Grids are set to become increasingly important as clean energy transitions progress, but they currently receive too little attention, says the IEA report. Clean energy transitions are now driving the transformation of our energy systems and expanding the role of electricity across economies. As a result, countries’ transitions to net zero emissions need to be underpinned by bigger, stronger and smarter grids.
To achieve countries’ national energy and climate goals, the world’s electricity use needs to grow 20% faster in the next decade than it did in the previous one. Electricity demand needs to grow even more rapidly in a global pathway to net zero emissions by 2050, which is consistent with limiting the rise in global temperatures to 1.5°C. Expanded grids are critical to enable such levels of growth as the world deploys more electric vehicles, installs more electric heating and cooling systems, and scales up hydrogen production using electrolysis.
Reaching national goals also means adding or refurbishing a total of over 80 million kilometres of grid by 2040, the equivalent of the entire existing global grid. Grids are essential to decarbonise electricity supply and effectively integrate renewables. In a scenario in which countries’ national energy and climate goals are met on time and in full, wind and solar PV account for over 80% of the total increase in global power capacity in the next two decades, compared with less than 40% over the past two decades. In the IEA’s Net Zero Emissions by 2050 Scenario, wind and solar account for almost 90% of the increase. The acceleration of renewable energy deployment calls for modernising distribution grids and establishing new transmission corridors to connect renewable resources – such as PV projects in the desert and offshore wind turbines out at sea – which are far from demand centres like cities and industrial areas.
Modern and digital grids are vital to safeguard electricity security during clean energy transitions. As the shares of variable renewables such as solar PV and wind increase, power systems need to become more flexible to accommodate the changes in output. In a scenario consistent with meeting national climate goals, the need for system flexibility doubles between 2022 and 2030. Grids need to both operate in new ways and leverage the benefits of distributed resources, such as rooftop solar, and all sources of flexibility. This includes deploying grid-enhancing technologies and unlocking the potential of demand response and energy storage through digitalisation.
Grids risk becoming the weak link of the clean energy transition, the IEA report contends. At least 3000 GW of renewable power projects, of which 1500 GW are at an advanced stage, are waiting in grid connection queues – equivalent to five times the amount of solar PV and wind capacity added in 2022. This shows grids are becoming a bottleneck for transitions to net zero emissions. The number of projects awaiting connection worldwide is likely to be even higher, as data on such queues is accessible for countries accounting for half of global wind and solar PV capacity. While investment in renewables has been increasing rapidly – nearly doubling since 2010 – global investment in grids has barely changed, remaining static at around USD 300 billion per year.
Delays in grid investment and reform would substantially increase global carbon dioxide emissions, slowing energy transitions and putting the 1.5°C goal out of reach. For its report, the IEA developed what it calls the Grid Delay Case to explore the impacts of more limited investment, modernisation, digitalisation and operational changes than are envisioned in the IEA’s climate-focused scenarios. The Grid Delay Case shows transitions stalling, with slower uptake of renewables and higher fossil fuel use. Cumulative CO2 emissions from the power sector to 2050 would be 58 gigatonnes higher in the Grid Delay Case than in a scenario aligned with national climate targets. This is equivalent to the total global power sector CO2 emissions from the past four years. It would also mean that the global long-term temperature rise would go well above 1.5°C, with a 40% chance of it exceeding 2°C.
At a time of fragile natural gas markets and concerns about gas supply security, failing to build out grids increases countries’ reliance on gas. In the Grid Delay Case, global gas imports are over 80 billion cubic metres (bcm) a year higher after 2030 than in a scenario aligned with national climate targets – and coal imports nearly 50 million tonnes higher. Delayed grid development also increases the risk that economically damaging outages would multiply. Today, such outages already cost around USD 100 billion a year, or 0.1% of global GDP.
Regulation needs to be reviewed and updated to support not only deploying new grids but also improving the use of assets. Grid regulation needs to incentivise grids to keep pace with the rapid changes in electricity demand and supply. This requires addressing administrative barriers, rewarding high performance and reliability, and spurring innovation. Regulatory risk assessments also need to improve to enable accelerated buildout and efficient use of infrastructure.
Planning for transmission and distribution grids needs to be further aligned and integrated with broad long-term planning processes by governments. New grid infrastructure often takes five to 15 years to plan, permit and complete, compared with one to five years for new renewables projects and less than two years for new EV charging infrastructure. Grid plans need to integrate inputs from long-term energy transition plans across sectors, anticipating and enabling the growth of distributed resources, connecting resource-rich regions including offshore wind, and reflecting links with other sectors including transport, buildings and industry, and fuels such as hydrogen. Robust stakeholder and public engagement is key to inform scenario development. The public needs to be aware and informed about the link between grids and successful energy transitions, the IEA believes.
To meet national climate targets, the report estimates that grid investment needs to nearly double by 2030 to over USD 600 billion per year after over a decade of stagnation at the global level, with emphasis on digitalising and modernising distribution grids. Concerningly, emerging and developing economies, excluding China, have seen a decline in grid investment in recent years, despite robust electricity demand growth and energy access needs. Advanced economies have seen steady growth in grid investment, but the pace needs to step up to enable rapid clean energy transitions. Investment continues to rise in all regions beyond 2030.
Building out grids requires secure supply chains and a skilled workforce. Governments can support the expansion of supply chains by creating firm and transparent project pipelines and by standardising procurement and technical installations. They also need to build in future flexibility by ensuring interoperability of all the different elements of the system. There is also a significant need for skilled professionals across the entire supply chain, as well as at operators and regulatory institutions. It will be essential to build out a pipeline of talent, ensure digital skills are integrated into power industry curricula and manage the impacts of the energy transition and increased automation on workers through reskilling and on-the-job training.
The most important barriers to grid development differ by region. The financial health of utilities is a central challenge in some countries, including India, Indonesia and Korea, while access to finance and high cost of capital are key barriers in many emerging market and developing economies, particularly in Sub-Saharan Africa. Financial barriers can be addressed by improving the way grid companies are remunerated, driving targeted grid funding and increasing cost transparency. For other jurisdictions, such as Europe, the United States, Chile and Japan, the strongest barriers relate to public acceptance of new projects and the need for regulatory reform. Here, policy makers can speed up progress on grids by enhancing planning, ensuring regulatory risk assessments allow for anticipatory investments and streamlining administrative processes.
