Expanding and modernizing the power grid for a clean energy transition
As global electricity demand surges, the importance of grid resilience and reliability at affordable levels is necessitating grid transformation for a cleaner future.
Stanley Porter
Jim Thomson
Christian Grant
Craig Rizzo
Kate Hardin
Jaya Nagdeo
The imperative to expand and modernize grid infrastructure is largely driven by two converging forces. First, global electricity demand is projected to grow by 150% by 2050 (with a potential upside due to growing demand from datacenters, artificial intelligence, and cryptocurrency sector), straining grid infrastructure.1 Second, the rapid emergence of new sources of generation, particularly from renewables and distributed energy resources, is contributing to reshaping the electricity demand profile. These new sources change the flow of electricity on the grid and can introduce intermittency in the power flow as well, further challenging the grid planners and operators in their mandate to provide safe, secure, reliable, affordable, and increasingly sustainable energy.
These factors necessitate grid expansion and modernization. However, this is proving to be a bottleneck in achieving clean energy goals, both in terms of the availability of financing and the pace of development. A US$14.3 trillion shortfall in global grid investment is expected by 2050, with an annual global grid infrastructure (transmission and distribution lines) expansion gap of 2.08 million kilometers (figure 1).2 Meanwhile, the development timeline for grid infrastructure is three to seven times slower than that of renewable energy installations and electric vehicle charging stations.3 These financial and temporal gaps in grid development are a signal that current supply-side strategies may be inadequate for the unfolding demands of a cleaner power grid.
Accelerating progress: A phased approach to grid transformation
While challenges and disparities inherent in the energy transition and subsequent grid transformation are becoming clearer, addressing them requires a structured and strategic approach. To help unlock the potential of renewables and ensure a reliable, resilient grid, we consider a tri-phased scaling strategy. This strategy navigates progress in three distinct phases, each building upon the previous one to create a comprehensive road map for power grid transformation.
Phase 1: Strengthening and hardening the backbone
This phase focuses on strengthening and transforming the core grid infrastructure into a dynamic and responsive system capable of integrating new technologies and accommodating diverse energy sources.
Key focus areas to consider include:
- Increasing visibility and control through advanced grid technologies: Sensors embedded throughout the network, including smart meters, automated control systems, and advanced monitoring tools, can provide real-time data on energy flow, equipment health, and grid stability. Analyzing sensor data can allow operators to anticipate equipment failures before they happen, preventing outages, enhancing the utilization of existing resources, and ultimately increasing grid reliability. These technologies can be pivotal in making the grid more adaptive and responsive to changing energy patterns, especially with the influx of renewable energy (see sidebar, “Grid enhancing technologies”).
Grid enhancing technologies
US-based utility company installed sensors on two 230-kilovolt lines for under US$300,000. This strategic decision averted the need for costly reconductoring, saving the company around US$50 million in infrastructure costs. Additionally, the upgrade led to an 18% to 19% increase in line capacity and reduced annual congestion costs from over US$60 million to US$1.6 million. This implementation demonstrates how leveraging advanced technology can result in significant operational efficiencies and financial savings in the energy sector.4
- Developing robustness through energy storage solutions: Energy storage solutions are pivotal for managing renewable intermittency and critical to grid modernization. Battery technology serves as a dynamic buffer, capturing surplus energy during peak production, and could potentially reduce overall peak electricity demand by up to 15%.5 Pumped hydro facilities, known for their efficiency and scalability, can provide rapid support to the grid during high-demand periods, but are geographically constrained. Beyond resolving intermittency, these storage solutions are designed to transform grid management by enhancing flexibility and reliability. For instance, battery storage systems, which are technically capable of addressing many grid challenges, are central in providing system flexibility. In 2050, in the International Energy Agency’s net-zero emissions scenario, storage could meet 28.3% of flexibility needs in advanced economies and 27.9% in emerging ones.6
- Reinforcing physical infrastructure: Strengthening, upgrading, and hardening key components, such as power lines, substations, and transformers, can not only help in handling higher loads but also reduce transmission losses and improve resiliency and energy delivery efficiency. Upgrading to high-efficiency conductors can minimize transmission line losses by 10% to 20%.7 Additionally, replacing outdated transformers with high-efficiency models can cut energy consumption by up to 12%, further boosting grid efficiency.8
Phase 2: Catalyzing grid-connected decentralization
This phase marks a shift toward a more intelligent and adaptable grid that embraces decentralized, interconnected, and customer-centric energy networks. This decentralized system can fortify the grid, making it more resilient and difficult to disrupt. However, this transformation requires not just the decentralization of power sources but also a reimagining of the logic and controls, extending these to the grid edge.
Key focus areas to consider include:
- Decentralizing for resilience and efficiency: The shift from a traditional, centralized grid to a more distributed model is already underway, driven by the proliferation of distributed energy resources in many regions. These resources, including rooftop solar panels, small wind turbines, distributed energy storage (for example, home batteries), electric vehicles, and community energy projects, are fundamentally changing how we generate and manage electricity. Globally, examples of high degrees of decentralization are common; distributed energy resources are expected to contribute up to 45% of Australia’s electricity generation capacity by 2050.9 Similarly, 83% of EU households could become prosumers (someone who produces as well as consumes) of energy by 2050, indicating a significant shift toward decentralized energy models.10 However, the potential of distributed energy resources extends beyond power generation to include effective grid management. Microgrids, which operate independently or integrate seamlessly with the main grid, empower communities to manage local energy demand and provide critical backup during outages, potentially boosting grid resilience.11
- Incentivizing customers to balance the grid: Consumers are becoming more active partners in their energy and, by extension, grid management. Demand response strategies offer incentives for customers to adjust their energy usage in response to the grid’s real-time needs, optimizing efficiency and balancing loads. Programs like dynamic pricing, which adjusts electricity costs based on demand, have been shown to reduce peak load by 15% to 20%, alleviating strain on the grid and potentially saving consumers money during off-peak hours.12 Integrating smart technologies, such as smart thermostats and appliances, into residential energy management platforms is revolutionizing how consumers interact with their energy use. These technologies can help users control their consumption and participate in demand response programs, providing a way to contribute to grid stability while managing energy costs.
Phase 3: Creating an interconnected energy landscape
The future of energy lies in modernizing grids and connecting them with other critical systems. This phase transcends traditional boundaries, integrating energy efficiency and optimization across sectors like transportation, buildings, and smart city infrastructure. It’s about fostering an ecosystem where diverse elements like electric vehicles, smart streetlights, and home energy management systems speak the same language—the language of efficient energy management.
Key focus areas to consider include:
- Powering a two-way street with transport: Among all clean power technologies, globally, electric vehicles have experienced the fastest rise, surging from less than 5% of new car sales in 2020 to 18% in 2023.13 But this rise could go beyond cleaner transportation; it can be a pathway to revolutionizing grid stability. Through vehicle-to-grid technology, parked electric vehicles can transform into mobile energy storage units capable of feeding power back into the grid during peak demand.14 This innovation extends beyond mere peak shaving; it can rebalance the renewable energy equation. By integrating electric vehicles and vehicle-to-grid, power companies can tap into stored energy to help offset the intermittency of solar and wind production, helping to ensure a continuous flow of clean electricity. For instance, recent studies estimate that vehicle-to-grid services could unlock up to nearly 600 gigawatt of flexible capacity by 2030 across regions like China, India, the United States, and the European Union.15 This capacity is crucial for compensating renewable generation variability during peak periods and meeting part of the additional peak capacity generation needs.16
- Harnessing the potential of the industrial sector for cross-system synergy: As electricity could climb to nearly 30% of total industrial energy consumption by 2030, smart factories are expected to help usher in clean energy.17 Beyond generation, some of these facilities are active grid partners. Through demand response programs, they can adjust energy usage during peak hours, easing grid strain. Electric forklifts and trucks can act as mobile batteries, injecting clean power back into the grid or charging efficiently with onsite renewables or off-peak grid electricity. This two-way energy flow demonstrates the power of industrial electrification and its seamless integration with grid modernization.
- Weaving an efficient urban fabric with smart cities and the Internet of Things: Beyond cleaner streets and connected traffic lights, smart city infrastructure holds potential for energy savings. Smart streetlights that adapt to ambient light and occupancy can cut energy consumption by up to 80%.18 But it’s not just about savings; it is about creating an intelligent network of devices that can dynamically interact with each other. This dynamic interaction goes beyond command and control mechanisms, such as adjusting air conditioning based on temperature, and can create a decentralized system where artificial intelligence actively manages both consumption and production. In this system, artificial intelligence can adjust a thermostat based on grid signals or shift a refrigerator’s energy consumption to off-peak hours. It can even balance energy distribution at the level of a single feeder, making the grid more efficient and adaptable to real-time needs and cleaner goals. However, such a system would require significant computing power and data storage capabilities, the cost of which is just beginning to be understood. This is the power of the Internet of Things, where interconnected devices can actively engage in energy management, helping to foster a more efficient grid adaptable to real-time needs and environmental goals.
The tipping points of change: Important factors shaping grid modernization’s trajectory
The pace of transition in grid expansion and modernization are expected to be largely determined by the movement of four enablers: capital availability, talent accessibility, technology readiness, and business models. However, the progress on these is often complicated with multiple interdependencies. For example, the finance-technology nexus is foundational, with financial support enabling technological advancements, which can lead to cost reductions and increased investment attractiveness. Similarly, the connection of the workforce-business model underscores the need for new skills and adaptability to support innovative business models that facilitate grid modernization. Addressing the interdependencies likely requires transformative solutions.
Finance
The grid’s global US$25 trillion investment, by 2050, faces hurdles such as limited traditional funding, strict regulations, and affordability concerns.19 Traditional models could falter against the project scale and innovation, alongside a utility model that historically depends on large, upfront capital investments with long-term returns. Further, securing rate case approvals is getting difficult.20 Facilitating financing could include:
- Making grid modernization projects more attractive to a broader spectrum of investors: Innovative financing tools such as green securitization and transmission revenue-backed securities could diversify investor bases by turning project cash flows into tradable securities, reducing risk, and enhancing liquidity. Between 2019 and the first half of 2022, green securitization issuance represented 32.3% and 1.4% of total US and European green issuances, respectively.21
- Expediting cost recovery: Enhanced rate case models that combine existing regulatory approaches, such as price caps and performance benchmarks, with output-based incentives can help expedite utilities’ cost recovery, helping to foster efficiency and innovation. This approach could help build investor and regulatory confidence by rewarding achievements and making investments more appealing.
- Implementing dynamic tariff structures: Tariff structures that reflect real-time energy supply and demand encourage efficient usage and generate additional revenue during peak times. This addresses affordability and supports grid modernization funding through improved operational savings and public backing. Coneva recently launched a dynamic tariff that combined local energy management with the dynamic electricity tariff, helping maximize customers’ cost-saving potential.22
Technology
The potential of renewable energy integration into the grid could be improved by unifying disparate data sources, mitigating cybersecurity vulnerabilities, and increasing standardization. Consider the following to help unlock digital potential:
- Enhancing security: Blockchain-based data security creates a secure and transparent platform for sharing threat intelligence across utilities, government agencies, and cybersecurity firms, offering a tamper-proof, real-time network that can enhance preparedness against cyberthreats and ensures data integrity across the energy sector. In December 2022, Iberdrola implemented a blockchain-based compliance system in Spain, governed by the Association of Property and Commercial Registrars of Spain, that will be available in June 2024.23 This technology facilitates the exchange of compliance documentation within the company, ensuring a reliable, efficient, and secure process that increases transparency and trust.24
- Extracting value from data: Unified data platforms aim to seek returns from data rather than just electrons, breaking down silos for informed decision-making. These centralized platforms can integrate and monetize the wealth of grid data from disparate sources like smart meters, weather stations, and renewable energy assets, providing real-time insights for renewable energy integration and grid optimization.
- Increasing interoperability: Open-source platforms and common standards promote adaptable, evolving technological integration and interoperability across the grid, facilitating innovation and seamless renewable energy incorporation without stifling creativity or excluding regional solutions. With more interoperable systems, consumers can more easily integrate their energy resources, such as rooftop solar panels or electric vehicles, into the grid, contributing to the overall resilience and sustainability of the energy system.
Talent
The global power industry faces a 3.9 million workforce gap, exacerbated by a skills gap amid increasing competition for skilled employees from companies inside and outside the energy industry.25 At the same time, the sector faces career stagnation and rising retirements. A breakthrough could potentially be achieved through:
- Initiating knowledge transfer: Create peer-to-peer learning networks to help leverage the collective knowledge of the workforce by creating online communities and mentorship programs, allowing experienced professionals to guide newcomers through virtual platforms, fostering continuous learning and skill exchange.
- Empowering local communities: By training residents in grid monitoring using smart technologies, communities can create a network of microgrids or community-based grid guardians. This grassroots approach can enhance resilience and contribute to preventative maintenance, leveraging local involvement for better grid health and operational efficiency. In Germany, cooperatives like BürgerEnergieGenossenschaft allow citizens to invest in and co-manage renewable energy projects, fostering local ownership and engagement.26
- Creating flexible learning for career development: Modularized skill ecosystems can help break down traditional career paths into bite-sized, job-specific modules, offering micro-credentials for specific grid tasks. This approach can help employees build customized skills and adapt through continuous, flexible learning paths for career development and innovation.
Business model
The business environment can be challenged by dynamic market conditions, a risk-averse culture, and a siloed organizational structure. There is also a need to reinvent the electric company model by pivoting to sustainable and empowered consumer-centric business approaches. This can be achieved through:
- Offering utility-as-a-platform services: This transforms utilities into platform providers facilitating energy services beyond simple electricity delivery. Utilities can explore the potential for market mechanisms to unlock further value embedded in the distribution networks. This model leverages the utility’s infrastructure to offer services such as peer-to-peer energy trading, demand response aggregation, and consumer energy management solutions.
- Adopting energy-as-a-service models: This enables adopting a subscription model for personalized energy services, allowing businesses and consumers to pay for energy use without owning the infrastructure. This approach looks to confirm that providers can manage maintenance, encouraging resource allocation toward innovation. Similarly, microgrid-as-a-service can offer rural communities reliable electricity from local renewable sources.
- Aligning rates and contracts with real-time market dynamics through dynamic pricing models: This positions power companies as central facilitators in an energy marketplace, diversifying revenue and enhancing customer engagement through a platform offering transparent, competitive pricing, helping drive efficiency and a consumer-centric sustainable energy ecosystem.
Three pivotal architects: Policymakers, companies, and consumers play distinct yet interconnected roles in driving grid modernization
The path to a modernized grid would require synchronized efforts from policymakers, companies, and consumers. The essence of achieving a scalable and rapid transition in grid modernization lies in recognizing the intricate interconnectedness of these stakeholders’ actions and sequencing change accordingly. Particularly, focusing on seven key areas could yield results:
- Considering regulatory requirements: Regulators may consider, for example, establishing sandbox environments where companies can test new products and services in the electricity and gas sectors. This would allow regulators to review existing regulations and make necessary adjustments to support energy innovation. Consumer participation can provide valuable feedback, while successful pilots could incentivize broader adoption. For instance, Singapore’s sandbox tests distributed energy resources, electric vehicles, and trading platforms, aiming to enable industry regulators to assess the impact of new products and services before deciding on the appropriate regulatory treatment.27
- Recognizing the need for adaptive and dynamic policy frameworks: Instead of one-size-fits-all frameworks, agile and tailored solutions can help recognize the diversity of resources, needs, and contexts across regions, technologies, and changing market conditions. For instance, for distributed energy resources, this includes region-specific grid access rules, pricing structures, and compensation mechanisms for energy fed back into the grid. Federal Energy Regulatory Commission Order No. 2222, for example, aims to enable distributed energy resource integration in wholesale markets and enhance grid diversity, efficiency, and interconnectedness among grid operators, participants, and consumers.28
- Fostering collaborative open ecosystems: Co-create with startups, utilities, and research institutions to help fast-track the development and deployment of innovative technologies, promoting a unified approach to energy solutions. For instance, the Energy Web Foundation enables peer-to-peer energy trading, facilitating renewable energy integration and accelerating grid modernization through shared technologies and standards.29
- Facilitating private sector finance: Foster private investment in grid modernization potentially through incentives and risk-sharing mechanisms, expanding financing of renewable projects and infrastructure upgrades. Some countries are moving to allow private investment in grid expansion in order to unlock funding for renewable energy integration and circular practices, demonstrating the ripple effect of enabling private finance.30
- Integrating distribution systems into bulk-system planning and operations: Often, the planning and operation of the bulk system and distribution systems are disparate. As the grid evolves, particularly at the edge, the need for tighter integration of planning and operation is expected to increase. This full systems-based approach can unlock the mutual benefits of integrated energy modeling.
- Adopting circularity to increase grid efficiency: Incorporating recycled materials, minimizing waste, and prioritizing resource-efficient design can promote grid sustainability. Different measures, such as policy incentives or market rewards for these practices, could drive cross-industry collaboration, helping create a path for a resource-smart energy ecosystem.
- Creating inter-sectoral integrated policies: By enhancing inter-sectoral coordination across electricity, gas delivery, water, and waste management sectors, policymakers can create a path for integrated policy development, while companies can potentially drive the implementation of cross-sector solutions, using multi-asset data that optimizes resource use and efficiency. Consumers could stand to gain from more resilient, sustainable, and interconnected urban ecosystems.
Bridging the substantial investment and development gap while integrating innovative technologies and decentralizing energy sources can help achieve sustainable energy goals and help ensure grid reliability. Although global energy transitions could necessitate similar evolutions in grid planning, individual country contexts will likely define the pressing priorities. Emphasizing collaboration among stakeholders and adopting a phased approach can help overcome obstacles and realize this vision.
Embracing innovative technologies, fostering public-private partnerships, and considering adaptive policy frameworks should be considered. By aligning stakeholder efforts and prioritizing strategic investments, the current challenges can create a path for a sustainable, net-zero energy landscape.