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BloombergNEF: $21.4T needed to deliver net-zero global power systems

Major investment and policy intervention are required to prepare grids worldwide for widespread electrification, the analyst firm warns in a new report.

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At least $21.4 trillion needs to be invested in electricity grids around the world by 2050 in order to pave the way for the huge expansion in renewable energy technologies required to put the planet on a path to net-zero emissions, according to BloombergNEF.

The clean energy analyst estimated $4.1 trillion would be required to sustain existing power systems worldwide, in addition to $17.3 trillion to expand grids for new electricity consumption and production, with significant policy intervention need to unlock the necessary level of investment.

Annual investment in the power system worldwide would need to triple from $274 billion last year to $871 billion annually in the 2040s in order to put electricity grids on a net zero footing, backed by policy efforts such as streamlined permitting to speed up the rollout of renewable energy capacity, BloombergNEF explained.

It said reforms were also needed to create incentives for energy suppliers to pursue digitization and grid flexibility technologies, which many experts view as critical for building net-zero power grids reliant on large amounts of intermittent renewable energy capacity.

As such, annual expenditure on distribution networks would need to more than triple to around $533 billion by 2050, up from $147 billion presently, in order to facilitate the development of grid balancing services and technologies.

Power lines would also need to expand "tremendously," BloombergNEF said, potentially growing by almost 50 million miles worldwide over the next 30 years, which would be more than enough to replace the current global power grid.

That breaks down to around 42 million miles of above-ground lines, 7.5 million miles of underground cables, and 124,000 miles of submarine cables, according to BloombergNEF's latest New Energy Outlook update this month.

"We must effectively double the size of the global electricity grid by 2050," said Sanjeet Sanghera, head of grids and utilities at BloombergNEF and lead author of the report. "This future grid needs to be smart, flexible and responsive, enabling us to harness the full potential of renewable energy rather than be bogged down by it."

Digitization is also set to play a leading role in transforming the global power grid, with BloombergNEF estimating it would need to represent just under a quarter of the total global grid investment over the next 30 years, or around $5.1 trillion.

Much of that investment is likely to go toward implementing automation and control of the power system, increasing monitoring and situation awareness, and helping to expend the lifetime of aging assets that can help more affordably maintain reliability and meet demand for electricity, it states.

The report also looks at the challenges for decarbonizing global heavy industrial processes, warning that without policy intervention, industrial emissions worldwide are on course to grow from 6.7 billion tonnes of CO2 this year to 7.6 billion tonnes annually by 2050.

Indeed, if current production plans are maintained, billions of dollars' worth of polluting assets could be stranded by net zero deadlines in 2050 and 2060, BloombergNEF warned.

However, it asserts that there is no "silver bullet" technology for decarbonizing industrial manufacturing such as steel, cement and petrochemicals, and that instead significant investments in hydrogen, carbon capture and clean electrification will all be needed to deliver on global climate goals.

"The legacy grid was built for the industrial revolution and outperformed our wildest expectations," said Sanghera. "But the project ahead is to decarbonize the global economy by connecting terawatts of renewables and electrifying as much as possible of the end-use economy. The technologies, policies and strategies utilities will need to accomplish this goal are different from those that made the grid so successful in the past."

The report comes alongside findings from a separate survey of over 540 renewable energy sellers today, which found 92 percent expect to face a significant increase in the exposure of their portfolios to the volatile merchant market within the next five years as they begin moving into a post-subsidy world.

Currently, just over a quarter — 26 percent — of those surveyed said less than 10 percent of their portfolios operate on a subsidy-free basis with exposure to price risk, yet most expected that exposure level to rise to between 30 and 50 percent by 2027, the findings show.

The global survey was carried out by power purchase agreement analyst Pexapark alongside its partners BloombergNEF, Fluence, Act Renewables, Enel X Advisory Services and Afry Consulting, with the findings included in the Renewables Industry Survey Report 2023.

The findings signal a shift toward more open markets as renewables operators move away from relying subsidies, which is "fundamentally changing" the risk profile for renewables projects with the focus moving from low maintenance, low risk and low return investments underpinned by long-term contracts toward more "unconventional plays" with a potentially higher upside in terms of returns, according to the report.

"This is having a transformative effect on renewable energy business models, evidenced by an increased focus on risk management," it states. "More than 65 percent of respondents view risk management as a critical prerequisite to mitigate the 'holy trinity of renewable risks' — price, profile and volume. Measuring, monitoring and managing these risks is deemed essential to providing investor confidence and meeting growth targets."

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