Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the B and EF podcast. And today I'm joined again
Speaker 1: by Tom Rowlands Reese as my co host and we
Speaker 1: have a conversation with Felicia Amanov from our Grids and
Speaker 1: Utilities team. We talk about how much money is going
Speaker 1: into grid investment, whether it's enough, and why now more
Speaker 1: than ever, it is needed. We all know that grids
Speaker 1: are a pretty critical part of infrastructure, from the transmission
Speaker 1: systems operators who connect electricity generation sources to the distribution
Speaker 1: systems operators and how they then connect to consumers. It's
Speaker 1: all of these lines that make the energy transition possible.
Speaker 1: Despite increased investment in the power grid in twenty twenty three,
Speaker 1: up seven percent from the year before, it's still not
Speaker 1: enough to meet a net zero pathway in the majority
Speaker 1: of markets around the world. This is for a variety
Speaker 1: of reasons, including increased grid requirements owing to artificial intelligence
Speaker 1: and data centers, alongside the need for more expensive grids
Speaker 1: as lines are moved underground in order to adapt to
Speaker 1: a changing climate that includes extreme weather events. This is
Speaker 1: in addition to the sheer number of new projects waiting
Speaker 1: in line to connect to the grid where renewable energy
Speaker 1: is trying to grow. Felicia pulls from research found in
Speaker 1: the twenty twenty four Power Grid Investment Outlook, and I
Speaker 1: also recommend taking a look at the New Energy Outlook
Speaker 1: twenty twenty four colon grids. This was a grid specific
Speaker 1: report founded on research found in b and EF's long
Speaker 1: term scenarios and was published on the twenty eighth of October.
Speaker 1: BNF clients will be able to find these at b
Speaker 1: and EF go on the Bloomberg terminal or at BNF
Speaker 1: dot com. Right now, let's jump into Tom and my
Speaker 1: discussion with Felicia about grid investments, expectations, and our current reality. Felicia,
Speaker 1: thank you very much for joining the show.
Speaker 2: Thank you for having me.
Speaker 1: You've got two of us asking you questions today. So
Speaker 1: I'm on with Tom hosting again. Nice to have you.
Speaker 2: Tom.
Speaker 3: Hi that DNA.
Speaker 1: So a common theme that we've talked about in so
Speaker 1: many of these podcasts has been this need for updating
Speaker 1: the grid. We need to build new infrastructure, so we
Speaker 1: need more grid connections, we need more reliable grids, and
Speaker 1: then we're going to talk about this today. We're going
Speaker 1: to actually talk about how demand is increasing as well.
Speaker 1: We've had you on the show to talk about grids before,
Speaker 1: but as we get into this update where we really
Speaker 1: are going to follow also how much investment is required.
Speaker 1: Can you just frame the problem for everybody, so we're
Speaker 1: all starting from the same place.
Speaker 2: So about a year or two ago, I feel like
Speaker 2: everyone was complaining about the grids. Renewables couldn't connect, ev chargers,
Speaker 2: couldn't connect, and unfortunately we haven't quite yet solved that.
Speaker 2: But what we have now is the plans for how
Speaker 2: to solve that. So what we did in the grids
Speaker 2: team is we looked at the grid development plants. We're
Speaker 2: ten major markets across the globe, so this represents about
Speaker 2: half of global grid investment, and what we can see
Speaker 2: is the significant plan ramp up and spend. So between
Speaker 2: twenty twenty two and twenty twenty three, you saw grid
Speaker 2: investment rising seven percent, and we think that for this
Speaker 2: year the growth will hit thirteen percent. So you really
Speaker 2: see that that annual growth coming in and that is
Speaker 2: even when we net out the effect of inflation.
Speaker 1: Well, I can't wait to talk about plans because we
Speaker 1: love thinking about what could be in the future, especially
Speaker 1: as things are gaining momentum, but just to help us
Speaker 1: think a little bit about this demand end of things.
Speaker 1: While grids have featured and have been certainly a buzzword
Speaker 1: on this show, a buzzword that a lot of people
Speaker 1: are talking about right now is AI and artificial intelligence,
Speaker 1: how we're going to build it into all of our jobs,
Speaker 1: and how it's going to.
Speaker 4: Revolutionize the world.
Speaker 1: But it also is incredibly data heavy and energy consuming.
Speaker 1: So can you just talk a little bit about how
Speaker 1: AI and data centers feature in terms of grid demand.
Speaker 2: Yeah, absolutely, So this is a topic that's increasingly come
Speaker 2: up over the last year. And truth is, we don't
Speaker 2: don't yet know where AI energy demand will be in
Speaker 2: a few years time, but what we do see in
Speaker 2: especially the US, but also to some extent in Europe,
Speaker 2: is increasing grid connection requests from these large scale data centers.
Speaker 2: And these data centers are often huge.
Speaker 4: They are like larger than your typical coal or gas
Speaker 4: power plant.
Speaker 2: And for the US, we have a number from a
Speaker 2: PRI so that's the Electric Power Research Institute that estimates
Speaker 2: that by twenty thirty, about nine percent of all electricity
Speaker 2: generation in the US might have to go to data centers.
Speaker 2: And that's compared to four percent today and in Europe
Speaker 2: we don't yet know where this will go, but there's yeah,
Speaker 2: a lot of connection requests.
Speaker 1: So let's talk about then the plans to fix it.
Speaker 1: So what categories would you break that down in? Where
Speaker 1: were going to take the conversation today?
Speaker 2: So a grid investment plan is really trying to predict
Speaker 2: the future for the next few years, and in getting
Speaker 2: that right, you need to have an idea of where
Speaker 2: your electricity demand is going, but you also need to
Speaker 2: know where your generation is going to come from. So
Speaker 2: a big part of the investment going on in Europe
Speaker 2: at the moment is rewiring the grids to go from
Speaker 2: supporting your old fashioned fossil fuel power plants to your
Speaker 2: new renewables which is mainly wind and solar. And you
Speaker 2: have some countries like the UK and Germany where this
Speaker 2: shift is huge because in the past you've had these
Speaker 2: large electricity demand centers in Germany industry for example, that
Speaker 2: has been in the south of the country and now
Speaker 2: you're building a lot of offshore wind, which in germany's
Speaker 2: in the north of the country, so suddenly you're having
Speaker 2: generation come from the wrong place.
Speaker 4: So what you need to do is build.
Speaker 2: These enormous power lines all the way across the country
Speaker 2: to get the power to where the industry needs it.
Speaker 2: And this takes time and it gets expensive, and it
Speaker 2: gets especially expensive because a lot of people don't love pilons.
Speaker 2: They're those big transmission towers that you often see next
Speaker 2: to the roads when you're driving. Maybe not what you
Speaker 2: want in your backyard. It's slightly same issue as those
Speaker 2: onshore winter turbines, which is why we went offshore in
Speaker 2: the first place. So now what Germany is doing is
Speaker 2: they're putting their cables underground and that can double or
Speaker 2: sometimes even triple.
Speaker 4: The cost of the line per mile.
Speaker 2: So that's why you see these huge investment plans coming.
Speaker 2: The UK has this slightly easier time. It doesn't need
Speaker 2: to dig these trenches for the cables because it's an island,
Speaker 2: so it can go offshore. But the cost implications there
Speaker 2: are similar. So in the UK, you're bringing wind power
Speaker 2: from north to south by going offshore and putting those
Speaker 2: cables under the sea instead.
Speaker 3: Can I ask a question about these plans because I
Speaker 3: understand all the problems you've identified and how they're intensifying,
Speaker 3: But those problems maybe the AI one is a little
Speaker 3: bit of a new dynamic, but a lot of these
Speaker 3: problems around where renewables are located and not new. And
Speaker 3: you know, as you say, we've been complaining about this
Speaker 3: for two years, I would say for longer than two year,
Speaker 3: as people have been saying the grid is inadequate and insufficient.
Speaker 3: So these plans, I suppose, from what you've described there
Speaker 3: identifying what the grid needs to look like physically, but
Speaker 3: do they address some of the issues as to why
Speaker 3: the necessary change that has needed to happen hasn't happened
Speaker 3: in the different markets.
Speaker 2: Yeah. Part of it is now that these plans are
Speaker 2: not just identifying where you need the grid, but they're
Speaker 2: actually sort of concrete plans with dedicated amounts of investment
Speaker 2: that you're going to build these projects. And part of
Speaker 2: why this hasn't happened in the past is that over
Speaker 2: the last couple of decades, in a lot of the
Speaker 2: industrialized world, you've seen a decline in electricity demand, so
Speaker 2: industries have moved abroad and you've had energy efficiency, meaning
Speaker 2: that yeah, overall power demand is lower, and in that
Speaker 2: kind of environment, you do end up with spare capacity
Speaker 2: on the grid.
Speaker 4: So the grid.
Speaker 2: Companies have sort of gotten used to being in this
Speaker 2: mindset that actually what they need to do is to
Speaker 2: save money and have low grid fees for customers. And
Speaker 2: this whole culture of saving is like, you know, it
Speaker 2: came with a good purpose. The regulators and the grid
Speaker 2: companies were trying to keep those rates low. But then
Speaker 2: as your renewable energy projects really started taking off, then
Speaker 2: you were suddenly in a situation where you actually should
Speaker 2: have invested ahead of need. You would have needed to
Speaker 2: build your grid slightly larger just in case. And this
Speaker 2: paradigm of anticipatory or investment or investing ahead of need
Speaker 2: is something that's only now just starting to gain traction.
Speaker 2: And yeah, in the UK you've had a whole new
Speaker 2: regulatory scheme to allow this type of investment, but yeah,
Speaker 2: they weren't thinking like this five years ago, and that's
Speaker 2: why we're where we are.
Speaker 3: So in a way, demand growth is like a catalyst
Speaker 3: for the paradigm.
Speaker 2: Well, partially in the US you are now seeing a
Speaker 2: lot of demand growth, and that's because of data centers mainly.
Speaker 2: You'd also see new demand from electric vehicles and heat pumps.
Speaker 2: But actually in Europe demand hasn't quite taken off as
Speaker 2: fast as it would need to from these new electrified,
Speaker 2: low carbon sectors, and as a result of that, there
Speaker 2: was for a while a hesitancy to invest a lot
Speaker 2: in grids, and I think it just took a couple
Speaker 2: of years for their regulators that ultimately can cap the
Speaker 2: grid spend to come around and just realize that the
Speaker 2: grid rates will have to go up. We need to
Speaker 2: get that offshore wind especially integrated, because at the moment,
Speaker 2: those wind farms are often getting paid to shut off
Speaker 2: and that is just money down the drain, that's energy wasted.
Speaker 2: And in Europe you don't have nodle electricity pricing, so
Speaker 2: a lot of the time it's the grid operator that
Speaker 2: instructs the plants what to do. And this cost has
Speaker 2: just massively increased in the last couple of years. So
Speaker 2: now consumer rates have gone up even without that increase
Speaker 2: in investment. So now that the investment will happen, it
Speaker 2: will be a while of higher grid fees, but in
Speaker 2: the long time it.
Speaker 1: Will cheaper, which then is the question is you know,
Speaker 1: in order to figure out how to increase investment, let's
Speaker 1: talk about who's actually paying for it. So is it
Speaker 1: tax dollars and is this essentially a policy discussion and
Speaker 1: grids are something that we need to see collectively like roads,
Speaker 1: where they're more or less a common good or is
Speaker 1: it going to be paid a play? And is it
Speaker 1: those of us who are consuming, whether it's a company
Speaker 1: or an individual ultimately or seeing higher prices because it's
Speaker 1: so directly linked to consumption and therefore that's how it's
Speaker 1: being funded.
Speaker 2: Yeah, so grid companies throughout Europe and the US are
Speaker 2: actually they're private companies.
Speaker 4: So this is this is not tax money.
Speaker 2: This is private capital that's invested with an expectation to
Speaker 2: make a return. That said, there are some government grant
Speaker 2: schemes and in the US you saw both the Infation
Speaker 2: Reduction Act and the Bipartisan Infrastructure Bill dedicating a lot
Speaker 2: of funding to grids. So we've checked around ten billion
Speaker 2: US dollars that are going out in these different grant programs.
Speaker 4: For grids across the US. But these grants tend to.
Speaker 2: Be really focused on innovation and bringing something new. So
Speaker 2: the bulk of grid investment, you know, the typical reinforcement,
Speaker 2: making that power line larger, connecting that new demand, that
Speaker 2: is really just that private capital.
Speaker 1: But then what's the incentive to build them underground and
Speaker 1: make them, you know, less visible to the eye, because
Speaker 1: presumably the incentive for the ultimate retail end of this
Speaker 1: is to keep prices as low as possible.
Speaker 2: Yeah, So, how grid investment works because it's a natural monopoly.
Speaker 2: You only have one grid company in your neighborhood, you
Speaker 2: can't pick someone else, So that means the regulator has
Speaker 2: a lot to say on how you invest. And that said,
Speaker 2: these regulators tend to often be these independent government bodies,
Speaker 2: so they're not directly political, but politicians of course give
Speaker 2: them their mandate and their main goals, which has been
Speaker 2: to protect consumers, but now that's shifted. So part of
Speaker 2: what the regulators try to achieve is help their governments,
Speaker 2: whether it's a state or country, governments achieve their renewable
Speaker 2: energy targets and also protect consumers from interruptions to their
Speaker 2: electricity supply. So in the US especially, you've seen extreme
Speaker 2: weather starting to wreak havoc on grids across many parts
Speaker 2: of the country, whether it's hurricanes or wildfires, and the
Speaker 2: overheadlines especially are very sensitive to disruptions. So by making
Speaker 2: targets for grid companies to put their lines underground. It
Speaker 2: increases the quality of your supply and you can have
Speaker 2: power even when there's extreme weather going on.
Speaker 1: It's a form of climate adaptation. Ultimately, yeah, it is.
Speaker 2: It is absolutely like the amount of spending on this
Speaker 2: is quite significant. I think it's Southern California. Edison is
Speaker 2: dedicating eighteen percent of its capital expenditure just for proofing
Speaker 2: against wildfires.
Speaker 3: Do you think though, I mean the way you've described it. Ultimately,
Speaker 3: I mean, in these regulated monopolies, the incentive for private
Speaker 3: investors is to invest as much as they possibly can
Speaker 3: because they get a regulated rate of return which is
Speaker 3: typically more favorable than what they'd get if they put
Speaker 3: their money in the bank. So ultimately it's the gatekeepers
Speaker 3: of this investment are the regulators. That's how I've always
Speaker 3: understood it. Are we seeing a change in how regulators
Speaker 3: are thinking? And is it even across the board?
Speaker 2: I think there's been a definite change in how regulators
Speaker 2: are thinking. And it's not only about keeping their investment
Speaker 2: as low as possible anymore, because they have these other
Speaker 2: goals now, which is to support the decarbonization and also
Speaker 2: of course to protect the consumers against power cuts. Essentially,
Speaker 2: so I think there's been a definite paradigm shift in that.
Speaker 4: That said, though, with approving.
Speaker 2: New grid spend, especially when it's going up a lot,
Speaker 2: there is a lot of pressure from the public and
Speaker 2: from politicians to get this right because you don't want
Speaker 2: to spend a lot of money on building the grid
Speaker 2: in the wrong place. So this is I think the
Speaker 2: challenge where the regulators are currently sort of battling these
Speaker 2: two opposing goals, of which one is affordability and one
Speaker 2: is to make sure that the.
Speaker 4: Grid is ready for the future.
Speaker 2: And to get that balance right, you want to know
Speaker 2: where to build the grid, and this is where the
Speaker 2: long cues of renewable energy projects come in as a
Speaker 2: bit of a problem.
Speaker 4: So in both the US many.
Speaker 2: European countries, you have so many renewable energy projects trying
Speaker 2: to connect to the grid, and you don't always have
Speaker 2: visibility of which ones are actually going to get built.
Speaker 2: So if you're having projects all over the country but
Speaker 2: only half of them are going to get built, how
Speaker 2: do you know where to build out the grid?
Speaker 4: And this is again where new.
Speaker 2: Policy changes are helping make that predictability a bit easier.
Speaker 2: So the UK is in the middle of the process
Speaker 2: of implementing a system where you kick projects out of
Speaker 2: the queue if they're not progressing, so you will get
Speaker 2: a little bit more update as the grid company on
Speaker 2: which projects are real projects, and that will help you
Speaker 2: plan the grid nowhere to build it out, because ultimately,
Speaker 2: as long as the generation and the demand which you
Speaker 2: forecasted turns up, that grid investment will make a return
Speaker 2: because you have enough generators and enough consumers that with
Speaker 2: their grid fees pay the grid company, and yeah, strong
Speaker 2: incentives for investment.
Speaker 1: So tell me a little bit more about that. So
Speaker 1: you're talking about real projects versus projects that are just
Speaker 1: not going to see the light of the day. A
Speaker 1: reel of a problem is that how many of these
Speaker 1: projects that are in the pipeline to be built are
Speaker 1: not happening and therefore making it really difficult for grids
Speaker 1: to go in in an effective way.
Speaker 2: So it's very hard to say what percentage of projects
Speaker 2: are never going to get built, because ultimately it could
Speaker 2: just be that they've been postponed forever. In the US,
Speaker 2: one of our research reports concluded that only about one
Speaker 2: in ten wind and solar projects that have applied for
Speaker 2: a grid connection in the last ten to fifteen years
Speaker 2: have actually received a permit to connectow.
Speaker 4: Very low rate and very slow.
Speaker 2: And in California and New York, where this is particularly bad,
Speaker 2: only about two percent of projects have been issued to
Speaker 2: the permit to connect and then the works can commence
Speaker 2: and the grid is upgraded. So yeah, you do have
Speaker 2: a lot of those projects that just hang around. And
Speaker 2: both in California and New York they've started implementing what
Speaker 2: they call cluster studies, so they sort of lump many
Speaker 2: projects together and try to process them at the same
Speaker 2: time do all the grid modeling, get an idea for
Speaker 2: what upgrades are needed, and this is meant to speed
Speaker 2: up the process. But we have still not yet seen
Speaker 2: the effects of this policy change, so it's just been
Speaker 2: in the last year when it's been implemented, so we
Speaker 2: need to wait a little bit longer. In the UK,
Speaker 2: the situation is also particularly bad, so BNF we model
Speaker 2: net zero scenario for various regions, and the wind and
Speaker 2: solar capacity that's currently in the queue trying to connect
Speaker 2: to the UK grid is four times larger than what
Speaker 2: we think the UK will need by twenty thirty and
Speaker 2: then at zero scenario, so that means that by this metric,
Speaker 2: it would mean that you have four times too many projects.
Speaker 2: And yeah, there's simply not a need in the power
Speaker 2: system for this much wind and solar, So that clearly
Speaker 2: shows that you have some projects that are are never
Speaker 2: going I get built.
Speaker 3: Do you think that's some of this? I mean, because
Speaker 3: it sounds to me like that one of the constraints
Speaker 3: on progress is the capacity of the grid to take
Speaker 3: on new projects. And then maybe in response to that,
Speaker 3: a lot of developers are like over populating the pipeline
Speaker 3: because they know not all of their projects can get accepted.
Speaker 3: So you have this this sort of Now you have
Speaker 3: this other problem, which is a lot of these projects
Speaker 3: aren't going to get built, and the developers know that
Speaker 3: from the start, and it's it's only partly because the
Speaker 3: grid constraints. Is also the way that the industry has
Speaker 3: responded to that that creates this very stark dichotomy between
Speaker 3: what is possible what is needed. It's not a dichotomy,
Speaker 3: it's a tricotomy between what is needed, what is possible,
Speaker 3: and what is in the pipeline.
Speaker 2: Yeah. I couldn't have said it better myself. That's exactly
Speaker 2: the problem. The chicken and egg grids are certainly featured
Speaker 2: on the show. But another theme that comes up often
Speaker 2: when we're talking about the energy transition is just how
Speaker 2: much additional money needs to be flowing into some of
Speaker 2: these areas in order for us to see this low
Speaker 2: carbon transition to these newer assets that are going to
Speaker 2: be less polluting. Now we know that some of this
Speaker 2: is going to come through policy, not everything is actually
Speaker 2: going to get the money that it needs. I mean,
Speaker 2: that's just seems to be what we're watching right now,
Speaker 2: is we're working towards these twenty thirty you know, missions targets,
Speaker 2: and some of them are maybe falling a little bit
Speaker 2: short halfway through this critical decade. So then let's pivot
Speaker 2: to a part of the world where we can essentially
Speaker 2: see what happens with capitalism and fewer rules, one might say,
Speaker 2: which is URKAT, which is Texas's grid with the absence
Speaker 2: of really involved policy. How are you seeing the grid
Speaker 2: play out there in this wild West, if you will,
Speaker 2: of what happens on a grid and in a power
Speaker 2: system overall, when you know, kind of left to see
Speaker 2: what happens with market forces. Yeah, so Texas and and
Speaker 2: ERCOT is an interesting example of that. And I think
Speaker 2: here we come back to the issue with predictability that
Speaker 2: we talked about a little bit before. So when you
Speaker 2: don't have the kind of top down, centralized you know,
Speaker 2: this is how we wander energy landscape to evolve. You
Speaker 2: don't have those like big, say offshore wind targets that
Speaker 2: you see in many European countries, then you can end
Speaker 2: up in this kind of situation where Texas is at
Speaker 2: the moment, where the amount of new demand trying to
Speaker 2: connect is just too much for the grid to handle.
Speaker 2: And in Texas, the new demand especially it's been from crypto,
Speaker 2: it's now aid in data centers. It's not just a
Speaker 2: lack of grid capacity, it's also partially a.
Speaker 4: Lack of generation.
Speaker 2: But I think Texas is a good example on how
Speaker 2: these two things, generation and enough gride capacity can be
Speaker 2: two sides of the same coin. So Urka, Texas is
Speaker 2: a grid region that's actually not interconnected with the rest.
Speaker 4: Of the US or with its.
Speaker 2: Neighboring states, and that also makes this whole capacity issue
Speaker 2: more acute because you cannot import power from somewhere else,
Speaker 2: and you also have a renewable energy generation is more
Speaker 2: concentrated in some parts of the state, and if you're
Speaker 2: trying to connect something in this region, you can have
Speaker 2: a slightly better chance because you have some local power generation.
Speaker 2: But even so, these data centers need baseload, so even
Speaker 2: when the wind doesn't blow and the sun doesn't shine,
Speaker 2: they need some generation. And when you have a situation
Speaker 2: with a lot of variable renewables, having a large interconnected
Speaker 2: grid is really advantageous because you get variability in weather
Speaker 2: across vast distances. So Texas and are not being connected
Speaker 2: with other grids in the US as it's a political decision,
Speaker 2: but from a pure grid operation point of view, it
Speaker 2: would make sense to have larger grid areas connected.
Speaker 1: So with Texas, we're seeing in terms of population that
Speaker 1: is a state that is growing in terms of energy demand,
Speaker 1: it's also growing. There are more AI data centers actually
Speaker 1: going into that state, So you know, can you just
Speaker 1: walk me through what that investment is looking like in
Speaker 1: Urkut in order to meet this increase in demand.
Speaker 2: Yeah, absolutely, So to give some numbers on how much
Speaker 2: peak power demand, which ultimately is what matters for grids,
Speaker 2: has increased, So it has doubled since nineteen ninety and
Speaker 2: reached eighty six gigawatts in twenty twenty three, and now
Speaker 2: Urkott is anticipating that another sixty seven gigawatts of new load,
Speaker 2: so that's almost doubling peak power demand by twenty thirty.
Speaker 2: So with that anticipation, you would really expect to see
Speaker 2: the grid investment numbers going up. And we looked at
Speaker 2: the spend plans in Urkot and checked nine point two
Speaker 2: billion of investment for twenty twenty six. So it again
Speaker 2: it shows how with that lack of central planning, the
Speaker 2: plans just don't go very far out and you can't
Speaker 2: have that sphere capacity sort of planned in for when
Speaker 2: demand suddenly increases. So yeah, we're going to need to
Speaker 2: see a lot more grid investment in Texas for this
Speaker 2: is square out.
Speaker 3: And can I just ask that nine point two billion
Speaker 3: dollars how much of that is for the distribution grid
Speaker 3: and how much is for transmission? A lot of the
Speaker 3: issues I've been talking about just now are more related
Speaker 3: to transmission, but obviously I know that there's a big
Speaker 3: drive for distribution investment as well.
Speaker 2: Yeah, so what the plans for showing at the moment
Speaker 2: is about fifty to fifty on transmission and distribution in Texas,
Speaker 2: and that's actually a slightly higher share for transmission than
Speaker 2: what we've seen in California.
Speaker 4: Where we also looked at the grid plans.
Speaker 2: In California, the grid spend is a lot more concentrated
Speaker 2: on the distribution grid side of things because California has
Speaker 2: all that rooftop solar, it has very ambitious target for
Speaker 2: electric vehicles, whereas in Texas well, electric vehicles have an
Speaker 2: quite taken off yet. And the largest spent driver that
Speaker 2: we see again on the distribution grid is to prove
Speaker 2: against extreme weather. Hurricanes, storms, wildfires take down those overheadlines
Speaker 2: and you need undergrounding. So there's actually been a quite
Speaker 2: a big public outcry for increasing that resiliency spend in
Speaker 2: Texas to avoid power cuts. So that's really what you
Speaker 2: need on the distribution grid. Transmission. You need to connect
Speaker 2: all those renewables, large scale renewables, whether it's solar, wind
Speaker 2: and these huge, huge data centers.
Speaker 1: Let's head to a different continent. You looked at a
Speaker 1: couple of different countries in Europe. Can you give me
Speaker 1: an example of one that is making progress in terms
Speaker 1: of gridspend? Where are we seeing this as a priority
Speaker 1: in Europe.
Speaker 2: I think the UK is really the prime example of
Speaker 2: making grid spend a priority, particularly on the transmission grid
Speaker 2: side of things. So in the UK you have this
Speaker 2: type of top down certainty when it comes to political
Speaker 2: targets for decarbonization. So even though we now have a
Speaker 2: new government, the decarbonized station targets are still in place.
Speaker 2: They've actually increased the ambition a little bit and that
Speaker 2: means that the grid operator can start planning for a
Speaker 2: grid system where you don't yet have the actual projects
Speaker 2: applying for a connection. So normally you would start building
Speaker 2: out the grid only after you've had a sufficient volume
Speaker 2: of say windforms applying for connection. Now the UK transmission grid,
Speaker 2: according to the most recent plan, is being built out
Speaker 2: to the amount of capacity that the government targets shows
Speaker 2: for twenty thirty five and twenty thirty so that really helps.
Speaker 2: Even though the grid is currently under strain, it means
Speaker 2: that there's now a real chance to solve these problems
Speaker 2: in the next ten years. Because transmission is still slow
Speaker 2: to build out. On the distribution grid side, we're not,
Speaker 2: unfortunately seeing the same type of progress almost anywhere in Europe,
Speaker 2: and part of that is because you don't have the
Speaker 2: same type of strong government targets. We don't know how
Speaker 2: many electric vehicles there will be in five or ten
Speaker 2: years time. Like of course there's targets, but currently we're
Speaker 2: lagging on those targets. Electric vehicles sales have dropped, so
Speaker 2: the distribution grade operators are still doing a little bit
Speaker 2: more business as usual, and their major headache is from
Speaker 2: rooftop solar, which you've seen increase a lot in Germany.
Speaker 2: So there the easy solution has been to start pairing
Speaker 2: rooftop solar with batteries, then immediately causes a lot less problems.
Speaker 2: So sometimes the distribution grade operators can you know, they
Speaker 2: can have a little bit of an easier time if
Speaker 2: you solve the problem partially behind the meter then letting
Speaker 2: it all flood and cause nuisance on the grids.
Speaker 3: Presumably, a big part of the disparacy between distribution grid
Speaker 3: investment between the US and Europe is a lot of
Speaker 3: where the investment is going in the US is in undergrounding,
Speaker 3: which isn't necessary in Europe so much because in a
Speaker 3: lot of countries it's already happened.
Speaker 2: Yeah, Indeed, a lot of the distribution grids in Europe
Speaker 2: are already underground and have been so for a long time.
Speaker 2: You see this more in North Europe where you get
Speaker 2: cold winters, so there's been a long time need.
Speaker 4: To protect the grid. What you do see in Europe
Speaker 4: in terms of undergrounding is.
Speaker 2: Now on the transmission side, so that has nothing to
Speaker 2: do with protecting against weather, but that is because people
Speaker 2: don't like those pilots. So both in France and Germany
Speaker 2: you're now seeing an increasing amount of transmission projects going underground,
Speaker 2: and that at cost, but it makes the landscape look
Speaker 2: a little bit prettier unless you happen to love pilots.
Speaker 3: We talk a lot about the way that the grid
Speaker 3: is constraining the energy could transition and more investment is
Speaker 3: needed and regulate as a bottlenecks. This is a narrative
Speaker 3: that is everywhere. Sometimes to hear people talk about it, it
Speaker 3: sounds like it's an unsolvable problem. But at the start
Speaker 3: of the show, you mentioned seven percent growth of investment
Speaker 3: last year. We're expecting thirteen percent this year. This is
Speaker 3: not a low base that we're talking about, so those
Speaker 3: are really quite impressive numbers. So should we be being
Speaker 3: optimistic about the direction things are going in.
Speaker 2: I definitely think there's reason to be optimistic about the
Speaker 2: course of directions. There has been a massive recognition that
Speaker 2: the grid build out needs to happen, and now those
Speaker 2: plans have actually been approved and the thing is building
Speaker 2: out the grid, especially on the transmission side. It just
Speaker 2: takes time, so whatever new policies you put in place,
Speaker 2: you're going to see a few years lag before that's solved.
Speaker 2: On the distribution grid side, you've also seen significant optic
Speaker 2: in new technological solutions, so for example, putting batteries on
Speaker 2: the grid can really help balance renewables, it can help
Speaker 2: with stability issues, and now there is more and more
Speaker 2: regulatory regimes that actually reward grid companies for taking innovative approaches,
Speaker 2: so there's a lot of things you can do also
Speaker 2: in the meantime while you're waiting for those large slow upgrades.
Speaker 2: In the US, there's been numerous studies about how if
Speaker 2: you put sensors on the grid and you measure the temperature,
Speaker 2: then you can safely push through more power at many
Speaker 2: times of the day, and we are seeing these solutions
Speaker 2: being rolled out. It just takes time, but yeah, I
Speaker 2: would still be optimistic that and a fere as time
Speaker 2: will be there.
Speaker 1: So we've really spent the show today talking about the
Speaker 1: US and Europe, but we know that the story often
Speaker 1: differs continent by continent and country by country. What would
Speaker 1: you consider to be the parts of the world that
Speaker 1: are extremely different than the countries that we've talked about today.
Speaker 2: I think China is a good example of a grid
Speaker 2: that's operated quite differently. You have a much larger state
Speaker 2: involvement and that top down level. Even so you still
Speaker 2: see issues on the distribution grids in China. So even
Speaker 2: in kind trees where the policy system and the groids
Speaker 2: are operated differently, you see the same kind of challenges
Speaker 2: from the energy transition. A lot of new renewables in
Speaker 2: a very short time. It's just challenging to build enough
Speaker 2: grid for that. So yeah, we're seeing differences but a
Speaker 2: lot of similarities across the world.
Speaker 1: Perhaps we can pair up with our China team next
Speaker 1: time and get them on here to talk about, you know,
Speaker 1: very different dynamic Felicia, thank you so much for joining today,
Speaker 1: and Tom, it's always good to be talking with you.
Speaker 4: Thanks, Dina, thank you.
Speaker 1: Today's episode of Switched On was produced by cam Gray
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