The little-known risk to the green transformation

However, the fast expansion of renewable energy and the rise of electricity production to meet the demand from electric vehicles and heat pumps substituting gas boilers is not without risks and roadblocks. The lack of large energy storage systems are making electricity markets in Europe volatile and the other day hourly prices in the Netherlands went negative to a big boost in renewable energy production. Elon Musk recently said that the lack of lithium refinery capacity is becoming the biggest choke point for growth in deliveries of electric vehicles. But even if this problem is overcome, another little-known and hidden risk is lurking at the horizon and that is our electric grid infrastructure.

A few companies are dominating the grid infrastructure technology

When a new energy project is completed need the operator applies for a grid connection which means that the energy producing unit enters a grid connection queue. The longer the asset sits in the queue the lower the project margins become, because the operator is paying interest expenses on the loan obtained to build the project and the longer the queue time the longer it takes to generate revenue. The grid connection queue is becoming a bigger and bigger problem in countries such as the UK, Spain, Italy, and the US. Bloomberg New Energy Finance unit estimates that the world needs $21trn in grid infrastructure investments by 2050 to meet the net-zero emission goal.

In 2022, grid connection requests in the US grew 40% with a study showing that nearly 2,000 gigawatts of solar, storage and wind projects are waiting to be connected. Energy regulators in many countries are beginning to wake up to these new challenges and are making changes to regulation such that grid operators can more quickly upgrade and expand the grid. But regulators and grid operators must move fast as the changes are happening much faster than predicted just a couple of years ago. In 2023, 20% of all new cars sold globally are expected to be electric (both battery only and hybrids) with the adoption expected to climb to around 55% globally by 2030. But with the recent figures and uptake these forecasts could prove too pessimistic.

The electric grid infrastructure industry is not well-known to many investors and has lived a sleepy life for many decades as electricity systems were developing at a slow pace. But the speed-up in electrification combined with more intermittent electricity sources will pose a challenge to our electric infrastructure. One thing is rapidly building out electricity generating units, but another is to get these new units plugged into the electric grid. It requires a significant expansion of the grid in the form of new transformers, smart systems for handling and queuing charging of electric vehicles and other devices going forward. The grid is a word encompassing everything that happens from the power generation to the residential home or business, and it is everything from high-voltage transmission lines, transformer stations, smart grid metering software etc. The companies listed below are not an exhaustive list of companies involved in the electric grid, but it highlights some of the biggest players in the industry.

• ABB
• General Electric
• Siemens Energy
• Schneider Electric
• Eaton Corporation
• Emerson Electric
• Honeywell International
• National Grid

For interested readers that want to learn more and go deep into the grid challenges the list below highlights several analyses of the problem.

• Grid Challenges for Renewable Project Development
• Wind and solar power generators wait in yearslong lines to put clean electricity on the grid, then face huge interconnection fees they can’t afford
• Grid connection requests grow by 40% in 2022 as clean energy surges, despite backlogs and uncertainty
• The Electric Grid is THE Bottleneck to Decarbonizing Energy by 2050