Innovation and AI: Breaking down utility budget decisions

In this week’s Power Playbook: how have utilities been allocating their budgets to meet the increasing demands coming from the power grid? A survey from National Grid Partners provides some insights.

Earlier this month, National Grid Partners released the results of its 2025 Utility Innovation Survey.

The results are clear: innovation is increasingly a business priority, with 69% of respondents saying innovation is now embedded across all business units. That’s a notable shift from 2024, when 66% said innovation at their companies was structured as a centralised corporate function.

Additionally, 42% of utility leaders reported working with startups to spark innovation; last year, just 26% of those surveyed said they identified fresh ways of thinking from startups.

Utility leaders reported a 33% increase from last year’s survey in the percentage of innovation projects that move from the drawing board to implementation (32% vs 24%).

But what’s been driving this heightened focus on innovation in a sector that has otherwise been slow to tap new toys?

Unsurprisingly, it all comes back to the power grid.

Embedded innovation mandate

National Grid Partners’ Shun Sakaguchi explained to me some of the drivers for this increase in innovation mandates.

According to the Manager of Innovation and Venture Acceleration, grid modernisation has been the key driver. 

“Our survey shows innovation budgets increased for 64% of respondents this year. Several factors explain this uptick. Innovators ranked grid modernisation (71%) as a top priority, followed by digital transformation (45%), process automation/operational efficiency (36%) and AI/data analytics (32%) – all required capital to upgrade their systems.”

Indeed, this is what it comes down to: upgrading systems and infrastructure to ensure they’re all fit for purpose. For this, capital investment is needed in droves to “upgrade networks, deploy sensors, automate inspection and build data platforms.” 

A surging priority

According to the survey, innovation has surged as a priority on utilities’ agendas; in 2024, only 6% of respondents listed it as a driver; in 2025, it’s up to 40%.

Steve Smith, President of National Grid Partners and Chief Strategy and Regulation Officer at National Grid, said at the time of the survey’s release: 

“Our findings are clear: Utilities have gotten the message and are putting their budgets to work to rapidly embrace innovation, deploy AI and build a more dynamic grid.”

Added Sakaguchi: “As utilities balance managing ageing infrastructure, unprecedented load growth and sustainability goals, executives see innovation as core rather than peripheral.”

Indeed, the survey finds that the share of companies allocating between $5 million and $25 million to their innovation budgets has risen: 64% of respondents reported budgets in this range, up from 51% in last year’s survey. 

When it comes to the source of funding, utilities said the operating budget is the primary source at 75%, followed by a dedicated innovation/R&D fund (63%) and government grants and funding (61%).

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Additionally, 58% of respondents said their organisation’s innovation budget increased a little from last year (in the range of 5% to 15%) while 6% reported that their budgets increased significantly (by a magnitude of 15% or more). 

In a sector where the flow of energy is getting more complex and decentralised, this spend is, of course, much needed. 

Choosing whether to fund an innovation project, however, comes down to a few key tangible outcomes. 

Asked about the most important criteria for funding innovation projects, survey respondents cited whether a project will reduce cost and provide operational efficiency (24%), meet net-zero goals (23%), and enhance grid reliability and resiliency (23%).

AI as a strategic focus

Another interesting insight from the survey concerned utility leaders’ attitude toward AI.

According to the survey, 96% of respondents see AI as a strategic priority and 42% plan to deploy AI within the next two years, targeting use cases such as regulatory reporting, compliance, worker training and remote equipment monitoring.

Additionally, says Sakaguchi, the survey suggests that roughly one third (32%) of utility innovation leaders see AI and data analytics as one of the top three investment themes. 

Specifically, he says, “the investment spans AI projects such as internal AI tools, outage prevention, and satellite and drone imagery analysis for infrastructure monitoring, with grid modernisation and digitalisation persistent as top priorities.”

However, when comparing budgets with AI and innovation, Sakaguchi says that while 76% of utilities have budgets for innovation above $5 million, “AI programmes remain nascent: 52% have established AI initiatives, but only 4% describe them as mature and well funded.” 

This widespread adoption of AI, finds the survey, is hindered by skill shortages, data privacy concerns, integration challenges, and regulatory uncertainty.

“In short, larger budgets do not automatically translate into AI maturity; success appears contingent on talent, data readiness and organisational alignment rather than raw spending.”

AI talent gap

Indeed, a sufficient workforce is increasingly a concern for a sector which has been experiencing a rising need for labour, especially when it comes to the deployment of AI.

And according to Sakaguchi, although shortages weren’t classified by role, concerns for data privacy and cybersecurity were listed (65% and 52% respectively), further showing the need for specialised expertise.

Two-thirds (66%) of participants, he says, “identified a lack of skilled personnel as the biggest challenge to implementing AI-driven solutions, while 61% said talent shortages are a major obstacle to scaling innovation. 

“It’s a hot market for AI talent, and utilities must compete to attract and retain strong AI leaders.” 

But what do you think? How much budget does your organisation set aside for AI and innovation, and how do new technologies influence your investment decisions? 

Reach out and let me know so that I can feature your insights in the Power Playbook.

Cheers,
Yusuf Latief

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