These are just some of the improvements power and utilities companies are working on in regard to AI, and investors should definitely take notice here.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
