01 | Executive Summary
Worldwide, the energy transition and decarbonisation goals depend on the readiness of the power transmission networks. The advanced economies of Europe and the Americas, notable for the rising penetration of renewable energy, also have transmission infrastructures that have not kept pace with the changes in the energy mix. The backdrop is being shaped not just by the rise in renewable power generation capacities but also by the general rise in electrification and the resulting rise in the demand for electricity. IEA’s projected 4% growth in electricity consumption for the year 2024 is its highest since 2007 (excluding the spikes after the financial crisis in 2010 and the post-pandemic period). For many countries in mature economies, the grid infrastructure is not fully ready.
The signs of strain are visible from the rise in the frequency of grid curtailment, negative prices in the bulk power market, and a pileup of connection requests. Even the long-term planning scenarios may not have fully factored in the capacity requirements. As of March 2024, a study on the European transmission utilities revealed that 11 out of 26 grid expansion/ reinforcement plans were based on renewable projections lower than the national targets. In the US market, the rise in interconnection requests backlog is predominantly led by the solar and hybrid (renewable-plus-storage) projects. It is unlikely to ease anytime soon.
A mix of measures for the near-term and longer- term horizons would solve this conundrum. The long-term and fundamental solutions lie in a host of steps comprising faster clearances, better incentives for investments and deployment of technologies. Active steps are underway on all these. Most important has been the regulators’ willingness towards tariff revisions. The utilities’ regulated returns are gradually being reconsidered. Similarly, regulatory interventions are easing permitting processes for projects, especially for the high-priority evacuation corridors. The short-term measures are largely around grid strengthening, reinforcement and grid-enhancing mechanisms such as the dynamic line rating technology.
The key pointers contributing to the evolving power transmission business are thus summarised here under the following four buckets.
-
1
The installed transmission infrastructure is due for renewal at a scale that is unprecedented by historical standards. There is a rising and acute need to reinforce and/or replace obsolete grid assets to maintain service reliability. -
2
With energy transition outpacing network expansion, the decarbonisation roadmap is likely to be revised. Grid utilities are keen to retain coal- and gas-based power units longer than planned, while alternative low-carbon generation resources such as nuclear energy find renewed traction. -
3
The grid capex plans point to an acceleration in spending. Utilities are seeking multiple channels to fund the planned investments. A rising number of utilities have tapped into green bonds or sustainability-linked bonds to raise funds in the capital market. -
4
Despite promising investment plans, overcoming the development challenges will be critical to making a difference. Major power transmission projects continue to face delays, which adversely impact the commercials and the related generation projects