Money and grid

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??This week: A timely mix of growing need, policy support and interest from institutional investors could spark a boom in investments into electricity grid development.

Emily Chew, sustainability head at Singapore sovereign wealth fund GIC, recently told participants at a conference organised by the National University of Singapore’s Sustainable and Green Finance Institute that “there’s a lot of focus right now in the investment management industry on opportunities in effective grid management and build out”.

Bottleneck

She attributed the investor interest to an expected “structural shift” towards a climate-adjusted future.

Renewable energy adoption has increased sharply around the world. However, solar and wind power are less stable and more intermittent than energy from fossil fuels. Supply is also more distributed, especially with the growth of grid-connected rooftop solar.

At the same time, electricity demand is growing, driven in many parts of the world by greater electrification such as the switch to electric vehicles. Electricity demand has also increased with economic growth, and this is more pronounced in developing markets such as Asia.

A 2023 report by the International Energy Agency (IEA) found that at least 3,000 Gigawatts (GW) of renewable power projects, of which 1,500 GW were in advanced stages, were waiting in grid connection queues. That was about five times the amount of solar and wind capacity added in 2022. The actual queue numbers are probably higher because IEA only had data from countries that account for half of global solar and wind capacity.

“Grids are becoming a bottleneck for transitions to net zero emissions,” IEA said.

Unmet needs

There are two major areas of need in the grids.

The first lies in increasing transmission capacity. To reach existing national goals, IEA estimates more than 80 million kilometres of grids must be added or refurbished by 2040. That is roughly equal to the entire existing global electricity grid.

The other area of need covers what is commonly referred to as grid “firming”, in which the grid is fortified to handle the greater intermittency that comes with renewable sources of electricity.

Grid firming can involve dynamic load management technologies, or what is often termed as smart grids. Firming also requires creating grid-level storage solutions, such as pumped storage hydro or batteries. More controversially, the use of natural gas power generation for load smoothing is also one strategy for smoothing out intermittency.

To meet national climate targets, grid investment must nearly double by 2030 to more than US$600 billion per year after a decade of stagnant investments, IEA says. Grid investments in emerging and developing economies outside of China have actually declined in recent years.

Gathering funds

Despite the need, investments in grid development have lagged over the past decade, and are only beginning to turn upward.

IEA’s data from 2023 showed spending on grids on track to reach US$400 billion in 2024, having hovered around US$300 billion annually between 2015 and 2021. That improvement has largely been driven by policies in China, Europe, the US and some Latin American countries, IEA said.

Indeed, policymakers are beginning to pay closer attention to grid development needs.

At the 2024 G20 Summit in Brazil, the Brazilian presidency commissioned a roadmap to increase investments in clean energy in developing countries. On grids, the roadmap proposed piloting business models for private-sector participation in transmission in at least two countries between 2025 and 2030, to be led by developmental financial institutions and philanthropies. Over the same period, the roadmap calls for the expansion and establishment of equity capital to finance off-grid projects in sub-Saharan Africa, Asia and Pacific Island states.

With Brazil hosting the annual United Nations Climate Conference known as COP30 this year, that agenda could gain an extra boost later in the year.

??Top ESG reads:

1. Renewable energy and urban solutions group Sembcorp Industries has hired a financial adviser to review its business, Bloomberg reports.
2. Sembcorp, Sarawak Energy and Prysmian are partnering on a hydropower project in the Malaysian state to supply 1 gigawatt of green electricity to Singapore.
3. Mitsubishi UFJ Financial Group is joining Nomura Holdings and Sumitomo Mitsui Financial Group in a Japanese exodus from the Net-Zero Banking Alliance.
4. Political inertia on climate change will end when extreme weather and resource shortages become “too big to ignore”, says Singapore’s Ambassador for Climate Action Ravi Menon.
5. Singapore construction companies have begun to use environmental, social and governance registry ESGpedia to report on their emissions, the registry says.

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