Deep Dive: Grid Modernization & Storage — The Fastest-Moving Subsegments to Watch

The grid modernization sector is experiencing simultaneous transformation across multiple fronts. While some areas—particularly major transmission buildout—remain mired in decade-long timelines, other subsegments are advancing with remarkable speed. Interconnection queue reform, long-duration energy storage commercialization, virtual power plant aggregation, and grid-edge intelligence are all reaching inflection points that will reshape electricity markets over the coming decade. This analysis identifies the fastest-moving subsegments, explains their momentum, and provides practical guidance for founders and investors seeking opportunities in grid transformation.

Why This Matters

Grid infrastructure represents both the critical enabler and the binding constraint on energy transition. Without adequate grid capacity, renewable generation cannot connect; without storage and flexibility, variable renewables cannot provide reliable supply; without modernized distribution grids, electrification of transportation and buildings creates bottlenecks rather than decarbonization.

The scale of required investment is immense—$25-30 trillion globally through 2050 according to IEA and BloombergNEF projections. This investment will flow through a complex ecosystem of utilities, grid operators, equipment manufacturers, software providers, and project developers. For founders, identifying where the market is moving fastest enables strategic positioning. For investors, understanding subsegment velocity helps allocate capital toward sectors with near-term deployment potential rather than those stuck in regulatory limbo.

The interconnection queue—currently blocking over 2,600 GW of clean energy in the U.S. alone—illustrates both the urgency and the opportunity. Reforms to clear this backlog could unlock billions in stranded project value. Technologies that reduce grid stress or enable more efficient capacity utilization capture value at the constraint points where it's most needed.

The Fastest-Moving Subsegments

Interconnection Queue Reform

After years of incremental adjustment, interconnection queue reform has entered a period of rapid change. FERC Order 2023, finalized in July 2023, mandates fundamental reforms to how generation and storage projects connect to the grid. While implementation is ongoing, the direction and momentum are clear.

Key reforms in motion:

Cluster study approach: Rather than processing projects individually, grid operators will study projects in clusters based on location and timing. This eliminates the cascading restudy cycle where each project withdrawal triggers restudies for all following projects.

Financial commitment requirements: Projects must post escalating deposits ($500/kW for interconnection requests, increasing at later milestones) to demonstrate commercial seriousness. This should eliminate the speculative "placeholder" applications that clog current queues.

Site control requirements: Projects must demonstrate control of their proposed site at application, eliminating paper projects lacking real development.

Timeline mandates: Grid operators face explicit deadlines for completing study phases, with consequences for failure to meet timelines.

Velocity indicators: FERC Order 2023 compliance filings are underway across major RTOs. PJM, the largest U.S. grid operator, began implementing reforms in early 2024. MISO and SPP have accelerated queue processing. Early indicators suggest 30-50% reductions in queue processing times are achievable.

Implications for founders: Interconnection queue reform creates opportunities for software and services that help developers navigate reformed processes, optimize queue positions, and model system upgrade costs. Hardware innovations that reduce interconnection requirements (grid-forming inverters, storage co-location) capture value at this constraint point.

Long-Duration Energy Storage Commercialization

Long-duration energy storage (LDES)—systems capable of storing and discharging energy over 10+ hours—has moved from laboratory concept to commercial deployment with remarkable speed over the past two years.

Technologies reaching commercialization:

Iron-air batteries: Form Energy's 100-hour duration iron-air technology has secured its first commercial deployment with Great River Energy and announced manufacturing facilities with capacity for 5+ GW annually by 2027. The technology uses abundant, inexpensive materials (iron, air, water) and projects costs of $20/kWh at scale—dramatically below lithium-ion for long durations.

Flow batteries: Vanadium and iron-chromium flow batteries are being deployed at multi-hundred MWh scale. ESS Inc.'s iron flow batteries have shipped for utility deployments. Invinity and other vanadium flow battery providers are scaling manufacturing.

Thermal storage: Rondo Energy's heat batteries, storing energy as heat in refractory materials, have deployed commercially for industrial process heat. Antora Energy is commercializing similar technology with integrated power generation.

Compressed air and gravity: Hydrostor, Energy Vault, and others are building projects for mechanical storage at scale.

Velocity indicators: LDES project pipeline has grown from under 5 GWh in 2020 to over 100 GWh announced by 2024. DOE's Long-Duration Energy Storage Initiative and state-level mandates (California, Massachusetts) are accelerating deployment. Manufacturing announcements from Form Energy, ESS, and others signal confidence in commercial viability.

Implications for founders: LDES creates opportunities in system integration, project development, and grid services software optimized for long-duration assets. The supply chain for LDES components (specialized materials, balance of plant) is early-stage and ripe for innovation.

Virtual Power Plants and Aggregation

Virtual power plants (VPPs)—aggregated portfolios of distributed energy resources that can be dispatched as unified assets—have emerged as a fastest-moving market segment, driven by grid operator programs, utility procurement, and technology maturation.

Market developments:

Grid operator programs: CAISO, PJM, ERCOT, and other major grid operators have created or expanded programs for aggregated DER participation in wholesale markets. CAISO's DERP program and FERC Order 2222 (requiring RTOs to enable DER aggregation) are creating market access that didn't exist five years ago.

Utility procurement: Utilities facing capacity shortfalls are contracting with VPP providers as alternatives to peaking plants. Recent examples include PG&E's 1,000 MW demand response and VPP procurement and ConEd's partnerships with aggregators.

Commercial and industrial: C&I customers are aggregating building loads, behind-the-meter storage, and EV charging for grid services revenue. Companies like Leap, Voltus, and OhmConnect are scaling rapidly.

Velocity indicators: VPP capacity in the U.S. has grown from approximately 30 GW in 2020 to over 80 GW in 2024. BloombergNEF projects 100+ GW additions through 2030. Revenue opportunity for aggregated DERs is projected at $15-20 billion annually by 2030.

Implications for founders: VPP opportunities include aggregation platforms, device-level control and optimization, market access software, and customer acquisition for distributed resource enrollment. The market is consolidating but still early-stage with room for specialized players.

Grid-Forming Inverters

A technical innovation with potentially transformational implications, grid-forming inverters are advancing rapidly from pilot deployments to utility-scale requirements.

The technical context: Traditional inverters (grid-following) require an existing AC grid signal to synchronize with. Grid-forming inverters can create their own AC signal, enabling operation without synchronous generation (conventional power plants) providing grid stability.

Why it matters: As synchronous generation retires and renewable penetration increases, grids lose the inherent stability that spinning generators provide. Grid-forming inverters enable 100% inverter-based grids—a prerequisite for very high renewable penetration.

Deployment acceleration: AEMO (Australia) now requires grid-forming capability for new utility-scale solar and storage. ERCOT has implemented grid-forming pilots. Major inverter manufacturers (SMA, GE, Siemens Gamesa) have commercial grid-forming products. NERC and IEEE are developing grid-forming standards.

Velocity indicators: Grid-forming inverter deployments have grown from essentially zero in 2020 to multi-GW in 2024. Australia's grid-forming mandate represents the first utility-scale requirement globally, but similar requirements are expected to spread as other grids approach stability constraints.

Implications for founders: Grid-forming technology creates opportunities in inverter development, control systems, and testing/certification. The technology also enables new project architectures (islanding microgrids, 100% renewable industrial sites) that were previously impractical.

Transmission-As-A-Service Models

While major transmission buildout remains slow, innovative models for transmission development and financing are accelerating specific segments:

Competitive transmission development: FERC Order 1000 enabled competitive transmission development, though implementation varies by region. Independent transmission developers (GridLiance, LS Power Transmission, NextEra Transmission) are building projects that utilities historically would have developed.

Transmission technologies: High-voltage direct current (HVDC) and advanced conductors enable higher capacity on existing rights-of-way. Companies like LineVision (dynamic line ratings) and TS Conductor (advanced conductor materials) are deploying technologies that increase capacity without new rights-of-way.

Interconnection-enabling transmission: Transmission specifically designed to enable interconnection of renewable resource zones is attracting investment. The SunZia project (Southwest U.S.), Pattern Energy's transmission investments, and similar projects demonstrate that transmission serving specific generation needs can be financed and built faster than general-purpose upgrades.

Implications for founders: Transmission innovation opportunities include advanced materials, transmission automation, and business model innovation around transmission access and financing.

What's Enabling the Acceleration

Several factors are driving simultaneous acceleration across these subsegments:

Policy support: The Inflation Reduction Act provided investment tax credits for standalone storage and manufacturing incentives for grid equipment. State-level storage mandates create guaranteed markets. DOE programs fund demonstration projects for emerging technologies.

Technology maturation: Lithium-ion battery costs have declined 90% since 2010. Manufacturing scale for grid equipment has improved dramatically. Software platforms for grid management have matured.

Grid constraints becoming binding: As renewable deployment accelerates, grid constraints have become acutely visible—creating urgency for solutions. The interconnection queue crisis, grid reliability events, and curtailment of renewable generation have elevated grid modernization from theoretical need to practical emergency.

Capital availability: Climate-focused investment capital has grown dramatically. Infrastructure investors increasingly view grid assets as attractive long-duration investments. Project finance for grid equipment has become more accessible.

What's Still Slow

Despite acceleration in some subsegments, others remain frustratingly slow:

Major transmission projects: New transmission lines crossing multiple states still require 7-15 years from development to operation. Permitting reform proposals have stalled in Congress. This remains the sector's most significant bottleneck.

Distribution utility transformation: Investor-owned utilities face regulatory structures that often discourage innovation. Utility business models based on earning returns on capital expenditure create misaligned incentives for efficiency and software solutions.

Interoperability and standards: Despite progress, interoperability between grid equipment from different vendors remains challenging. Standards development moves slowly relative to technology advancement.

Real-World Examples

1. PJM Queue Reform Results

PJM, the largest U.S. grid operator serving 13 states, implemented accelerated queue reforms in early 2024. Early results:

• Queue backlog reduced by approximately 40% within first year (through withdrawals of non-viable projects)
• Study cycle times reduced from 36+ months to targeted 18 months
• Increased financial deposits have concentrated the queue on serious projects

2. Form Energy's Manufacturing Scale-Up

Form Energy announced in 2024 a manufacturing facility in West Virginia capable of producing enough battery systems to store 5+ GW of capacity annually by 2027. This represents a credible path from pilot-scale to utility-scale for long-duration storage—a transition that typically takes decades but is being compressed to years.

3. Sunrun's VPP at Scale

Sunrun, the largest U.S. residential solar installer, has built a virtual power plant of over 1 GW of capacity from residential solar-plus-storage systems. The aggregated fleet provides grid services in California, Hawaii, and other markets. This demonstrates that distributed resources can achieve utility-scale impact when effectively aggregated.

Action Checklist

• Identify which grid modernization subsegments align with your expertise and capital access
• For founders: focus on subsegments with demonstrated acceleration and near-term deployment windows
• Monitor FERC Order 2023 implementation across RTOs—each region will move at different speeds
• Evaluate long-duration storage opportunities in supply chain, integration, and project development
• Assess VPP opportunities in your region based on grid operator programs and utility needs
• Track grid-forming inverter requirements as early indicator of technology mandate adoption
• Build relationships with grid operators, utilities, and developers to understand deployment timelines

Frequently Asked Questions

Q: Which subsegment offers the largest near-term opportunity?

A: VPP and aggregation likely offers the largest near-term revenue opportunity due to existing market mechanisms, available technology, and growing utility procurement. Long-duration storage offers larger long-term opportunity but is earlier in commercialization. Interconnection reform creates value across multiple subsegments rather than in a single market.

Q: How long until interconnection queue reforms show results?

A: Expect meaningful queue volume reduction within 2-3 years as financial commitment requirements drive out speculative projects. Actual project completion timeline improvements will take 3-5 years as reformed processes work through to commercial operation.

Q: Is lithium-ion still the right bet for storage, or should we focus on emerging technologies?

A: For applications under 4-hour duration with daily cycling, lithium-ion will dominate for the foreseeable future due to cost, performance, and supply chain maturity. For longer durations (8+ hours), emerging technologies (iron-air, flow batteries, thermal) are increasingly competitive and may dominate by 2030. The right strategy depends on your investment horizon and risk tolerance.

Q: What's the role of hydrogen in grid modernization?

A: Hydrogen provides the longest-duration storage option (seasonal storage, multi-day backup) and may be essential for very high renewable penetration. However, round-trip efficiency (30-40%) makes hydrogen uneconomic for shorter-duration applications where batteries work. Hydrogen's grid role will likely be limited to specific long-duration use cases rather than general grid services.

Sources

• Federal Energy Regulatory Commission. (2023). Order 2023: Improvements to Generator Interconnection Procedures. FERC.
• Lawrence Berkeley National Laboratory. (2024). Queued Up: Characteristics of Power Plants Seeking Interconnection. LBNL.
• BloombergNEF. (2024). Long-Duration Energy Storage Report 2024. Available at: https://about.bnef.com/
• International Energy Agency. (2024). Electricity 2024: Analysis and Forecast to 2026. Paris: IEA.
• AEMO. (2023). Grid-Forming Inverter Technical Requirements. Australian Energy Market Operator.
• Rocky Mountain Institute. (2024). The Virtual Power Plant: A Primer. Available at: https://rmi.org/
• Form Energy. (2024). Manufacturing Announcement. Available at: https://formenergy.com/