Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the BNAF podcast. As you know if you have listened
Speaker 1: to this show before. We speak with BNAF analysts about
Speaker 1: their research, and we really hear about those themes that
Speaker 1: cut across so many of the sectors that we cover.
Speaker 1: One of those themes is supply chains. While we have
Speaker 1: discussed that affair a few times, and then there are
Speaker 1: transmission grids, this critical part of infrastructure that enables the
Speaker 1: rollout of renewables. Whether it was our episode about India
Speaker 1: with our analyst row Hit, or the interview with Jiggershaw
Speaker 1: from the US government, or this previous week's episode on URKAT,
Speaker 1: it's clear that the grid is increasingly in focus. And
Speaker 1: then there are supply chains again, and today we get
Speaker 1: into the equipment required to build grid infrastructure and quite
Speaker 1: literally connect power generation to the companies and people that
Speaker 1: need those electrons. On today's show, I speak with benf's
Speaker 1: head of Clean Power, Meredith Annex, and the head of
Speaker 1: Grids and Utilities at BEENEF, Sunjeet Sangera. Together we just
Speaker 1: discuss the transmission grid, what it is, what purpose it serves,
Speaker 1: and why it's so important. We also discuss which countries
Speaker 1: are successful in implementing policy reforms that encourage grid rollout
Speaker 1: and which are not. And finally, we get to the
Speaker 1: components and materials required for upgrading the grid and how
Speaker 1: some countries are securing their supply chain. If you like
Speaker 1: this podcast, make sure to subscribe to receive updates on
Speaker 1: future episodes, and consider giving us a review on Apple
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Speaker 1: But right now, let's jump into our conversation with Meredith
Speaker 1: and sen Jeet about transmission grids. Hey, Meredith, thank you
Speaker 1: for joining us today.
Speaker 2: Hi Dana, thanks for having us.
Speaker 1: And Senji thank you for coming back.
Speaker 3: Hey Dana, how's it going.
Speaker 1: Well, it's going pretty well because we are about to
Speaker 1: have a conversation around grids, some very critical infrastructure. And
Speaker 1: let's start with just jumping right in on what are
Speaker 1: the problems and really transmission bottlenecks that we are seeing
Speaker 1: and you know, really, I guess why are we here
Speaker 1: to discuss this and why is it so critical?
Speaker 2: Look, I think grids is coming up more and more
Speaker 2: and more, not just within our research, but also within
Speaker 2: our client interactions here at BNF that's why we now
Speaker 2: have a full dedicated team to the topic within clean power,
Speaker 2: and what we're seeing is a change in the way
Speaker 2: that grids are being used. The grids that were built
Speaker 2: that we know and see today, those were built for
Speaker 2: the industrial revolution. What we're talking about now is a
Speaker 2: massive amount of electrification all being met by renewable power.
Speaker 2: It's a complete change in the system, and that means
Speaker 2: that we're going to have to effectively double the size
Speaker 2: of the global ectricity grid by twenty fifty and we're
Speaker 2: also going to have to change the way that it operates.
Speaker 2: It's going to have to become smart, flexible, responsive, and
Speaker 2: enable the renewable power to move around. Right now, we're
Speaker 2: kind of at the point where the grid of today
Speaker 2: is at its breaking point of what it can handle.
Speaker 2: That's starting to affect the development timelines for wind and solar.
Speaker 2: It's starting to affect the cost of new generation regardless
Speaker 2: of what the source is, and it's also affecting things
Speaker 2: like delivery of electrons to customers and the actual impact
Speaker 2: on people, especially when you look at natural disasters impacts
Speaker 2: on the.
Speaker 1: Grid, and actually when we think about the fact that
Speaker 1: grids for us is living within clean power. It says
Speaker 1: a lot about how critical it is to the rollout
Speaker 1: of the industries that live within that space, and argument
Speaker 1: can be made that maybe grids could also live within
Speaker 1: the advanced transportation side and what it is that we
Speaker 1: need to do in terms of rollout of charging infrastructure.
Speaker 1: So I guess make your best pitch right now as
Speaker 1: to why it firmly lives within clean power and why
Speaker 1: the two of you were on the show together as
Speaker 1: opposed to Senjeet with Colin.
Speaker 2: Look, you're absolutely right, but it's more than just ev charging.
Speaker 2: I think that's the thing that we're seeing taking off
Speaker 2: right now. But what's going to happen on distribution networks
Speaker 2: and well, we'll come to definitions of distribution transmission in
Speaker 2: a moment. It's not just electric vehicle charging. It's also
Speaker 2: heat pumps, it's other electric technologies, it's air conditioning, it's
Speaker 2: all of these new electricity demands that are coming into
Speaker 2: the system. And at the same time as that, you're
Speaker 2: changing the entire way that electricity is being generated because
Speaker 2: we're moving to more decentralized systems, more renewable electricity like
Speaker 2: solar and storage that's being connected at the household or
Speaker 2: at the end consumer, And because of that overarching impact,
Speaker 2: it really is a system's question, and it's really affecting
Speaker 2: the way that the supply side is being delivered as
Speaker 2: well well.
Speaker 1: So then let's get into that definition that we're going
Speaker 1: to come to. Senji, Maybe you could tell us a
Speaker 1: little bit about what are we going to talk about
Speaker 1: today When we say transmission grid, what does that mean?
Speaker 1: And paint a picture in my mind.
Speaker 3: Yeah, the word grid can be kind of ambiguous, so
Speaker 3: I think it's good to get the definitions upfront. So
Speaker 3: when we talk about the grid, what we're talking about
Speaker 3: is the piece of infrastructure that's going to move power
Speaker 3: from where it's being produced to where it's ultimately consumed.
Speaker 3: We tend to segment this into two major categories. One
Speaker 3: is transmission and one is distribution. So transmission you can
Speaker 3: think of the highways that connect cities together, and distribution
Speaker 3: you can think of the roads that connect from a
Speaker 3: highway back to a person's home. So these are two
Speaker 3: kind of segments that run together. Now, the real distinction
Speaker 3: is in voltage. So voltage is a characteristic of these
Speaker 3: power lines, and the distinction can be different for each markets.
Speaker 3: But it's meaningful because the companies in this space have
Speaker 3: aligned themselves with these definitions. So you tend to have
Speaker 3: companies that are transmission utilities, you have companies that are
Speaker 3: distribution utilities, and you have some that are both T
Speaker 3: and D, so they run both sides of the network
Speaker 3: in terms of what you're actually seeing when you're driving
Speaker 3: in a car on the side of the road. So yes,
Speaker 3: these are the wires and the poles, the pylons that
Speaker 3: are stringing together to move energy. The second major component
Speaker 3: that we typically see is transformers and circuit breakers. So
Speaker 3: transformers are not aliens, robots from another planet, So these
Speaker 3: are specialized devices that allow you to change that voltage
Speaker 3: up or down, which you need to be able to
Speaker 3: move power long distances. And circuit breakers are just switches
Speaker 3: and these when power lines come together at a certain point,
Speaker 3: you need to build a station. We call these substations,
Speaker 3: and these end up being the nodes for the power system.
Speaker 1: We're going to rely pretty heavily on our conversation today
Speaker 1: on thinking about different case studies, and before we get
Speaker 1: into those case studies, though again on the definition end
Speaker 1: of things. When we're talking about the transmission grid, and bottlenecks.
Speaker 1: Are we talking about a grid that largely needs to
Speaker 1: be retrofitted that's existing or is a lot of the
Speaker 1: activity and is a lot of the friction really in
Speaker 1: creating new infrastructure and assets on the energy generation side
Speaker 1: and then connecting that to the rest of the system
Speaker 1: that we all interact with.
Speaker 3: So we need to do a bit of both. We
Speaker 3: need to retrofit the existing grid because it's not really
Speaker 3: fit for purpose, and we also need to expand the
Speaker 3: grid that we have today, right, and so let me
Speaker 3: talk a bit about this expansion. So we've expanded the
Speaker 3: grid over history number of times. There's usually these cycles
Speaker 3: of build out that are very regionally confined. Now what
Speaker 3: we're seeing unfold is a global need to expand the
Speaker 3: grid to meet net zero targets. So the grid today,
Speaker 3: if you add up all the kilometers in the world
Speaker 3: both transmission and distribution, is about seventy two million kilometers,
Speaker 3: and when we do our modeling for net zero, we
Speaker 3: find that it needs to grow to about one hundred
Speaker 3: and fifty two million kilometers. One hundred and fifty two
Speaker 3: million kilometers happens to be the distance from the Earth
Speaker 3: to the Sun. Wow, right, which is I think a
Speaker 3: bit poetic given that solar has to play a critical
Speaker 3: role in the transition. But if we put this into
Speaker 3: mathematical terms, so that's a two point seven percent compound
Speaker 3: annual growth rate on the grid, and when we look
Speaker 3: back in time, the grid has really only been expanding.
Speaker 3: So if we look at like say the US transmission grid, historically,
Speaker 3: it's been growing at a rate of about one percent,
Speaker 3: and so you can see the kind of the step
Speaker 3: up that we need to do to get to two
Speaker 3: point seven percent. We do need to modernize the grid
Speaker 3: as well, and there's a numberumber of technologies it will
Speaker 3: inevitably have to pursue, just because building a grid that
Speaker 3: large is going to come with some challenges when it
Speaker 3: comes to permitting and dealing with stakeholder issues and the
Speaker 3: environmental impacts. So every bit of infrastructure that's there today
Speaker 3: will have to be reevaluated. We're looking at digitalizing the grid,
Speaker 3: so this is stuff like dynamic line ratings, where you
Speaker 3: have capacity on a transmission line that is being calculated
Speaker 3: our hour as opposed to just two numbers that we've
Speaker 3: conservatively picked. And looking forward, like looking further out, we're
Speaker 3: looking at a number of powerflow control devices as well
Speaker 3: that allow you to throttle the amount of energy that's
Speaker 3: moving through given transmission and distribution links as well.
Speaker 1: Now, when we're thinking about the new infrastructure and this
Speaker 1: kind of rapid rollout of clean energy that is actually
Speaker 1: coming online, certainly after you've built the project, you need
Speaker 1: to connect it. Hence why we're here talking about grids,
Speaker 1: and I'm aware that there's a waiting time, So what
Speaker 1: is the average waiting time for this sort of connection.
Speaker 2: What we're finding is that we have giga now not
Speaker 2: you know, a small number of literal gigawatts of solar
Speaker 2: and wind projects waiting to connect just within Europe and
Speaker 2: the US. But as Sanji said, this is a global problem.
Speaker 2: If we looked in Japan and Australia, you would see
Speaker 2: similar stories coming about. If we stick with Europe for second,
Speaker 2: since that's where we're recording, what our analysis finds is
Speaker 2: that in five markets the UK, Italy, Spain and Germany
Speaker 2: as well as France, there's a total of about six
Speaker 2: hundred gigawatts waiting for an interconnection at the moment for
Speaker 2: the grid. That's about twice as much installed capacity for
Speaker 2: win in solar as we have today and eighty percent
Speaker 2: of the twenty thirty targets for the European Union, So
Speaker 2: that just shows you the scale of what's currently waiting
Speaker 2: to connect now. The waiting times are also growing right
Speaker 2: so we're talking about anywhere from three to eight years
Speaker 2: usually just for the grid interconnection. That's not even including
Speaker 2: things like environmental and construction permits. When you get to
Speaker 2: that point, the development timelines now can be so long
Speaker 2: that it's putting twenty thirty targets at rest.
Speaker 1: So in which countries or general parts of the world
Speaker 1: if you prefer? But where are we finding these wait
Speaker 1: times to be the longest? And I guess the situation
Speaker 1: to be most dire So.
Speaker 2: In terms of wait times, parts of Europe are looking
Speaker 2: pretty hard right now. I think the UK is one
Speaker 2: of the worst markets that we've looked at in depth.
Speaker 2: The Nordics have antcdotally also heard are extremely long waiting times.
Speaker 2: But it's not just about the length of time that
Speaker 2: it takes to get the permit. It's also the cost
Speaker 2: of the great interconnection when that happens. And what we've
Speaker 2: seen is some recent data in the United States that
Speaker 2: came out earlier this year from the Lawrence Berkeley lapse,
Speaker 2: which is showing us that the costs are doubling now
Speaker 2: for interconnection for wind and solar in MISO, which is
Speaker 2: the Midwestern ISO independent system operator in the US, as
Speaker 2: well as PJM, So you're really talking about like Minnesota, Illinois, Pennsylvania,
Speaker 2: those types of states within the United States. What we're
Speaker 2: finding now is that the cost of these systems has
Speaker 2: gone up to the point that you're seeing them erase
Speaker 2: the benefits of the Inflation Reduction Act production tax credits.
Speaker 2: They're about equal in size the cost of a high
Speaker 2: grade connection and the benefit that you get from the
Speaker 2: new US tax credits. Now, median costs are still pretty low.
Speaker 2: The issue is that you have a lot of geographic
Speaker 2: clustering when it comes especially to wind, so you're finding
Speaker 2: wind industry being hit particularly hard by this new grade interconnection.
Speaker 2: Applications from wind are dropping in these markets because developers
Speaker 2: are having a harder time getting an economic connection, and
Speaker 2: then the risk to developers is also high. Another market
Speaker 2: where that's the case is in the UK. In the UK,
Speaker 2: if your project is going to connect and trigger an
Speaker 2: upgrade to the transmission system, you and any other project
Speaker 2: in that connection. Who's causing that upgrade need to share
Speaker 2: the cost of the upgrade. So if there's ten of
Speaker 2: you and the cost is say one hundred thousand, but
Speaker 2: one of those projects drops out all of a sudden,
Speaker 2: your individual project just got hit by a higher bill.
Speaker 2: So this is adding In markets where develop sloppers pay
Speaker 2: for the cost of interconnection, you're seeing a greater risk
Speaker 2: on development and the greater risk on the upfront cost
Speaker 2: of a project as well.
Speaker 1: So that risk is being borne by the developers, even
Speaker 1: if they've secured a really good price at auction, there's
Speaker 1: a lot of variables that they may not necessarily be
Speaker 1: able to see the future for correct.
Speaker 2: In markets like the UK and the US, Yes, that's
Speaker 2: the case.
Speaker 1: Are the cost of grade connection, which it seems like
Speaker 1: we are not able to get around. Is it discouraging
Speaker 1: companies and developers from wanting to go into some of
Speaker 1: these markets?
Speaker 2: Not always. What we're finding is that the threshold costs
Speaker 2: for a great connection in the Midwest ISO in the
Speaker 2: US is actually gone up before you'd see a project cancel.
Speaker 2: It used to be that in myso if a win
Speaker 2: project was hit by one hundred dollars per kilowatt grade
Speaker 2: connection fee. That would usually be the point where the
Speaker 2: project was deemed uneconomical by the developer. But now, according
Speaker 2: to the Lawrence Berkeley Lab data that we've been reviewing,
Speaker 2: that numbers nearly two hundred and fifty dollars per kilowatt,
Speaker 2: So you're fine finding basically the cost appetitive developers is
Speaker 2: going up because they need to bear it in order
Speaker 2: to build their projects. And oftentimes there's still an economic
Speaker 2: case because of policy programs that are encouraging additional renewables build,
Speaker 2: because of higher demand for power purchase agreements, because of
Speaker 2: higher wholesale power prices in Europe from the commodity crisis.
Speaker 2: All of these factors are still helping developers build this.
Speaker 2: But that's not to say that it's not causing a strain, right,
Speaker 2: it's a more expensive transition than you would have had otherwise.
Speaker 1: Let's talk about a case study that might be deemed
Speaker 1: a turnaround story or something mildly positive in this space.
Speaker 1: So Spain had a dysfunctional system, one might say that
Speaker 1: has actually turned out to be a bit of a
Speaker 1: success story when it comes to grids. Can we go
Speaker 1: into some detail on what has happened and what is
Speaker 1: now currently happening when it comes to Spain, and not
Speaker 1: only their clean energy roll out, but their transmission grid.
Speaker 3: I think Spain's a good case study because it shows
Speaker 3: this really comeback kid type of story. So Spain has
Speaker 3: an interconnection queue. It's about one hundred and forty four gigawatts,
Speaker 3: so those are projects with permission to connect as of
Speaker 3: March twenty twenty three. For contexts, Spain has a ninety
Speaker 3: three gigawatt solar and wind target for twenty thirty And
Speaker 3: Spain also has a few characteristics that are probably relevant
Speaker 3: to note. So developers can request a grid connection before
Speaker 3: they secure site planning permission. So what that means is
Speaker 3: the barrier to get nominated in the queue is kind
Speaker 3: of low, so you end up with a lot of
Speaker 3: these speculative projects that may not all get built sitting
Speaker 3: in the interconnection queue. And so that's been a problem
Speaker 3: for Spain historically, and so they did a number of
Speaker 3: things to try and address these issues. And the net
Speaker 3: result of this is that they've actually been able to
Speaker 3: keep the interconnection queue at this one hundred and forty
Speaker 3: four gigawatts for the last several years by implementing these measures.
Speaker 3: So one thing that they did is they started removing
Speaker 3: stalled projects from the queue, and so if the projects
Speaker 3: weren't progressing fast enough, they were removed. They started easing
Speaker 3: the environmental process, so that was allowing projects to move
Speaker 3: more quickly. But the most interesting thing that they actually
Speaker 3: did was they implemented this tender process to award grid capacity.
Speaker 3: It's kicked off in twenty twenty one, but the idea
Speaker 3: basically is to flip the whole interconnection process on its head,
Speaker 3: and so instead of developers applying for network capacity, operators
Speaker 3: are actually offering connection capacity in specific regions, and the
Speaker 3: developers are bidding in these competitive processes, and so the
Speaker 3: operator gets to choose what the criteria is for who
Speaker 3: gets to win. And this allows them to be much
Speaker 3: more proactive in creating grid capacity, where the old model
Speaker 3: you had to be very reactive. You'd wait for all
Speaker 3: the connection requests to come in and say, oh, okay,
Speaker 3: it looks like I need to upgrade this part of
Speaker 3: the system. Which point you already have all this demand
Speaker 3: and it's a little bit too late. So I think
Speaker 3: these solutions are not really a panacea. We can't apply
Speaker 3: them broadly across the world. That's part of what interconnection
Speaker 3: processes have been challenging. But being open to innovating and
Speaker 3: looking at different ways to do things is going to
Speaker 3: be critical moving forward.
Speaker 1: There's definitely something to be learned about taking something that
Speaker 1: has long wait times and lots of administrative burden and
Speaker 1: figuring out ways to streamline it. And there's one area
Speaker 1: that you brought up, so streamlining the environmental permitting process
Speaker 1: that I think can sometimes raise flags for people in
Speaker 1: this industry because invariably these processes exist for a good
Speaker 1: reason to protect certain parts of well the environment that
Speaker 1: we live in. That oftentimes some of the reason why
Speaker 1: people are building out clean energy infrastructure to begin with,
Speaker 1: when we come down to the basic fundamental premise that
Speaker 1: a drive to net zero is what is driving part
Speaker 1: of this industry. Have there been negative outcomes to streamlining
Speaker 1: that process or is it more of just a focus
Speaker 1: on making sure that things are processed in a timely
Speaker 1: fashion and that it's prioritized and it's more to do
Speaker 1: with government bureaucracy rather than loosening the reins on our standards.
Speaker 3: I've spoken about streamlining permitting processes before, and the feedback
Speaker 3: I get is that actually we made a lot of progress,
Speaker 3: like we've made a lot of environmental progress by creating
Speaker 3: habitats and making the rules stricter for these projects, and
Speaker 3: that's actually important to preserving the environment. And I would agree,
Speaker 3: but there is a tension here because we have these
Speaker 3: renewable energy targets and also to try and safeguard the environment,
Speaker 3: and there's really no way to realize these projects without
Speaker 3: also building out a power grid. And so I think
Speaker 3: the narrative needs to shift towards cumulative impacts assessment, where
Speaker 3: we're thinking holistically. So, yes, there's an impact to building
Speaker 3: a transmission line, there's also an impact to not building
Speaker 3: a transmission line, and so we need to make sure
Speaker 3: that we're thinking of this in a centralized way and
Speaker 3: that way we can manage impacts the best.
Speaker 2: I think this also spreads not just to the grid,
Speaker 2: but also to renewables development as well, where a lot
Speaker 2: of effort is being made not just on speeding up
Speaker 2: grid interconnections, but also environmental permits for wind and solar.
Speaker 2: And in some cases the way that that's being done
Speaker 2: is by putting a timestamp on how long an application
Speaker 2: can be open, or how long you can be fielding
Speaker 2: objections from the public for or how many objections can
Speaker 2: be fielded from the public. Other times it's saying that
Speaker 2: you can only take up an objection around certain criteria,
Speaker 2: so it's limiting rather than saying everything to the sun
Speaker 2: is acceptable as a complaint against this project, you have
Speaker 2: to look at limited things. I think where that balance
Speaker 2: falls in terms of helping to speed out renewable projects
Speaker 2: without overlooking important environmental impacts is still being figured out
Speaker 2: right now. The area where we're seeing perhaps the most
Speaker 2: innovative changes on this is with offshore wind auctions. There's
Speaker 2: a lot of data that we still need to be
Speaker 2: gathering on biodiversity within the oceans the impact that these
Speaker 2: site selections can have. So what you're starting to see
Speaker 2: in parts of the US and Europe is the introduction
Speaker 2: of biodiversity impacts in the original auctioning of the site,
Speaker 2: and that's quite cool. It means that you're having non
Speaker 2: cost impact considerations taken into account before the project's even awarded.
Speaker 1: That's really interesting because biodiversity and how we quantify it
Speaker 1: is certainly a topic under discussion right now, and I
Speaker 1: expect to see a lot of development in that space.
Speaker 1: Over the coming months and years. Sticking on this idea
Speaker 1: of let's talk about some positive case studies. There's another one,
Speaker 1: and let's stay in Europe for a minute. How about Germany?
Speaker 1: What have they done and what lessons can we learn
Speaker 1: about that on a global scale.
Speaker 3: So Germany is also an interesting case study. We don't
Speaker 3: have data on their interconnection cues because apparently they don't
Speaker 3: track it, but when we talk to developers, everyone's quite
Speaker 3: envious about what's going on in Germany. So there's a
Speaker 3: few key things that it can highlight. So the German
Speaker 3: grid is kind of unique because it's actually quite a
Speaker 3: dense grid. So if you just take the total kilometers
Speaker 3: of transmission and distribution grid and divide it by the
Speaker 3: total land area, you end up finding that they're anomalous
Speaker 3: compared to the European peers. And so we describe this
Speaker 3: as having a very capillary grid system. So capillary is
Speaker 3: kind of talk about bloodstreams.
Speaker 1: Checking out the body.
Speaker 3: Yeah, so it's like the grid's kind of similar, and
Speaker 3: so you have this very branched out network and what
Speaker 3: that means is if you have a renewable energy project
Speaker 3: you want to connect to the grid, likelihood that you'll
Speaker 3: have some viable connection spot that's close to you, that's
Speaker 3: robust is there. And so we're finding that that Germany
Speaker 3: has had that benefit because of the way the grid
Speaker 3: has expanded over time. They're also using this connect and
Speaker 3: manage approach. Now the UK is also doing something similar,
Speaker 3: and this is a way of allowing grid connections to
Speaker 3: happen before all of the wider upgrades to the grid
Speaker 3: have happened. So you do need to connect the new
Speaker 3: power plant to the grid. Sometimes you trigger an upgrade
Speaker 3: that's very deep into the network. The question is should
Speaker 3: you wait for that upgrade to be done before you
Speaker 3: allow the power plant to start producing power or should
Speaker 3: you maybe curtail the power plant from time to time
Speaker 3: until that upgrade is completed. And in general, we feel
Speaker 3: it's better to actually allow the connections to go forward
Speaker 3: and then that'll creates some sort of momentum around where
Speaker 3: these upgrades will ultimately need to be so Germany's been
Speaker 3: doing that as well. You've got to make sure that
Speaker 3: that doesn't get too far ahead, because then you end
Speaker 3: up having to address a whole bunch of backlogged upgrades
Speaker 3: to the grid, which we see is happening in the UK.
Speaker 3: And maybe the final thing I'd point out is that
Speaker 3: they have a dispute process for interconnections. Now this isn't
Speaker 3: used extensively, but we've heard from developers that it's nice
Speaker 3: to just have a conduit to have a conversation when
Speaker 3: things don't go right, and this often isn't baked into
Speaker 3: the interconnection process as a default, and so the developers
Speaker 3: really don't have a recourse when something didn't go the
Speaker 3: way they expected it to go.
Speaker 2: We're talking about positive case studies here at the moment,
Speaker 2: and that's because we're really at the start of this transition.
Speaker 2: The grid is a challenge at the moment for renewable developers,
Speaker 2: but it's not because they're not trying. We are seeing
Speaker 2: a lot of efforts globally. So it's given some examples already,
Speaker 2: and we'll talk about a couple more different ways that
Speaker 2: people are trying. But it's as much of an opportunity
Speaker 2: as it is anything else. If you think about EV
Speaker 2: sales versus charging, you wouldn't nowadays say that EV charging
Speaker 2: is the bottleneck on EV sales. You would say it's
Speaker 2: the opportunity created from EV sales, And I think that's
Speaker 2: what we're shifting towards in the grid. Right now, it's
Speaker 2: a chicken and an egg renewables or grid, But increasingly,
Speaker 2: as we figure out the right solutions for enabling grid
Speaker 2: build out, that's not going to be the case anymore.
Speaker 2: It's going to be a sort of combined opportunity with
Speaker 2: the two scaling together.
Speaker 1: When we think about opportunities only one of the themes
Speaker 1: of this year has been the US Inflation Reduction Act
Speaker 1: and what that really means for spurring a lot of
Speaker 1: the industries we cover, including clean energy in the US
Speaker 1: and in a way that they specifically do tend to
Speaker 1: attack problems, which is through the capitalist marketplace, and how
Speaker 1: this then becomes an opportunity for companies. And we actually
Speaker 1: in a previous show had Jiggershaw, who is with the
Speaker 1: US Loan's Office on here to talk about what that
Speaker 1: really looks like in terms of some of the money
Speaker 1: that's actually being allocated to certain projects. But you know, Meredith,
Speaker 1: you had previously mentioned that some of the high costs
Speaker 1: that are surprising developers later on are eating into some
Speaker 1: of the profitability of these projects and in some case
Speaker 1: making them perhaps neutral. And what I really want to
Speaker 1: understand is is the Inflation Reduction Act going far enough
Speaker 1: in order to inspire companies to want to do these
Speaker 1: sorts of projects and really to get the end result
Speaker 1: that we need. Taking into consideration that grids are a
Speaker 1: necessary part of this.
Speaker 3: The Inflation Reduction Act did a number of things for
Speaker 3: clean power generation. It didn't do as much for grid,
Speaker 3: so it didn't go as far as we would have
Speaker 3: liked to have seen. So we've done an update on
Speaker 3: our clean energy market outlook. We see six hundred gigawatts
Speaker 3: of solar, wind and storage capacity that's going to come
Speaker 3: online between twenty twenty three and twenty thirty, and that's
Speaker 3: a boosted number from Inflation Reduction Act when we look
Speaker 3: at the amount of money that was really allocated to grids, right,
Speaker 3: So we've done the kind of done itally. We looked
Speaker 3: at the Jobs Act and the IRA it's about twenty
Speaker 3: nine billion in funds for grids, and about twenty percent
Speaker 3: of that is actually just studying the grid to figure
Speaker 3: out what the bottlenecks are, what the challenges are, where
Speaker 3: we need to go next. So I think there's more
Speaker 3: to come on this rather than the Inflation Reduction act
Speaker 3: was going to be the hammer that solves this. And
Speaker 3: Meredith's point around these costs going up, that's not forever,
Speaker 3: that's not a sustained cost. Eventually you reinforce the grid,
Speaker 3: you create new connection opportunities, those costs come down. So
Speaker 3: now wind and solar projects are able to get cheaper
Speaker 3: connections and so those costs go down, and then the
Speaker 3: developers have those opportunities. So it's good to understand that
Speaker 3: those will eventually wear away.
Speaker 2: Absolutely, and that's why we really do you think this
Speaker 2: is a sort of combined investment. You have to invest
Speaker 2: in renewables and you have to invest in the grid
Speaker 2: as well. One of the concepts that we work on
Speaker 2: to understand whether enough grid investment is happening is this
Speaker 2: idea of a grid investment ratio. We think that you
Speaker 2: need to be spending for every one dollar that you
Speaker 2: put into investment for wind, solar and storage build you
Speaker 2: need to be matching that with one dollar spent on
Speaker 2: the grid to be on a net zero trajectory. Currently,
Speaker 2: globally we're only seeing about fifty cents being spent on
Speaker 2: the grid for every dollar spent on clean power, So
Speaker 2: we're really going to have to see that that amount
Speaker 2: grow over time. How that is going to happen could
Speaker 2: be through rate bases, but it could also be through
Speaker 2: merchant lines. That's something the US in particular is working
Speaker 2: on outside of the Inflation Reduction Act, is trying to
Speaker 2: make it easier to build some of these merchant power
Speaker 2: lines are privately owned transmission lines that cross state boundaries,
Speaker 2: things like that could help to balance that ratio out
Speaker 2: and bring it more in line with a net zero pathway.
Speaker 3: Just to put that into context, So we're spending about
Speaker 3: two hundred and seventy four billion annually on the electricity
Speaker 3: grid today. So that was as of twenty twenty two,
Speaker 3: and if you assume that doesn't change all the way
Speaker 3: out to twenty fifty, that's eight trillion and cumulative spend
Speaker 3: between now and twenty fifty. Now, we've ran a few
Speaker 3: scenarios to figure out what might actually happen and if
Speaker 3: we use our economic transition scenario as a more likely outcome,
Speaker 3: So here we're allowing certain policies that are infect today
Speaker 3: to play out, and then we're allowing economics to guide
Speaker 3: the long term. There, we end up spending thirteen trillion
Speaker 3: on the grid between now and twenty fifty, So a
Speaker 3: notable step up for me, but that does not get
Speaker 3: US Paris aligned. That's not enough to limit warming to
Speaker 3: two degrees. So our net zero scenario is actually twenty
Speaker 3: one trillion in spend between now and twenty fifteen. That
Speaker 3: just shows how much we need to ratchet up investment
Speaker 3: in this area.
Speaker 1: So let's do one more case study to another really
Speaker 1: important part of the world when it comes to rollout
Speaker 1: of renewable energy, because it's certainly happening at scale, and
Speaker 1: that is China. What are they doing about their grid
Speaker 1: and what does it look like, because certainly they're attacking
Speaker 1: the problem of grid roll out in a way very
Speaker 1: fundamentally differently than the US's.
Speaker 3: So China has really mastered this long range transmission project
Speaker 3: in a way that no one else on earth has.
Speaker 3: So when I talked earlier about voltages for power lines,
Speaker 3: so we have these terms, right, So the lowest voltage
Speaker 3: we talk about for something to be transmissions called high voltage,
Speaker 3: and then if things get really high in the voltage,
Speaker 3: we call them extra high voltage. I'm not kidding. These
Speaker 3: are the actual terms. In China, they have one further class.
Speaker 3: It's called ultra high voltage, and here we're talking about
Speaker 3: eight hundred thousand volts to a million volts.
Speaker 2: Now.
Speaker 3: You know, there's been projects in Canada and Brazil and
Speaker 3: in India, but China has taken it to a whole
Speaker 3: new level. So they have two hundred gigawants of capacity
Speaker 3: commissioned today of these transmission lines that go thousands of kilometers,
Speaker 3: like I think one of these projects is thirty three
Speaker 3: hundred kilometers that have three six eight gigawatt links and
Speaker 3: it allows them to move power from these very remote
Speaker 3: regions to the coastal demand centers effectively. And this is
Speaker 3: something that we see having to have play out in
Speaker 3: many different markets. Germany is having to do this to
Speaker 3: bring power from the wind rich north into the demand
Speaker 3: centers that are more in the south. The UK is
Speaker 3: having to do this, and they're using a wide array
Speaker 3: of technologies. But this is a classical problem that even
Speaker 3: the US will ultimately have to wrestle with as well.
Speaker 3: And China's really done this in a fantastic way.
Speaker 1: And this network is cutting edge technology and we're not
Speaker 1: losing tons of energy and the transmission process because certainly
Speaker 1: that distance you would imagine it would make the entire
Speaker 1: project much less effective.
Speaker 3: Going to ultra high voltages allows you to minimize losses,
Speaker 3: So losses is dependent on the voltage that you're using,
Speaker 3: and by going to these really high voltages, you can
Speaker 3: transport over long distances and not lose a lot of.
Speaker 1: The power long the way, everything is made of something,
Speaker 1: and we BF certainly understand that we have entire teams
Speaker 1: dedicated to the critical commodities that are needed for the transition,
Speaker 1: and we also have a team dedicated to supply chains.
Speaker 1: And supply chains have been in a period of disruption
Speaker 1: as of late, and I want to know how do
Speaker 1: supply chains fit into building out this infrastructure. Are countries
Speaker 1: building all of their own kit or is this actually
Speaker 1: adding to the bottlenecks as they've got to source it
Speaker 1: from around the world.
Speaker 2: So at a high level, the scale of grid build
Speaker 2: out that we're talking about is going to raak havoc
Speaker 2: on supply chains, but.
Speaker 1: It hasn't yet. This is a coming storm.
Speaker 2: It is starting to.
Speaker 3: So we're seeing the reality is that the supply chain
Speaker 3: here is quite concentrated, so there's not a vast quantity
Speaker 3: of people who can make these specialized pieces of equipment,
Speaker 3: whether you're looking at cables, high voltage power cables, or
Speaker 3: whether you're looking at transformers and these types of components.
Speaker 3: There's a few players in the world that are doing this.
Speaker 3: What are some of those, Yeah, so on the cable side,
Speaker 3: this is like Prisme, nkt Nexon. On the station side,
Speaker 3: abb Hatache, Siemens and ge for example, and there are
Speaker 3: a few others. One I think benefit of the grid
Speaker 3: supply chain is that it's not entirely consolidated within a
Speaker 3: single country, which we have for a few other pieces
Speaker 3: of the transition. We do have a lot of Western players,
Speaker 3: but if you look at the order backlog for cable manufacturers,
Speaker 3: it's in the billions. If you're looking at the lead
Speaker 3: time for a transformer, it's gone from years to multiple years.
Speaker 3: And so we are starting to see science that this
Speaker 3: system has gone under constraint and utilities are responding. So
Speaker 3: there's been multiple utilities that have now made large orders
Speaker 3: worth billions of dollars years in advance, so kind of
Speaker 3: batching them together to try and secure the equipment that
Speaker 3: they'll need. So Tenet signed a five point five billion
Speaker 3: euro deal to buy cables and engineering works for seven
Speaker 3: thousand kilometers of offshore grid. France did something similar for
Speaker 3: three thousand kilometers, and this itself can be quite disruptive.
Speaker 3: So the markets that have this scale and are willing
Speaker 3: to make so orders can basically buy up the supply
Speaker 3: chain for multiple years. But ultimately, I think this is
Speaker 3: an important part of creating certainty for the supply chain.
Speaker 3: We've been in this kind of chicken and egg situation
Speaker 3: where the supply chain manufacturers haven't been willing to expand
Speaker 3: their production because they haven't really seen the order book,
Speaker 3: and the utilities have been postponing some of the projects
Speaker 3: because they're concerned about the delivery of their equipment, and
Speaker 3: so somebody has to move first, and so I think
Speaker 3: this is an important step for the industry.
Speaker 1: It certainly seems like with all of the demand for
Speaker 1: these components, given that rollout is looking to increase, that
Speaker 1: there also might be an opportunity for new interests into
Speaker 1: this space. And I want to know is are the
Speaker 1: barriers to entry just too high and are we expecting
Speaker 1: to see the current equipment manufacturers really grow or do
Speaker 1: you think we're actually going to see this become a
Speaker 1: really increasingly fragmented and maybe some day crowded space.
Speaker 3: The barriers are high when it comes to traditional grid investments.
Speaker 3: So these are very specialized pieces of equipment, and more
Speaker 3: than that, the utilities that are buying them are very
Speaker 3: risk averse, and so they've negotiated over years, over decades,
Speaker 3: relationships with these manufacturers and they've come to trust the components.
Speaker 3: So these are utilities that have regulated requirements for reliability
Speaker 3: right and once you install something, to go back in
Speaker 3: and have to retrofit it afterwards can be very costly,
Speaker 3: and so it is possible that under severe constraints, so
Speaker 3: you could see new manufacturers come into the frame, but
Speaker 3: I don't see that as as a huge opportunity. Where
Speaker 3: we are seeing a lot of new players is not
Speaker 3: in the legacy development, but more on the modernization of
Speaker 3: the grid. So on the digitalization front, we're seeing a
Speaker 3: number of players coming into being able to help monitor
Speaker 3: the grid and get the most out of every single
Speaker 3: asset that is there.
Speaker 1: What are the different metals that are required for grid infrastructure,
Speaker 1: Because of course you can onshore or nearshore manufacturing, but
Speaker 1: where certain commodities are located is something that we don't
Speaker 1: have a lot of control over.
Speaker 2: So the two big ones that you're talking about in
Speaker 2: terms of metals demand for the grid are copper and aluminum.
Speaker 2: It's also steal and lead, but copper and aluminum is
Speaker 2: basically your main conduit for the electron. So given the
Speaker 2: demands on those metals for other industries as well, do
Speaker 2: we expect that there will be enough supply for this
Speaker 2: industry going forward? I think both copper and aluminum are
Speaker 2: going to be put under stress based on our energy
Speaker 2: transition metals outlook, especially copper. Aluminum has an ability to
Speaker 2: scale up supply using recycling. But with copper, what we're
Speaker 2: seeing is that the grid today accounts for probably around
Speaker 2: sixteen percent of current copper demand, but with the buildout
Speaker 2: that we're talking about, it could reach thirty seven percent
Speaker 2: of copper demand by twenty fifty. And that is in
Speaker 2: a world where copper demand is massively growing across all
Speaker 2: of the different parts of the energy transition. At the
Speaker 2: same time, if we just look at current plans for
Speaker 2: copper mining, you would see a decline in supply over time.
Speaker 2: So you can see a mismatch between the direction the
Speaker 2: energy transition is taking copper and what's actually happening today.
Speaker 2: On the supply side, that could be a challenge. Fortunately,
Speaker 2: there are substitutes. You can substitute aluminum for copper that
Speaker 2: might help, especially on the grid side, and then other
Speaker 2: sectors would have to look at substitutes as well, or
Speaker 2: we'd have to be increasing copper supply globally.
Speaker 1: Now you'd referenced Senji, that's there were certain parts of
Speaker 1: the world where the materials and the components that are
Speaker 1: required have been stockpiled. And my question really has to
Speaker 1: do with or all the parts truly global in nature,
Speaker 1: and is this a global supply chain or is there
Speaker 1: a density somewhere.
Speaker 3: Yeah, I characterize this supply chain as fairly global. So
Speaker 3: you have manufacturing sites across Europe, the US, North America,
Speaker 3: and so at present it is a global supply chain.
Speaker 3: Now there are pressures to start to localize that as
Speaker 3: we've seen across other clean power technologies, and the manufacturers
Speaker 3: are resisting this. Ultimately, that's going to increase costs that
Speaker 3: are already rising with metal prices have been higher than normal,
Speaker 3: right and so at present we do have a global
Speaker 3: supply chain, but how that plays out in the future
Speaker 3: we don't yet know.
Speaker 2: And that's fair across the whole clean power space. I'd
Speaker 2: say that the two biggest themes that we're hearing about
Speaker 2: from our clients today are grids and supply chain localization.
Speaker 2: We're to looking at policies like the Inflation Reduction Act,
Speaker 2: which will offer subsidies in order to localize say solar
Speaker 2: manufacturing within the United States, but then other industries in
Speaker 2: other countries are just looking to enforce and mandate local
Speaker 2: manufacturing without any subsidy to the manufacturing itself, and that
Speaker 2: could really really raise the prices of equipment even before
Speaker 2: you get to the point of the grid connection, right,
Speaker 2: we're just talking about the pure equipment that's going into
Speaker 2: a battery of solar or wind project. How that starts
Speaker 2: to affect the cost of product development, the economics for
Speaker 2: developers is still to be seen, because how effective these
Speaker 2: policies are at forcing supply chain localization really hasn't been
Speaker 2: tested yet.
Speaker 1: So the last thing I want to discuss is actually
Speaker 1: really at the very other end of the line. It's consumers. Well,
Speaker 1: certainly over the course of the last year, we've seen
Speaker 1: electricity prices go up and gas prices go up, and
Speaker 1: you see different governments actually intervening on the end consumer
Speaker 1: electricity price. Do you see these costs that invariably are
Speaker 1: going to need to be passed on somewhere, ultimately impacting
Speaker 1: consumers in what is already a very constrained and very
Speaker 1: expensive electricity market. Or is this something where between the
Speaker 1: companies and the consumers, governments are going to have to
Speaker 1: get heavily involved.
Speaker 3: So who's ultimately going to pay for this?
Speaker 1: That is the question.
Speaker 3: Yeah, it is a big question. And where we allocate
Speaker 3: those costs it's important, right, So this is a natural monopoly.
Speaker 3: We have regulated assets, and a regulator comes in and
Speaker 3: allocates costs to rate pairs. There's only so much rate
Speaker 3: pairs can absorb the rate increases. You can't just ratchet
Speaker 3: them up very heavily in a single year, and so
Speaker 3: that ultimately starts to constrain the path that we can
Speaker 3: take here. How fast we can really scale up is
Speaker 3: in part depends on what could the average homeowner absorb
Speaker 3: in a rate increase today, and so that is a factor.
Speaker 3: So now who else could pay? So we could allocate
Speaker 3: some of the costs to developers, and we've talked about
Speaker 3: some of that already. So there's a share of costs
Speaker 3: that developers are already paying to connect to the grid,
Speaker 3: and those deeper upgrades on the grid, should they be
Speaker 3: paid off by the rate base or should they be
Speaker 3: paid off by developers, And so there is a complicated
Speaker 3: question and different markets have divided that up a little
Speaker 3: bit differently. But there's an allocation of risk there and
Speaker 3: how fast we want to move that needs to be considered.
Speaker 3: But we're also seeing consumers, like power consumers and I'm
Speaker 3: talking about largely like large power consumers, who are also
Speaker 3: starting to take a large part of the bill too, right,
Speaker 3: And they're upgrading the kit that they have in their
Speaker 3: own facilities, they're buying storage, they're buying solar, right, you know,
Speaker 3: they're putting in these variable frequency drives and they're able
Speaker 3: to modulate how their load is going over time. And
Speaker 3: that flexibility is a resource that the grid will ultimately
Speaker 3: be able to use as well. And so that becomes
Speaker 3: part of the solution. And let's even extend into homeowners
Speaker 3: with buying small scale solar and storage systems at their houses.
Speaker 3: And there's a rule for governments to play as well,
Speaker 3: like subsidies, loans, grants, especially when it comes to interconnectors
Speaker 3: that they've been critical to getting these projects funded and approved.
Speaker 1: So Meredith and Senji, thank you very much for joining
Speaker 1: today and walking me through all things grid.
Speaker 2: It's been an absolute pleasure, Dana, thanks for having us
Speaker 2: absolutely thanks Dana.
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