Electricity systems are witnessing a profound transformation, with a greater role for smarter grids going hand in hand with increased solar and wind deployment. Electricity grids – transmission and distribution - provide the bedrock of today’s and tomorrow’s power systems, enabling electricity to flow and all sources of flexibility to contribute to electricity security. Grids expansion must accelerate over the next decade to connect all new sources of electricity, including renewables, extending grids by 16 million kilometres, 80% more than over the past decade. Are investments going to be timely enough? Stepped up investment to modernise and digitalise grids will be critical to maintain secure, reliable and affordable power systems throughout clean energy transitions. In this article, based on World Energy Outlook 2020 findings, we explore how electricity systems are set to evolve under different scenarios and the key role of grids.
The future of electricity is not yet set, with a number of pathways available as the world looks to recover from the Covid‑19 pandemic. There is a choice for citizens, investors, companies, but most of all for governments on how to proceed. In the World Energy Outlook 2020, the Stated Policies Scenario (STEPS) assumes a steady recovery in economic activity and incorporates our assessment of all the policy ambitions and targets in place or announced around the world, including some 166 countries with policies to expand the use of renewables in power (REN21, 2020). The Sustainable Development Scenario (SDS) investigates accelerated clean energy transitions and what more it would take to achieve climate, clean air and energy access goals.
Electricity production is witnessing a profound transformation
Electricity production is being re-shaped by technology development and by energy security and sustainability goals. Renewables and nuclear power combined generated more electricity than coal for the first time in 2019 and are on track to open a permanent lead. Electricity generation from renewables is set to overtake that from coal-fired power plants by 2025 under current and proposed policies in the STEPS. Solar PV and wind power spearhead the growth of renewables, aided by falling costs, widespread resource availability and strong policy support.
The world is entering a new era, and solar PV is the new king of electricity. Under stated policies, solar PV generation expands by well over 4000 TWh over the next two decades, more than coal-fired generation increased over the past 20 years. Solar PV becomes the primary means of meeting electricity demand growth, one-third of the total to 2030, while coal-fired generation declines globally. The potential for growth is even larger. In the Sustainable Development Scenario, the global solar PV market takes off and increases by 8000 TWh to 2040, equivalent to 12-times global solar PV generation in 2019, or nearly triple the total solar electricity ever produced in history.
What drives this growth? Policy support is widespread, present in over 130 countries around the world, and it is shielding it from the COVID crisis. Solar PV cost declines continue, and it is now the cheapest new source of electricity in most countries in the world. Cheap financing is widely available for new solar projects, reflecting very low revenue risk under prevailing policy frameworks. This year we completed a new analysis of financing costs in the leading solar markets, revealing extremely low rates: a 3% average cost of capital in the EU, below 4% in China and the US, and below 6% in India. Other low carbon technologies grow strongly, in particular wind, onshore and offshore, as cost reductions materialised as we anticipated in last year’s special report on the topic.
Variable renewables are set to play a larger role in tomorrow’s power systems. The combined share of solar and wind in global electricity generation is set to double from 9% in 2020 to nearly 20% in 2030 under stated policies. This is truly a global phenomena, with rising shares all around the world. In leading markets for solar and wind, the share of variable renewables is set to nearly double in the European Union by 2030, double in the United States and China and increase by 150% in India. With a boost from the Sustainable Recovery Plan, the share of variable renewables reaches triples over the next decade to nearly 30% in 2030 in the Sustainable Development Scenario. Major markets would all surge ahead, and see sharp emission reductions from electricity generation.
Power system flexibility is the cornerstone of electricity security in modern power systems. Flexibility refers to a variety of services spanning time scales measured in seconds to hours, days and across seasons, all supporting the reliability and quality of electricity.
Flexibility needs are on the rise in all markets
Changes in the shape and variability of electricity demand and the strong growth of solar PV and wind power are together increasing flexibility needs in power systems, and flexibility is rapidly becoming the cornerstone of electricity security. Hour-to-hour ramping requirements are an important aspect of flexibility, and they are set to more than double in India over the next decade, while also increasing by 50% in the United States and China. They are projected to increase in the European Union too, but this is kept to relatively modest levels in part by the number of offshore wind projects with high capacity factors and relatively low variability.
Flexibility can be provided from a number of sources, including power plants, electricity networks, storage technologies and demand-response measures. Conventional power plants have long provided the bulk of power system flexibility, and are set to do so for decades to come. Coal-fired power plants are the main source of flexibility in many systems today, including China and India, while gas-fired power plants are the primary source in the United States. Hydropower provides the largest portion of flexibility in other systems, including Brazil, Canada and the European Union. As flexibility needs increase, hydropower will have greater value to systems for its ability to provide a wide set of system services across a wide range of time scales from improving power quality on a moment-to-moment basis to balancing seasonal variability. Nuclear power can also provide power system flexibility in some cases and indeed has done so, most notably in France where it provides up to three-quarters of electricity supply.
Grids are the bedrock of a clean and secure electricity future
Grids are the bedrock of clean & secure electricity, and they support electricity transformations around the world by helping to integrate the rapid growth of variable renewables. Grids enable electricity to flow and all sources of flexibility to contribute to electricity security. Over the next ten years, required grid expansion totals 16 million km in the STEPS, an increase of 80% compared with the past decade. This is mainly due to twice as much new wind and solar capacity added over the next decade as the last.
To expand and digitalize grids, investment levels must also step up. Over the next decade, grid investment must average more than $400 billion per year in the STEPS, 50% higher than in 2019, with most of the increase for distribution grids (Figure). Cumulative investment by 2030 amounts to $2.6 trillion for new lines, about half of which is for the digitalisation and modernisation of existing lines, and about $300 billion to develop the charging infrastructure needed to support growing demand for electric vehicles.
A rising share of investment is spent to digitalise grids, in part to ensure that they are resilient against cybersecurity threats. Smart grids (those that make use of smart meters, digital substations and sensor control and operational systems) have a vital role to play in supporting the penetration of variable renewables electricity sources. They also open the way to more extensive use of tools such as demand-side response measures in order to reduce curtailments of renewables electricity production and support the integration of EVs. Modernising grids offers an opportunity to upgrade them at the same time. Over the next ten years, about one-fifth of electricity grids worldwide need to be replaced, with around 16 million km of existing distribution lines and 1.5 million km of transmission lines. Switching equipment, transformers, meters and other crucial components also need to be modernised.
Several recent proposals would step up grid investment as part of larger economic packages. For example, an infrastructure spending package of $1.5 trillion was proposed in the United States in July 2020, which includes over $70 billion to modernise and extend electricity grid infrastructure to support the deployment of renewables and stimulate the economy. The European Commission put forward a $2 trillion spending plan in May 2020 to rebuild the economy and put the region on course to achieve ambitions for net-zero greenhouse gas emissions in 2050, including through the use of smart digital infrastructure. The State Grid Corporation of China has increased the amount of its 2020 investment plan, putting more money towards smart digital infrastructure. Investments of this kind will help create more resilient electricity systems, support higher shares of renewables-based generation and electric vehicles and broader use of demand-side response options.
However, depressed revenues for grid operators due to the pandemic are creating risks for timely investment. Some of the largest power systems in the world have seen significant reductions in these revenues in the first half of 2020. Revenue reductions have been recorded around the world. Reduced cash flow to grid operators would lead to difficult choices and could lead to delayed or inadequate investment, with significant implications for electricity security. If the situation persists, regulatory reform may be needed to ensure sufficient cash flow and timely grid investment.
In the Sustainable Development Scenario, grid investment must step up further over the next decade, to an average of around $450 billion per year. This goes to accelerate the modernisation and digitalization programmes, while connecting thousands more new solar and wind projects. The growing share of variable renewables, the increasing electrification of transport and the scope for demand response all bring into sharp focus the importance of investment in power sector flexibility. In the long term, providing flexibility with a minimal level of emissions will be essential to bring power sector emissions towards zero, and grids will be essential to make that a reality.