Global grids investment starting to pick up – IEA
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The IEA has reported that grids investment is expected to reach $400 billion in 2024, with Europe, the US, China and parts of Latin America leading the way.
Following a decline from 2016 to a little over $300 billion 2019 and 2020, the investment in power grid infrastructure has been steadily increasing, the IEA shows in its latest ‘World Energy Investment’ overview.
In 2023, the investment in the grids was about $375 billion, up from less than $350 billion in the previous year.
The IEA point to positive changes in the grid landscape in 2023, with deployment efforts increasing in some regions, although the gains still fell short of what is needed.
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The investment in power grids continues to be led by the advanced economies and China, together accounting for about 80% of the global spending, the IEA finds.
Advanced economies
Among these China held its level of investment at $80 billion, with the government-owned State Grid Corporation maintaining its appetite for new grids and networks.
Investment in the advanced economies was led by the US, which spent $100 billion, mostly on enhancing grid reliability and upgrading old infrastructure in 2023.
Spending in the European Union rose strongly to reach $60 billion, attributed to being bolstered by the Commission’s grid action plan with its more than $600 billion target spend on grids in the next six years.
Generally, in the advanced economies, a key challenge lies in sustaining investment growth and ensuring its effective translation throughout the supply chain, the IEA comments.
Power transformers in particular encounter obstacles due to inflationary pressures and supply shortages.
Emerging market and developing economies
Turning to the emerging market and developing economies outside China, the IEA reports grid investment growing by 15% to reach almost $80 billion in 2023.
However, while impressive this increase masked very different patterns in the underlying regions. Investment in India, for example, remained flat despite the introduction of tenders for smart meters.
Similarly, the investment in Africa and Southeast Asia also remained mostly unchanged.
However, this lack of new investment was partly offset by a doubling of spending in Latin America in particular in Colombia, Chile, Panama and Brazil, with the latter notably more than doubling its grid investments in 2023 and auctioning a record 10,500km of grid.
Many of these economies are highly dependent on concessional financing and public funding for grid investment, which represented 80% of total investment in 2023, the IEA notes.
Most of Southeast Asia lacks robust regulatory frameworks for private participation, for example, and in Africa more than half of investment comes from public sources although only every third utility can recover operational and debt costs, even after including subsidies from governments.
One positive exception is South Africa, which plans to establish an independent transmission project office to procure new transmission capacity using a build-operate-transfer model.
Investment in grids to 2030
In its summing up of the grids investment outlook, the IEA points to a tripling of the installed renewables capacity by 2030 requiring the annual investment in the grids to increase by an average 11% annually.
Under its ‘stated policies’ scenario, the investment is expected to reach $600 billion by 2030, which would leave a shortfall of about $150 billion.
Tackling tariff risks, establishing forward-looking regulatory frameworks and financing models to mobilise private capital are essential to facilitate this increase in investment levels, the IEA concludes.
