[New Study] Bridging the Innovation Gap: What Utility-Startup Partnerships Need to Succeed View the Findings →
The energy sector faces a critical gap. After years of research and development (R&D) and billions of dollars in investment, breakthrough technologies have been developed in battery storage, building electrification, grid optimization, and renewable integration. However, without an onramp for these technologies to be integrated into utility operations, the result will be stranded capital, unrealized operational savings, and a slower energy transition than the market requires for growing energy demand.
The bottleneck isn’t technology development. It’s the commercialization pathway between startups and utilities—what researchers call the “valley of death.”
A new study from our Grid Catalyst team and the University of Minnesota examines the systematic issues that have historically limited the necessary pace of change and the specific interventions that address them. The findings reveal that aligning around common goals of de-risking and adoption readiness, enables technologies to move from pilot to deployment at pace, creating significant value for utilities, startups, and ratepayers alike.
This study was made possible through the support of the IN2 Innovation Incubator, a partnership between Wells Fargo and the National Renewable Energy Laboratory.
The Scale of the Opportunity
To understand the root challenges, we went straight to the utilities to understand their limiting factors for investment, R&D, and adoption. Utilities spend just 0.2% of revenue on R&D—dramatically lower than every other industrial sector and well below the 1% target recommended by the National Association of Utility Regulators over three decades ago. This isn’t because utilities lack innovation capacity or capital. It’s because their organizational structures, regulatory constraints, and risk profiles create systematic barriers to adopting emerging technology.
Utility R&D intensity compared to other industries in 2020. Data from: National Center for Science and Engineering Statistics (NCSES). 2023. Business Enterprise Research and Development: 2020. NSF 23-314. Alexandria, VA: National Science Foundation. Available at https://ncses.nsf.gov/pubs/nsf23314/.
In addition to interviews with 17 utilities, we also surveyed startups—daylighting the scope of the problem. Approval timelines average 6-12 months, with 30% exceeding one year. For capital-constrained startups, these delays often prove fatal. For utilities, delayed access to technologies means missing opportunities to reduce costs, improve reliability, and meet decarbonization mandates.
The utility perspective shows that these pilot and commercialization gaps could be eliminated when proper frameworks are in place. Half of the utilities with formal innovation processes reported approval timelines measured in weeks rather than months. Startups working with these utilities achieved significantly higher success rates. The constraint isn’t willingness—it’s process, capacity, and regulatory certainty.
Three Critical Actions
1. Systematic Utility Innovation Processes
The research identified a sharp divide between utilities with formal innovation frameworks and those using ad hoc approaches.
Half of utilities acknowledged that their assessment processes lack formal guidelines and a “front door” for innovators. Yet utilities with structured origination, clear evaluation criteria, and dedicated innovation resources achieved dramatically faster technology adoption. This includes having a point person or team scouting and interacting with innovators.
Pacific Gas & Electric publishes detailed R&D Strategy Reports outlining specific technology needs and problem statements. Xcel Energy operates a Rapid Innovation Framework that systematically sources, evaluates, and deploys emerging technologies. CenterPoint Energy is mobilizing new processes enabled by the Natural Gas Innovation Act to identify and queue cutting-edge solutions.
These utilities aren’t taking on more risk—they’re managing it more effectively through process discipline.
The business case is straightforward: pilot projects aren’t just technology tests. They’re strategic investments in supplier relationships, internal capability development, and future procurement options.
When 80% of successful pilots receive direct utility funding, it signals that utilities will invest when clear frameworks exist for managing risk and demonstrating value.
Small-scale distributed vertical-axis building-integrated wind turbines at a parking garage in Illinois. (Photo by Prateek Joshi / NREL)
Blip Energy batteries were part of the Grid Catalyst 2024 Demonstration program, working with Minnesota Power.
Fort Carson’s utility scale lithium ion Battery Energy Storage System (BESS) installation. (Photo by Dennis Schroeder / NREL)
2. Regulatory Frameworks That Enable Speed
The highest-leverage intervention may be regulatory reform. Traditional dockets take three to five years, which is incompatible with both startup capital cycles and technology evolution timelines.
When utilities cited barriers to innovation, 54% identified policy and regulatory constraints as most critical.
Several jurisdictions have demonstrated effective models. Connecticut’s Innovative Energy Solutions Program provides expedited approval (within 12 months), dedicated funding ($25 million annually), and transparent stage-gate processes that balance innovation with ratepayer protection.
Through two cycles, the program has funded 38 projects totaling $21 million.
Vermont allows Green Mountain Power to initiate pilots up to $5 million without prior approval through its Innovative Pilots Program, using deferred accounting for cost recovery.
Oregon mandated Portland General Electric establish a Smart Grid Testbed with similar mechanisms.
Minnesota’s Natural Gas Innovation Act created comprehensive innovation planning frameworks within existing regulatory structures.
These approaches provide utilities with investment certainty, create timelines compatible with startup operations, establish clear cost recovery mechanisms, and maintain appropriate consumer protections. Critically, they work: utilities and startups in these jurisdictions report significantly improved partnership outcomes.
Public benefit charges are a common funding mechanism. Modest surcharges ($0.0005-$0.008 per kWh) in 22 states create dedicated innovation funding pools. New York’s NYSERDA, California’s Electric Program Investment Charge, and Massachusetts’ Clean Energy Center demonstrate how these mechanisms support innovation at scale while remaining invisible to most ratepayers (typically under $1 monthly).
3. Strategic Engagement and Investment in Intermediaries
Two-thirds of utilities surveyed recommended that startups work through intermediaries rather than engaging directly.
The data supports this approach: intermediaries facilitated 40% of successful partnerships by providing technical credibility, navigating regulatory complexity, and aligning product development with utility requirements before significant capital deployment.
Programs like the EPRI Incubatenergy Labs, Launch Alaska’s deployment track, and the Dominion Energy Innovation Center demonstrate the model. These organizations reduce complexity and costs for both parties, de-risk early partnerships, and accelerate time-to-deployment.
Here in Minnesota, the Minnesota Energy Alley initiative is enabling pilot demonstration in partnership with Grid Catalyst. This funding has enabled 11 pilots in the past 2 years, although there has been more private sector than utility participation to date.
Additional regulatory advancement and support of utility innovation resources are needed to shift utility participation in this state. This broader initiative is led by the Minnesota Department of Commerce and Clean Energy Economy Minnesota, with funding set to expire in 2026.
The opportunity: strategic investment in regional intermediary capacity—particularly through universities, national labs, and specialized accelerators—can substantially improve market efficiency.
These organizations provide not just matchmaking but sustained technical support, regulatory guidance, and policy advocacy. To continue to play this critical role, they also require public and private investment.
Inside the battery energy storage system at the Golden Valley Electric Association’s facility in Fairbanks, Alaska. (Photo by Joe DelNero / NREL).
Implementation Roadmap
Utilities should establish formal processes for innovation origination and assessment and identify necessary resources and intermediaries to provide a “front door” for partnerships.
Intermediaries (including accelerators and incubators) should work with utilities and regulators to remove obstacles that slow or eliminate innovation opportunities. They should also consider structured forums where utilities can communicate their priorities early in product development.
Regulators should establish expedited innovation dockets, create clear cost recovery mechanisms for pilots, and consider other sustainable financing mechanisms, with consideration of clear performance parameters, cost parity, and operational and efficiency benefits.
Startups should engage utilities early to validate product-market fit, leverage intermediaries for relationship development, and demonstrate rigorous testing and clear risk mitigation aligned with utility operational requirements.
NeoCharge (California-based startup) worked with the University of St. Thomas Center for Microgrid Research to demonstrate their technology for utility impact. (Photo by John Autey / Pioneer Press)
The study findings are not a call for utilities to become venture capitalists or for startups to develop without rigor. Instead, it’s a recognition that both incumbents and innovators have critical roles to play in building the energy infrastructure of the future.
The recent federal policy shifts have significantly reduced public R&D funding. This creates both risk and opportunity. The risk: slower technology commercialization absent federal support. The opportunity: first-mover advantages for utilities and regions that build effective public-private innovation partnerships now.
The utilities, intermediaries, and regions that build these innovation ecosystems will capture first-mover advantages in the energy transition. Those that maintain status quo approaches will face increasing disadvantages as competitors deploy superior technologies, achieve better cost structures, and meet decarbonization mandates more efficiently.
The question is not whether utilities and startups should collaborate, but how quickly we can remove the barriers that prevent this collaboration from happening at scale. The energy transition depends on it.
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