Gridlock

If tomorrow’s energy system relies on today’s electricity grid, then the clean energy revolution will not, as they say, be televised. We must put efficiency first.

A brand new International Energy Agency (IEA) report illustrates that national and regional grids are too old and unprepared to accommodate anything like the scale of renewables that would be needed to green electricity supply. But even if they are fixed, the energy system needs to be less dependent on centralised grid networks for decarbonisation and energy security to succeed.

Energy is one of the world’s essential infrastructure services, without which society doesn’t function. Disruptions to the availability or price of energy can have massive consequences for health and safety, inflation, interest rates, the cost of living, for business, industry, food, transport, the environment and for socio-political stability. Energy policy and the energy business matters a lot.

Electricity is one of the most important energy services. It’s not the only one. Indeed, while energy is often associated with electricity, only around 20% of energy services are electrical. The rest are related to heating, cooling, industrial processes, agriculture, and transport, for example, and rely for the most part on fossil fuels such as oil, gas and coal, which still represent over 80% of global supply.

Under the IEA’s Stated Policies Scenario (STEPS), a projection that takes into account the latest policy settings, including energy, climate and related industrial policies, the clean energy transition appears set to cause in a projected to fall in the share of oil, gas and coal by 2030, but only to 73%. As the IEA’s 2023 World Energy Outlook states, “it is far from enough to reach global climate goals”.

Electricity, as a proportion of final energy demand, features most heavily in residential and commercial buildings, to a far lesser extent in industry and, barely at all in the transport sector yet, where electric vehicles enjoy a growing share of the market for cars, trucks, buses, and bikes, but where it has negligible penetration in the far larger air, marine and freight sectors.

In the last 20 years, the world has invested over US$6 trillion in renewable energy and over $3 trillion in electricity networks. This has resulted in only 5% of fossil fuels having been displaced. Global demand for fossil fuels is still trending upward. Renewables may be growing faster proportionately, but from a lower base. Wind and solar are less than 3% of global energy supply.

Decarbonisation and energy security are solutions to problems that the world is facing today. By most measures, we have only 7 years of carbon budget left before humans lose much of whatever influence they have left over the pathway of climate change. Energy security is a burning platform, given the Russia-Ukraine and Israel-Hamas wars, and other geopolitical and climate flashpoints.

For electrification to be a solution for either decarbonisation or energy security, it will need to scale up by orders of magnitude. First, electricity will need to be green, which would require at least a 3 to 4 times increase in renewable energy capacity. Then electricity will need to displace the other 80% of energy supply, which would require at least another 4 to 5 times increase from a higher base.

The IEA report brilliantly sets out what this means for the grid on which electricity would need to be transmitted and distributed. In short, the report projects the need to add or refurbish 80 million kilometres of grids by 2040, the equivalent of the entire existing global grid – or enough power lines to wrap around the earth approximately 2,000 times.

Even if renewable or low carbon energy generation were to become abundant and low cost (or even free), energy services would not be. There are high hopes for new nuclear and zero marginal cost renewables. However, the materials, metals and minerals needed to build the generation infrastructure will be added to the challenge, cost and resource use of generation and distribution.

According to the IEA, grids risk being the “weak link” for the energy transition. Already, projects equivalent to 5 times the volume of all wind and solar capacity added in 2022 are stuck in the queue for grid connections. This is not only a bottleneck for renewable power generation but for economic activity. For example, most new datacentres would struggle to connect to the grid in London before 2037.

This may be true. The challenge for the UK’s National Grid does appear overwhelming, with the need to scale up to 14GW grid connections per annum from 6GW connections, and to process some 600 applications per year compared to the 40-50 per year of the past. However, as the background above illustrates, there are other reasons why reliance on centralised grid networks risks the effort being a lost cause.

Part of the problem with the carbon and resource intensity of energy, energy security and energy cost emanates from the centralised grid system in the first place. Extraction, conversion, generation, distribution, transmission, and distribution losses associated with the grid exceed 60% in the UK and the United States.

The largest part of these losses can be addressed by generating electricity, heating, and cooling – as much as possible from renewable sources such as solar, heat recovery and pumps - closer to the point of use and using heat that would otherwise be wasted (even by the nuclear power stations on which so much hope is placed). This supply side efficiency can be summarised as decentralised generation.

Another major source of efficiency is upgrading the mechanical and electrical infrastructure inside buildings and industry, which are responsible for most of the world’s energy use but waste 10-30% plus at the point of use. Too little has been done. If it sounds so obvious that changing lights to LEDs which saves 90% energy and pay back in less than 3-5 years, ask why less than half have been changed by the NHS.

Energy efficiency is the crucial companion for the clean energy revolution. It is the largest, fastest, and cheapest source of greenhouse gas emission reductions and energy security. It is too often overlooked. A relentless focus on supplying more energy into a system that wastes most of it is not the full answer and even risks continuing to fuel a broken system. Efficiency is a crucial framework for making decisions.

I recorded a video interview with Dr Fatih Birol, Executive Director of the IEA, on the anniversary of Russia’s invasion of Ukraine earlier this year, and for the capital markets day of the FTSE 250 SDCL Energy Efficiency Income Trust plc (SEIT.LN). I asked him if it was possible to achieve net zero without energy efficiency. His answer was disarmingly blunt and simple: “absolutely not”.

My book, ‘The Edge: How competition for resources is pushing the world, and its climate, to the brink - and what we can do about it’ seeks to tell the full story.