This is the energy transition’s most pressing issue – and it’s not what you think
Generation Investment Management
Generation is a pure-play sustainable investment manager. It is all we do. It is all we will ever do.
Our progress on renewable power has exposed a critical weakness in our energy infrastructure: outdated grids around the world.
Grid modernisation is central to our clean energy efforts and a challenge we can’t afford to ignore. Outdated infrastructure is becoming a bottleneck in the energy transition, stalling progress just when we need it most. And it’s not just modernisation we need to watch: projections suggest that grids need to more than double in size by 2050, growing 40% to 50% faster than they are now [1].
The risks of proceeding without a right-sized modern, flexible grid that can handle decentralised power flows include slowed renewable adoption, increased energy costs and missed climate targets. Bringing our grids up to date and expanding them is key to unlocking the full potential of clean energy and shoring up reliability as the world becomes increasingly electric.
Upgrading our power infrastructure has become the most pressing issue in the energy transition, one that will be central to success or failure, as our Chairman Al Gore and Senior Partner David Blood write in Generation Investment Management’s latest Sustainability Trends Report [2].
Grid operators and utilities underprepared
What’s clear is that, around the world, grid operators, utilities and regulators face significant challenges. The rapid decline in renewable energy costs and their swift adoption caught many unprepared, with the International Energy Agency (IEA) estimating that to meet climate targets, the world must add or refurbish more than 80 million kilometres of power lines by 2040 [3] – roughly equivalent to the entire existing grid.
What we have is a grid that was designed to service centralised power generation, whereas renewable energy sources are often distributed.
Added to that, there’s a growing mismatch between where renewable energy is generated and where transmission capacity exists. New transmission corridors are vital – for example to connect solar projects in the desert and wind turbines at sea to areas of highest demand, like cities and industrial centres.
Connection queues are also growing, with a backlog of renewable energy projects waiting to be linked up to the grid. To date, there are 1,650 gigawatts of renewable projects in advanced stages of development waiting for grid connection approval, the IEA says [4].
Why grid modernisation is bottlenecked
So what’s holding us back? The list of problems is long, spans multiple continents and underscores the myriad issues at play, including public opposition, environmental challenges, regulatory hurdles and cost.
Bureaucratic hurdles and slow approval procedures delay projects, sometimes for years. Funding disputes arise as stakeholders debate who should bear the costs of upgrading and expanding the grid. Public opposition can further complicate matters, as local communities resist changes or express concerns about potential health and environmental impacts.
The consequence is that grid modernisation projects often require years of engagement, planning and negotiation before they can even begin. In fact, it’s almost impossible to find examples of grid upgrades or expansion that don’t involve tales of delay, opposition or spiralling costs.
Germany’s Südlink transmission project – originally proposed in 2014 – to bring wind power from the north to the south of the country, faced public opposition that forced developers to bury the lines underground, causing delays and tripling the cost [5]. The Bay of Biscay interconnector link between France and Spain has also faced delays and cost increases [6], while public opposition and legal challenges set back construction of the Avangrid transmission line in New England [7].
Boosting our grid capacity
How to secure grids for the future is the central topic of the IEA report, which suggests streamlining approval processes, regulatory changes, better planning, robust stakeholder engagement, upskilling and improved investment [8].
New grid infrastructure can take between five and 15 years to plan, permit and complete, and would benefit from an acceleration of public-private partnerships to bolster funding. And while investment in grids looks set to reach $400 billion in 2024 [9], after plateauing at $300 billion for most of the past decade, it’s largely siloed in advanced economies – and is still not sufficient to reach the Dubai climate conference goal of tripling renewables capacity by 2030.
Efforts to tackle this issue are uneven, with some regions at risk of being left behind and everyone needing to pick up the pace. Various initiatives, including the US Department of Energy's Building a Better Grid programme [10], the EU's proposed legislation for grid expansion and digitalisation [11] and China's plans for a unified national power market [12], demonstrate efforts and investments to modernise and expand grids, streamline processes and enhance interconnections.
Decisive action needed, now
It’s hard to overstate the urgency of grid modernisation, and it will take joined-up action from investors, policymakers and industry leaders to deliver resilient, flexible and future-proof energy infrastructure. Governments are in control of most of the laws and policies at the heart of these bottlenecks, underscoring the need for bold and ambitious action.
Our ability to harness the full potential of renewable energy, meet our climate goals and ensure a sustainable future hinges on this critical upgrade. The time for decisive action is now, as we stand at a crossroads of the future of our planet.
[2] https://www.generationim.com/our-thinking/sustainability-trends/sustainability-trends-report-2024/