- $14trn in grid investment is needed globally by 2050.
- Solar power generation to surge in the near to medium term.
- Rural areas have the greatest shortfall in grid coverage.
- Aluminum and smart-grid technologies key to expansion.
As the capacity to generate wind and solar power continues to expand around the world, hopes of accelerating the phase-out of coal as the leading source of electricity may depend on the expansion of a less discussed but equally important part of the energy supply chain: electricity grids. Countries around the world are working to shift to more sustainable sources of power and facing challenges related to the expansion of their electricity grids.
Last month Western Australia’s economic regulator ruled that Western Power, the state’s major electricity network provider, should be permitted to spend an additional A$1bn ($646m) over the next five years to upgrade its network to reduce the use of coal, and accommodate the additional solar and wind power slated to come on-line by 2027. This would bring the company’s investment to A$9bn ($5.8bn).
Earlier this year Vietnam’s Ministry of Industry and Trade announced that no new solar or wind projects would be connected to its grid in 2022, citing the fact that the build-out of over 20 GW of renewables over the last three years has led to frequent grid overload and wasted renewable power generation.
In order for clean energy resources to be fully utilised, governments will need to create pathways from producers to consumers. Storing excess and intermittent renewable power in batteries is part of the solution, but investment in grids is also vital – especially in smart grids that use digital technologies to monitor and manage the transport of electricity generated by all types of energy sources.
In February of last year Bloomberg New Energy Finance estimated that by 2050 the world will need to spend $14trn on power grids, including decentralised and interregional links, to meet the uptake of renewable energy. The same year, the International Energy Agency (IEA) stated that investment in power grids needs to reach $820bn per year by 2030 to facilitate the development of renewable energy projects and limit global warming to 1.5°C above pre-industrial levels, a significant increase from the $260bn invested in 2020.
The need for grid expansion is underscored by the rapidly increasing growth in the capacity to generate solar power.
The large number of solar energy projects coming on-line in the years ahead triggered Australia’s announcement, with the authorities mindful of the fact that solar overtook wind as the country’s top source of renewable energy in 2021. Solar briefly surpassed coal as the country’s top source of power in August.
This trend is being seen in other markets: in 2021 solar power generation eclipsed wind in China for the first time.
Wind is still a larger contributor to the energy mix than solar in the US, but the solar segment saw the addition of 24.2 GW of generation capacity in 2021 – nearly double that of wind power, at 13 GW. This is especially notable as there are 676 GW of solar energy projects awaiting approval before they can be constructed.
Both wind and solar are cheaper sources of power than coal and natural gas, but the scale of the solar projects on-line is reflective of the construction of larger and more sophisticated projects that make use of economies of scale.
It took the world 70 years to reach a total of 1 TW of installed solar power capacity; however, leading solar researchers meeting at the eighth World Conference on Photovoltaic Energy Conversion last week in Milan predicted that the next 1 TW of solar capacity would take as little as three years to install.
The generation-transmission gap
The challenge of closing the generation-transmission gap is significant in China and the US, the two largest generators of solar power. China’s State Grid Corporation aims to spend $350bn through 2025 on upgrades to increase the transmission of renewable power, while the US would have to spend $200bn per year upgrading its grids to meet its 2030 climate goals.
The investment gap in emerging markets is larger and more pressing given the inequalities of access to reliable power supplies, especially in rural parts of Africa. Even so, several African countries have scored successes in bolstering their transmission pathways.
Zambia’s Rural Electrification Authority commissioned the $465,000 Kalungu-Sansamwenje grid extension project in Isoka last month to provide more reliable power supplies to rural areas. More recently, last week the World Bank approved an additional $335m to support grid extension and densification in Tanzania as part of the Tanzania Rural Electrification Expansion Programme.
The World Bank is also committing $100m to Uganda’s Grid Expansion and Reinforcement Project, which will feed reliable supplies of hydropower from the Karuma, Agago and Nyagak dams to the country’s northern and west Nile regions.
Outside of Africa, the IEA has identified strategies to finance the clean energy transition in emerging and developing countries through grid expansion. These strategies show not only the size of the challenge, but also the breadth of opportunities and the varying levels of financing required.
Specific to transmission, the agency highlighted cases studies related to the development of new business models aimed at bolstering private investment in Brazil and India, third-party distribution investment in countries throughout Latin America, the issuance of tenders for bulk procurement of smart grids in India and the provision of early-stage capital for smart-grid development in the Philippines.
Raw materials and future technologies
While the case for investing in clean energy-enabling transmission lines and smart grids is clear, the materials and technologies underlying such infrastructure also require consideration.
Smart grids rely on advanced communications, smart meters and control technologies to manage the variable power generated from renewables from the generation point to the end user, shifting electricity in accordance with supply and demand.
The IEA forecasts that smart grid or digital technologies are expected to account for 40% of global grid investment by 2030 to meet the objectives of its Net Zero Emissions by 2050 Scenario.
Last month Australian transmission system operator Transgrid announced that it was implementing smart grid technology for an interconnector project that would enable renewable energy to flow between Victoria, New South Wales and the Australian Capital Territory.
Last week US start-up Sense demonstrated its artificial intelligence (AI) smart meter technology at the ENLIT Asia conference, signalling its intention to bring the technology to the Asia-Pacific region. The company plans to roll out this technology in Australia over the next 12 months.
This builds on efforts to use AI to facilitate sustainability throughout the economy. Indeed, MENA nations are investing rapidly in AI to build more sustainable economies and realise energy-efficiency gains, as OBG recently noted.
While copper is more effective at conducting electricity, most transmission lines are built with aluminium because it is lighter and more affordable. China was the world’s largest aluminium producer in 2020, exporting $24.6bn in raw and refined products, with Germany ($14.8bn), the US ($9.4bn) and Canada ($8.3bn) rounding out the top-four exporters.
In September the UAE – the fifth-largest producer of the metal and its eighth-largest exporter, with $5.3bn of aluminium exports in 2020 – inked a $3.6m trade agreement with Indonesia that includes aluminium imports.
India is the second-largest aluminium producer, which makes it a logical market for building more transmission lines considering the country’s growing energy demand. The Indian government announced last month that it is fast-tracking the construction of more than 13 GW of new cross-border lines to import hydropower from Nepal over the next five years.