From Fragility to Flexibility: The Path to a Resilient U.S. Energy Grid
In an era defined by technological breakthroughs and economic growth, cracks are forming in a system critical to modern life and societal progress — our energy grid, i.e., our “electricity delivery infrastructure”. Across U.S. states, we are feeling the symptoms of these cracks through increasingly frequent power outages and persistently high energy bills.
Symptoms of Fragility: Energy Costs & Blackouts
While it is easy to understand that a fragile and outdated grid might lead to increasingly frequent and unexpected power outages, the energy grid’s influence on the price of electricity is not so straightforward.
To reveal this startling connection, the guiding question must be: Why are electricity prices not falling despite the groundbreaking successes we keep seeing with evermore green and efficient energy production sources such as solar, wind, and nuclear?
The answer lies in the following chart:
Two insights jump out immediately: 1) As of 2020/now, the cost that utilities pay to provide electricity is composed of c. 50% power production cost and 50% power delivery cost. 2) The cost to produce power is falling quite substantially (and will continue to do so) BUT, at the same time, the cost to deliver energy is actually rising — and quite dramatically so.
To be specific, the cost to produce electricity came down by >30% to reach c. 4.5 cents/kWh in 2020, while the cost to deliver power increased by >60% from 2.5 cents/kWh in 2010 to 4.3 cents/kWh in 2020. It takes a moment to digest the significance of those numbers.
While innovation helps us to decrease energy production costs substantially, we keep seeing high prices on our monthly energy bills due to rising costs to deliver energy from A to B via the energy grid. And if that weren’t enough, we continue to pay those high prices for a service that becomes increasingly less reliant and more unstable:
To conclude, the U.S. appears to have a severe energy delivery problem.
The bad news: for reasons which we will elaborate on in the following chapter, this problem is expected to become even more severe over the next years and decades, to a point where the question is no longer IF the grid can keep up, but HOW SOON it might fail with prices increasing even further — if we do not take immediate action to oppose this trend.
With stakes this high, the need for a resilient energy solution has never been more urgent.
On a positive note: at the end of this article we will discuss some interesting solutions and technologies in detail, as they are becoming more cost-efficient day by day, and are waiting to be deployed at scale. But let’s start with the root cause of it all.
The Root Causes of Fragility: Two Obvious Factors and One Sneakier Culprit
At first glance, the reasons for an increasingly unstable grid seem clear: an outdated physical infrastructure and a growing number of extreme weather events. These are the obvious impediments, readily visible and frequently discussed.
But beneath these surface-level challenges lies a more hidden culprit — our very push toward a cleaner, greener energy future. While the energy transition is a vital and noble cause, it is also quietly destabilizing the grid in unexpected ways.
The Obvious Ones (1 & 2): Aging Infrastructure & Extreme Weather
Imagine a 70-year-old house — plumbing groaning, wiring sparking, and cracks spidering through the foundation. Now scale that up to the size of the U.S., and you have our energy grid. Built in the mid-20th century, this aging infrastructure was never designed to handle the energy demands of a 21st-century society. Those new demands do not only represent the vastly growing energy demands across sectors, but also stem from the growing bi-directionality of the grid (energy consumers becoming producers, e.g., home owners with solar, dispatching generated energy back to the grid).
But aging infrastructure is just the tip of the iceberg. Increasingly frequent and severe weather events — from hurricanes to wildfires — are hammering the grid harder than ever. Each storm or heatwave exposes another weak link, leading to outages that leave millions in the dark (and sweating through heatwaves or freezing during blizzards).
These visible signs of strain are frustrating, sure, but there’s an even sneakier culprit lurking beneath the surface:
The Much Sneakier Culprit #3: The Electrification Paradox
Here’s the kicker: our push toward greener energy, while a necessary evolution, has created a paradox. The transition to renewable power like solar and wind is introducing unprecedented volatility into the grid. Why?
Unlike traditional power plants (e.g., nuclear, coal or gas), these renewables don’t produce energy on demand — they generate it when nature feels like cooperating — an effect called “intermittency”. The sun shines at noon, but most of us want power at 8 PM. The wind blows at midnight, but the manufacturing plant needs juice in the afternoon. These mismatches between when energy is produced and when we need it have thrown the system into chaos.
This problem gets intensified by the fact that the energy grid is probably the largest and most complex system ever created in human history. In the U.S., the grid consists of three “subgrids” — the Eastern, Western and Texas interconnections — that are collectively composed of circa 160,000 miles of high voltage lines (enough to circle the Earth 24 times), 12,000 utility-scale power plants and circa 55,000 electrical substations serving as critical nodes and stepping voltage up and down.
The grid can be understood as a vast, interconnected system that facilitates the flow of electricity from its point of generation to its final use:
Electricity begins its journey at power generation facilities. These facilities convert energy sources into electrical power. Afterward, it is transported across long distances through high-voltage transmission lines. High voltage is essential because it minimizes energy loss during transport. After transmission, electricity reaches local distribution systems, where it is stepped down to lower voltages suitable for consumption. Electricity finally reaches its end users — homes, businesses, and industries.
The truly mind-blowing aspect of the energy grid is just how instantaneously everything happens. Flip on your TV, and you’re drawing power that was generated hundreds of miles away, mere seconds ago. As Casey Handmer brilliantly puts it, “transmission moves power through space at the speed of light.” It’s nothing short of a modern miracle.
But miracles come with strings attached. This system is also a balancing act on a razor’s edge: At all times, electricity generated must match demand, or ‘load’; this is what people mean when they say ‘balance the grid’.
Balancing the grid has always been a high-stakes juggling act — one that sometimes involved frantic phone calls to power plants, begging them to crank up or shut down production on a moment’s notice. When there wasn’t enough demand, perfectly good electricity was simply wasted. And when things really went off the rails? Blackouts.
The balancing act of resource adequacy is an enormous challenge, as the Texan grid (ERCOT) starkly reveals. Amid an unprecedented winter storm in 2021, energy demand spiked to 69k megawatts, far surpassing planned worst-case scenarios. At the same time, natural gas production and power plants froze and failed. With the grid teetering on the brink of collapse, ERCOT resorted to rolling outages, cutting power to over 4.5 million homes to prevent a total system failure. In 2024, ERCOT was again very close to issuing rolling outages due to 30 days of over 100-degree heat that pushed the grid to its limits.
Despite all these challenges, for decades, the grid worked. Baseload power plants hummed along steadily to meet everyday electricity needs, while pricier peaker plants swooped in during spikes in demand. Supply was reliable, and demand was largely predictable.
The Energy Supply-Side of The Problem
However, the days of predictable power generation are slipping away. The steady electricity once provided by coal plants is being phased out, replaced by renewable sources such as wind and solar. While cleaner and greener, these sources come with a catch: they’re at the mercy of nature. The wind doesn’t always blow, and the sun doesn’t always shine, leaving the grid scrambling to adapt to their fluctuating output.
The shift is happening fast: Between 2011 and 2020, the U.S. shuttered about one-third of its coal plants. By 2030, another 25% are expected to go offline. Meanwhile, of the 150 gigawatts of new power generation projects currently being tracked by the Energy Information Administration, a staggering two-thirds are wind or solar projects.
This transformation marks a pivotal moment for the grid. It’s cleaner, yes — but also more unpredictable than ever, raising the stakes for how we balance power in the face of a volatile energy landscape.
Today, less than 1% of current generation capacity is supported by storage, meaning every watt generated has to be used immediately. The grid is a high-wire act, balancing generation and consumption day by day, hour by hour, minute by minute.
When power comes from steady, on-demand sources like gas or coal plants, this balancing act is relatively easy. Forecasting errors are typically tiny — just 1% off the mark. But toss variable renewables like wind and solar into the mix, and suddenly, things get complicated. These sources can swing wildly, with their actual output varying 15–30% from next-day projections depending on the weather.
To make matters even more complicated, we see substantial structural and systemic changes across the grid. Supply does not only become more volatile but also more distributed and bi-directional as electricity consumers, at the edges of the grid, are becoming prosumers (producing consumers). This adds further non-trivial energy flows to the grid:
The Energy Demand-Side of The Problem
While the energy supply side is transforming with the rise of renewables, the demand side is undergoing its own revolution — and it’s just as game-changing. Across homes and businesses, the shift toward electrification is creating a tidal wave of new electricity demand, fundamentally reshaping how we consume power.
Historically, electricity use per-capita peaked in the early 2000s and until 2019/2020, demand has been largely flat or almost declining. Now, this trend undergoes a fundamental shift, as some projections suggest that total U.S. energy consumption could increase by as much as 90% until 2050 compared to current levels.
To be more concrete, the newest 2024 FERC 5-year load growth forecast expects a nationwide load increase of c. 16% by 2029 already. If you think about it, this is ridiculously high growth and the power industry has almost no idea how to deal with that increase going forward.
Take your home, for example. Heat pumps are rapidly replacing gas furnaces, and electric stoves are edging out their gas counterparts. Add electric vehicles (EVs) into the mix, and the average household electricity consumption could double or even triple. This electrification isn’t just happening at the individual level — it’s a societal shift. Based on the latest IEA EV outlook, every second vehicle to be sold in 2035 in the U.S. will be an EV (reaching c. 13M sold vehicles in 2035 up from c. 1.5M vehicles in 2024), and every one of them will need to charge.
Then there are the energy-hungry behemoths of the digital age. Data centers. While the power industry largely does not have a clear understanding of how much demand will come from data centers, some specialists expect that data center load could exceed 90 GW in 2029 which would represent c. 10% of the total forecasted load of c. 950 GW in 2029 according to Grid Strategies’ most recent 2024 U.S. Power Demand Report.
The problem? This surge in demand isn’t evenly distributed. Electric vehicle charging, for instance, creates massive spikes during specific hours, like evening commutes when people plug in their cars after work. Air conditioning during heatwaves is another culprit, pushing demand to record-breaking levels when the grid is already under strain.
As we race toward a cleaner, greener future, an ironic paradox prevails: the very progress we’re making with renewable energy and widespread electrification is making our grid increasingly unstable. The mismatch — volatile supply meeting growing and equally volatile demand — stretches the grid to its breaking point. To truly reap the benefits of renewables and electrification, we must urgently build and deploy solutions that can harmonize this delicate balance.
Solving the Renewable Energy Paradox: Building a Smarter & Stronger Grid
The renewable energy revolution is here — but unless we solve the paradox it creates, our dream of a cleaner future could unravel. So, how do we fix the grid?
Option 1: The Big, Bold Grid Makeover
We could modernize the grid — replace aging transmission lines, build new substations, and deploy advanced technologies to handle massive surges of power. Sounds great, right? Sure — if you’ve got a few trillion dollars lying around, decades to spare, and no aversion to political red tape.
While upgrading infrastructure can be a part of the solution, it’s expensive, slow, and doesn’t address the root of the issue: matching supply with demand in real-time.
Option 2: Energy Supply Flexibility — A Good Start, But Not Enough
Theoretically, we could synchronize electricity generation with consumption so perfectly that the grid balances itself. But here’s the catch: the sun doesn’t shine at night, the wind doesn’t always blow, and peaker plants (those on-demand energy saviors) rely on fossil fuels.
New technologies for on-demand clean energy are in development (e.g., NextGen of small-scale nuclear reactors for data centers, nuclear fusion) and some of these solutions are already contributing to help alleviate the overall problem. Still, they might be a long way from being ready to save the day on their own.
Grid-scale batteries are rapidly becoming a vital component in the transition to greater energy flexibility, enabling the storage of renewable energy at scale and its deployment during periods of peak demand. Large energy companies are increasingly establishing grid-scale storage facilities alongside their generation assets, while innovators like Tesla are building extensive battery portfolios.
Recognizing the significant potential in this space, Picus invested in Terralayr, a German-based startup leading the way in grid-scale battery storage. Terralayr aggregates assets to provide energy stakeholders — such as grid operators, power producers, and major power users — with access to flexible and reliable energy solutions.
The presence of such large front-of-the-meter (FTM) battery systems — talking about 10+ to 100s of MWs per system — is growing rapidly, and they will play a vital role in balancing power supply and demand.
Still, especially in the U.S., their deployment is being slowed by long interconnection queues and regulatory bottlenecks which require further solutions to provide a holistic solution to the grid’s challenges.
Option 3: Energy Demand Flexibility — Where The Potential Lies
Another incredibly viable solution with the highest immediate potential for impact? Energy demand flexibility. Instead of simply ramping up/steering supply, why not adjust when and how we consume produced electricity at the point of consumption (households and businesses) to buffer the grid’s growing volatility?
Imagine a world where your EV magically charges overnight when demand is low, your home battery steps in during the afternoon to provide much-needed relief for the grid, or your smart thermostat adjusts slightly at just the right moment during the day to ease grid strain. With better demand-side management and real-time data, we can smooth out consumption peaks and make the most of renewable energy when it’s available.
This isn’t just a pipe dream. Companies are already developing virtual power plants that aggregate distributed energy resources — like home batteries and EVs — to act as flexible, grid-supporting assets. Still, those programs didn’t take off fully yet, especially in the segment of much smaller and highly distributed residential assets.
However, with the right incentives in place and increasing technology innovation to manage highly distributed asset bases, we can create a dynamic energy ecosystem where supply and demand dance in harmony, instead of crashing into each other.
In that respect, all of us at Picus have a fundamentally strong belief that the timing is almost perfect for this transition to materialize over the next few years.
Energy Flexibility: The Grid’s Hidden Superpower
At its core, energy flexibility is the grid’s ability to bend, shift, and adapt when energy supply and demand refuse to line up perfectly.
Here’s the deal: energy supply flexibility (adjusting how much/when electricity is generated) is incredibly difficult when your main sources are wind and solar, which follow nature’s whims, not our schedules. That’s why the focus is shifting to demand flexibility — adjusting how much/when we use electricity to match the available energy.
A Bit of History: From Demand Response to Flexible Demand
Utilities have been tinkering with demand flexibility for decades. Programs coined through the term demand response were their go-to tools, dialing down electricity use during high-cost, high-demand periods. But these programs were blunt instruments — small in scale (mostly steering small-scale load assets such as thermostats) and one-directional. Utilities called the shots, cutting demand by temporarily shutting off appliances or asking large industrial customers to power down during energy crunches. Effective? To a degree. Transformative? Not quite yet.
Enter flexible demand — the next evolution of this concept. Instead of treating demand as a rigid, all-or-nothing equation, flexible demand recognizes the immense potential in shifting and shaping electricity use across minutes, hours, or even days. The goal? To support the grid without compromising the customer experience. Thanks to today’s advanced metering infrastructure, this vision is finally possible.
Unlike traditional electricity meters that only capture total usage over a month, smart meters break down consumption into hourly — or even near real-time — intervals. And their adoption has exploded. Back in 2007, there were just 6.7 million smart meters in the U.S. By 2022, that number skyrocketed to 120 million, covering over 70% of all electricity customers. This granular data allows us to move beyond clunky, one-size-fits-all programs and implement dynamic, time-varying rates that incentivize customers to shift electricity use to lower-cost times of the day (FERC 2024).
But here’s the catch: while the technology has surged, utility programs haven’t kept pace. Most still rely on outdated approaches focused narrowly on reducing peak demand. Flexible demand, however, offers a far more ambitious vision — one that aligns energy consumption with the evolving needs of a renewable-driven grid.
The Promise of Flexible Demand
- Maximizing renewable alignment: flexible demand can sync electricity use with renewable generation and peak supply.
- Avoiding/complementing infrastructure upgrades: by smoothing demand peaks, flexible programs can reduce the need for costly upgrades to transmission lines and substations.
- Replacing fossil fuels: as natural gas plants phase out, flexible demand can fill the gaps by reshaping when and how electricity is consumed.
Flexible demand isn’t just about tweaking the grid — it’s about redefining how we think about energy consumption. With smarter tools and a more dynamic approach, it has the potential to lower costs, reduce pollution, and transform the grid into a resilient, renewable-powered system fit for the future. The opportunity is massive:
The Brattle Group’s report “The Value of Virtual Power” underscores the potential value of demand flexibility through Virtual Power Plants (VPPs):
Deploying 60 GW of VPP capacity over the next decade could reduce net costs for grid infrastructure upgrades by $15 billion to $35 billion compared to traditional, greenhouse gas-intensive solutions like backup “peaker” plants.
These numbers are representative of the enormous value and profit pools that startups can tap into by offering solutions that allow Transmission Utilities and Retail Electricity Providers to reap the financial and operative benefits of demand-side energy flexibility.
How do we unlock the Power of Flexible Energy Use?
What if some of the biggest energy consumers in our daily lives could become allies in stabilizing the grid? That’s the magic of flexible demand.
Let’s briefly look toward Europe: While the U.S. still seems to be in its “early days” of leveraging the potential of highly decentralized demand-side flexibility (esp. residential homes), Europe has become a quite fertile and mature ground for startups monetizing energy flexibility.
Our Picus portfolio companies Enpal, Axle.Energy, and SpotmyEnergy are thriving by enabling power consumers to optimize energy use and participate in flexibility markets. With emerging nuclei of policies incentivizing demand-side participation, some European markets offer learnings and blueprints for scaling flexibility solutions in the U.S. as well.
The U.S. is now at a similar inflection point, poised to unlock the immense potential of demand-side flexibility. With a growing focus on grid modernization and regulation such as FERC 2222 supporting Distributed Energy Resources (DER), startups are emerging across asset classes, from smart thermostats to EV charging and industrial load management.
This momentum, even though still quite heterogeneous across U.S. states with ERCOT leading the charge, signals a shift toward a more dynamic energy future:
Heating and Cooling: A Hidden Battery in Your Home
Air conditioning accounts for a whopping 50% of residential energy consumption. But did you know your home can act as a thermal battery? By preheating or -cooling when power is cheap, buildings can store thermal energy without compromising comfort. In addition, electric water heaters can also store thermal energy, allowing homes to heat water during off-peak hours.
Companies like RenewHome (formerly OhmConnect & Google Nest) are leveraging smart thermostats to provide flexibility to the grid, allowing customers to reduce energy use during peak demand. According to UtilityDive, during a 2023 heatwave, OhmConnect customers “collectively delivered 65MWh in energy savings to the grid by consistently reducing peak load by 5% […]. Customers also saved 6% — 8% on their energy bills.”
Similarly, Voltus and Resideo partnered up with utilities to deploy smart thermostats across 5 million homes, enabling real-time adjustments that stabilize the grid and prevent blackouts while rewarding consumers.
Electric Vehicle Charging: A Massive Opportunity on Wheels
As EV adoption skyrockets, charging them is becoming a challenge. Yes, EVs can increase electricity demand, but many drivers are flexible about when they charge (e.g., at what point over night). By aligning EV charging with renewable energy production or off-peak hours, the grid can handle this influx without breaking a sweat. Imagine a future where EVs charge overnight with wind energy or soak up excess solar power during the day.
In the U.S., WeaveGrid and EV.energy are leveraging EVs and their batteries to provide critical grid flexibility. By connecting thousands of EVs to grid management platforms, these companies enable dynamic charging schedules that align with renewable energy availability and grid needs.
Industrial & Commercial Applications: Heavy Hitters, High Potential
Businesses are massive electricity consumers, and they also hold immense flexibility potential. Whether it’s adjusting lighting schedules, optimizing pumping operations, or tweaking production timelines, these large-scale operations can respond dynamically to price signals and grid needs. The specifics vary by case, but the opportunity is vast.
In that respect, CPower, Uplight, Leap and Voltus are at the forefront of leveraging C&I customers’ energy consumption to provide vital demand flexibility. They aggregate and optimize large-scale loads, enabling businesses to reduce or shift energy use during peak demand.
Behind-the-Meter Batteries: The Untapped Superstars of the Grid
Batteries, quietly sitting in garages, basements, and commercial facilities, hold incredible potential to transform how we use energy — but they’re still vastly underutilized. Whether residential or commercial systems, batteries can act as a bridge between energy supply and demand, smoothing out the grid’s volatility. Yet, the scale at which we’re deploying and leveraging batteries falls woefully short of their game-changing potential.
Let’s start with the numbers: In the U.S., 4 million residential solar systems have been installed, but less than 5% of these systems are paired with batteries. This means millions of homes are generating solar power but can’t store the excess energy.
Looking beyond solar installations, far less than 1% of U.S. homes are equipped with a battery solution — highlighting the enormous whitespace.
The value of batteries lies in their flexibility and bidirectionality. They can store renewable energy when the sun is shining or the wind is blowing and then discharge it during times of high demand — say, a scorching summer evening when everyone’s running their air conditioning.
The potential isn’t just theoretical — it’s already being proven in pilot programs. In Vermont, a battery-based VPP operated by Green Mountain Power aggregates 1000s of residential batteries, enabling the grid to draw from these decentralized energy sources during peak times. The result? A substantial 27 MW reduction in peak demand during critical periods, saving residents c. 3M USD in peak costs and the utility millions of USD.
But despite these proven successes, batteries remain underfunded, under-deployed, and undervalued. Barriers like high upfront costs for households, limited policy support, and a lack of public awareness about their benefits are holding back their adoption. And yet, scaling battery storage is one of the most efficient and effective ways to stabilize the grid.
Imagine a world where every home and business could not only draw energy from the grid but also give back when it’s needed most. Behind-the-meter (BTM) batteries hold the key to making this vision a reality — a decentralized, flexible energy ecosystem that transforms passive electricity consumers into active grid participants.
The time for batteries is now: Over the past 10 years, their prices have come down significantly (from c. 800 USD to 140 USD in 2024), advanced telemetry allows to steer them in almost real-time and IRA tax credits bring down their costs by another 30%.
While batteries are booming, installations are not advancing as rapidly as they could, partly due to long interconnection queues that delay grid connections for energy projects across the board. In the U.S., the majority of battery storage capacity is concentrated in large grid-scale battery farms, which are particularly affected by these bottlenecks.
Meanwhile, the residential and C&I sectors — where BTM batteries could truly shine — have yet to embrace them on a meaningful scale. Why? The business case for most customers, from cost savings to outage protection, isn’t compelling enough yet. But what if we flipped the script? What if BTM batteries became the backbone of energy flexibility, empowering customers while strengthening the grid?
Rethinking the Energy Flexibility Playbook: New Solutions for Broader Adoption
The challenge lies in innovation — rethinking deployment models, lowering upfront costs, and unlocking the hidden economic value of flexibility. The potential is enormous, but so are the questions we must answer to materialize it:
- How much economic value is in (battery)-based flexibility? How do we make it accessible to utilities and consumers?
- What are options to increase deployment of BTM batteries and leverage their value to reduce upfront costs?
- Who should finance, own and operate these batteries — businesses, homeowners, utilities, or a third party?
- What technology innovation is needed to efficiently steer and manage thousands of BTM batteries dynamically in a VPP?
The answers to these questions will shape the future of energy. BTM batteries are more than just a technology — they’re a cornerstone of a new energy paradigm, waiting for bold thinkers to bring them into the mainstream. The time to act is now. Will we rise to the challenge?
We have been investing in energy and climate since our foundation and supported the first European green energy unicorn from its early days. As such, we at Picus Capital are always actively looking for potential founders interested in Energy Tech as well as early-stage Energy Tech ventures. If you are curious how we can support you with our approach as an entrepreneurial sparring partner (we start as early as with a blank sheet of paper), please reach out to us on LinkedIn or drop us an email at philipp.emig@picuscap.com and lukas.rehm@picuscap.com
The Picus Energy & Climate Squad 💚 (Flo, Olli, Julian, Sebastian, Philipp & Lukas)
