The success of the global grid overhaul effort is instrumental to the success of green energy transition and indeed to the improvement of living conditions for the global population in this century and beyond.
While many countries, businesses and people are increasingly committed to fighting climate change by supporting the development of various renewable energy projects around the globe, little attention is being paid to the transmission and distribution grids that connect the suppliers of electric energy with its users. This comes as a surprise given the fact that efficient and effective grid infrastructure is instrumental to probably every aspect of our daily lives and the functioning of our societies. Can you imagine a world without electricity? It’s unimaginable, isn’t it? And yet this might be a scenario in the not-so-distant future if the infrastructure fails to deliver energy to all those that are in need for it.
Today’s grid infrastructure
Currently, transmission (high voltage lines used to transport electric energy for longer distances) and distribution grids are designed and built with a specific topology of power plants and end users in mind. Conventional power plants are usually large facilities located close to the source of primary energy (for example, coal mines) and to their biggest end users (big industry and areas with a large population density). Traditionally, they are concentrated around a few locations, and grids are used to deliver energy from these locations to users across the country and beyond. Many power plants are centrally dispatchable which means they turn on and off depending on the demand for energy at any given time (storage of electric energy is neither easy nor cheap so customarily the input of energy into the system must be equal to the volume of its output). This has dictated the shape of the transmission and distribution infrastructure for about one hundred years.
Global goal of clean energy transition brings change to the power infrastructure
The clean energy transition process is changing the foundation of countries’ electric power infrastructure in several ways:
Will the grid infrastructure hamper the world’s effort to reach net zero emission?
According to the International Energy Agency (IEA), to achieve the political goals of clean energy transition, the world’s use of electric energy needs to grow at least 20 percent faster within the next decade compared to the previous one (which has already seen quite impressive growth). To deliver that energy to end users, the world will need to build and refurbish a total of over 80 million kilometres of grids by 2040. Not only will this require immense capital expenditure (estimated to reach over 600 billion US dollars annually and possibly much more), but it will also put a strain on the global supply chains for raw materials – components such as cables and steel structures – will generate increased demand for builders’ services and a qualified workforce to man this unprecedented upgrade programme.
Currently, the new grid infrastructure will take approximately 15 years of planning, permitting, and construction from start to finish. Upgrading or refurbishing is not likely to involve a noticeably shorter timeframe either, especially where cables that are currently placed overhead are to be buried in the ground. For the last two decades the processes for gaining permits have become longer and more complex due to there being a larger number of stakeholders, more environmental regulations, and greater judicial review. It’s obvious that any legislative changes to facilitate the overhaul of the power grids will not have an effect until many years in the future. As if this long timeframe isn’t dire enough, the pace of infrastructure growth isn’t matching the increase of clean energy sources. Despite doubling the capital investment in renewable energy generation since 2010, the level of investment in the grid infrastructure globally has not noticeably changed, remaining at about 300 billion US dollars annually, about half of what it should be to make sure the world benefits from an increased supply of clean energy.
What’s the climatic impact of delays?
The cost of delays to improving our grid infrastructure is staggering. According to the IEA, at least 3,000 gigawatts of renewable projects are waiting in queues for grid connection – that is the equivalent of about one thousand modern coal-fired power stations after taking into account the differences in efficiency of the various generation technologies. The IEA estimates that the climatic impact of delays in connecting available clean energy sources to the grid by 2050 is equivalent to the total volume of CO2 emissions by the power sector globally for the last four years. This renders the target of slowing down the pace of long-term temperature increase by 1.5 degrees Celsius impossible to reach. It also means that many newbuild renewable energy projects could effectively be cancelled or stopped or go bankrupt because they wouldn’t be able to sell and deliver electricity to their buyers.
The success of the global grid overhaul effort is instrumental to the success of green energy transition and indeed to the improvement of living conditions for the global population in this century and beyond. Whether it is successful or not, it will also present a vast array of challenges for risk management and insurance professionals across the globe. We must watch this space very closely and be ready to act!
Pawel Kowalewski
Group Practice Leader Energy, Power and Mining
T +48 507 085 066
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