Power and utilities 2026 outlook: Demand growth meets delivery constraints

The power and utilities sector faces conflicting challenges as 2026 gets underway. Demand for utilities— especially electricity—is rising rapidly, while grid and infrastructure upgrades move more slowly. The U.S. Energy Information Administration (EIA) forecasts that power growth from 2023 through 2027 will be the strongest since 2000, driven largely by data centers, industrial loads and electrification.

At the same time, customer affordability pressures are intensifying while power and utility organizations need to recover costs from grid growth and modernization. The result? Utilities will need to grow quickly and do more with less, leveraging alternative solutions and changes to meet growing demand while minimizing the cost to customers.

Demand growth

Electricity demand is growing again after 15 years of generally flat demand from 2006 through 2020. Demand is forecast to rise 1% to 2% annually in the coming years in both the U.S. and Canada, but growth rates vary widely among regions, often depending on whether large computing facilities and industrial activity have a presence. The mid-Atlantic, Midwest and southwestern U.S., especially Texas, have emerged as the centers of this growth. For example, electricity demand is forecast to grow by 3.3% on average through 2027 in the Midwest/mid-Atlantic region (served by PJM) and 9.8% in Texas (served by ERCOT) over the same period.

Levers for electricity demand, including targeted programs to shift or shave demand peaks (e.g., demand response), can reduce peak strain and defer incremental capacity and infrastructure needs. While typical hourly load in the U.S. ranges between 400 and 600 megawatts, peak demand can reach 900 megawatts or more, but only for the top 1% to 2% of hours during the hottest or coldest days.

These periods of peak demand also drive the highest power prices, so solutions to lower these peaks—by either shifting demand to off-peak hours with approaches such as delayed usage or shaving demand from the grid entirely with approaches such as adjusting thermostats to more economical levels or switching to backup power—have great potential to defer the need for new power plants and reduce electricity costs. In fact, data centers and other large load facilities looking to come online can shorten their interconnection process by years if they agree to load flexibility during 1% or less of the year.

Power source reliability and strategy

Compared to a few years ago, how companies prioritize electricity sources has flipped. While companies previously prioritized low-carbon power, speed to installation now leads decision making, followed by reliability and then carbon intensity. As a result, solar and onshore wind power, paired with battery storage, will continue to contribute the most to grid growth for at least the next couple of years due to other major sources like natural gas and nuclear power taking longer to come online.

Additionally, as companies focus their capital on areas that will generate higher returns, some upstream oil and oil field services companies facing the challenges of slowing oil demand growth and lower prices have begun entering power sector projects. However, it remains to be seen how long the latest conflict in the Middle East will last and how significantly oil prices will be affected into the future.

Services companies are taking their related experience and supporting new power plant and grid infrastructure projects. Some oil producers with stranded natural gas are installing small natural gas-powered turbines to turn the liability into electricity revenue. Geothermal companies are channeling capital and talent from the oil and gas industry into exploration and production of geothermal energy sources for electricity.

System and affordability constraints

Some of the constraints preventing new demand sources like data centers or industrial plants from coming online quickly are also hindering the energy ecosystem’s ability to rapidly scale, which is key to delivering needed supply. Lengthier times for reviewing and approving interconnection requests, gas turbine construction wait times, transmission expansion needs and distribution bottlenecks all come together to significantly affect which facilities can be built and when. These constraints are colliding with rising affordability pressure as retail prices for electricity in the U.S. rise. According to data from the EIA, electricity prices were up 4.8% in 2025 from 2024 and up 28% since 2020. These affordability issues challenge utilities to recover increased costs to upgrade grid infrastructure.

These factors affect water and natural gas utilities, too. Data center cooling needs drive the demand for water, and the availability of water, natural gas and electricity all shape site selection, permitting and reliability outcomes. For example, U.S. data centers directly consumed more than 17 billion gallons of water in 2023, and that could more than double or even quadruple by 2028, according to a report from Lawrence Berkeley National Laboratory. To address these challenges, hyperscalers have invested millions of dollars in upgrading local utility infrastructure where construction of large data centers is planned.

Traditional upgrades to infrastructure are time-consuming and capital intensive. Amid surging power demand and the constraints already noted, energy companies also need to consider grid-enhancing technology solutions, such as virtual power plants, dynamic line rating systems and intelligent distributed energy resource management systems. Each of these solutions allows utilities to better use existing grid infrastructure and shift or shave demand peaks.

Demand response programs alone are estimated to have saved 6.5% of U.S. peak wholesale electricity demand in 2024, and a U.S. Department of Energy report noted their ability to increase average effective capacity by 10% to 30% at less than 5% of the cost to build a new line. Such solutions show real promise of lowering electricity costs and raising electricity capacity, with faster implementation and less public pushback than building new physical infrastructure. While adding more technology to the grid can enhance cybersecurity risks, companies can manage those risks through careful planning, execution and monitoring.

Continued growth of renewables

The first half of 2025 saw uncertainty and concern about how U.S. legislation would change renewable energy tax credits and incentives. While the One Big Beautiful Bill Act (OBBBA) did reduce some credits and incentives, the consensus is that the outcome wasn’t as sizable as feared. And even in the wake of the OBBBA, the need for rapid demand growth means that solar and wind power (paired with battery storage) remain key near-term solutions for new power generation. As a result, BloombergNEF’s forecast for solar demand growth were down by 25% in October compared to its pre-OBBBA forecast in April 2025, and wind demand growth numbers were down 46%. Battery storage, on the other hand, was 6% higher.

Even though solar and wind remain in the overall energy mix for the future, policy and economic shifts affecting those subsectors are not insignificant. Companies serving the renewables sector will face headwinds in 2026 and beyond that require revisiting strategic plans and tactical adjustments.

Next steps

Middle market power and utilities organizations face the same pressures as larger providers, including rising demand, infrastructure constraints and cost recovery under regulatory oversight, but often have fewer resources to respond. To navigate 2026 and beyond, these organizations should consider the following steps:

• Develop a multiyear view of expected load changes and tighten how to onboard large-load customers, including through the use of more stringent screening practices, application fees and minimum-usage commitments to reduce speculative requests that have become the norm.
• Pair traditional investments with proven grid-enhancing technologies that help do more with existing infrastructure.
• Understand the requirements of various regulatory commissions to better recover investments and demonstrate tangible value to ratepayers.

These action items will help utilities move faster and enable them to welcome load growth while managing impacts on reliability or affordability at a time when both are of critical importance.