Two key trends stand out in a new report projecting $14 trillion in needed global electric grid investments over the next three decades: the decentralization and digitization of energy infrastructure.
The Feb. 23 report, produced by Bloomberg New Energy Finance, or BNEF, assessed how much transmission investment "comes along for the ride" as part of the research organization's annual energy outlook, explained co-author Sanjeet Sanghera, a power systems engineer with a decade of network planning experience.
To keep pace with renewable energy additions, BNEF estimated that annual power grid investments will need to grow from roughly $235 billion in 2020 to $636 billion by 2050, representing a 3.4% year-over-year growth rate.
U.S. policymakers are currently grappling with a need for more interregional transmission, but the report also predicts that investments in more decentralized transmission infrastructure will eventually account for the bulk of global grid spending.
According to the "Economic Transition Scenario" in BNEF's latest energy outlook, the median power plant size across the world will "drop six-fold by 2050 to 158 MW." As a result, the group expects an increasing number of smaller generators to connect directly to the distribution grid.
By midcentury, the report estimated that 63% of annual grid investment will be at the distribution level, up from 52% today.
"That's not to say that transmission as an asset class is going away," Sanghera said in an interview. "It's still very important, it just starts to serve a different purpose. It's more about balancing power between the distribution grids themselves and improving reliability."
The report further predicted that 42% of annual grid spending by 2050 will be in digitization, more than doubling from 19% in 2020.
"Even when you're replacing an old asset with a new one, there's going to be some portion of it that now has sensors and automation that wasn't there before," Sanghera said. Digitization will be especially crucial in connecting electric vehicles to the grid to provide more flexibility, he said.
Overall, the report estimated that $2.9 trillion in global grid investments over the next 30 years will occur in China, the world's single largest transmission market. While the U.S. currently represents the world's second-largest market, BNEF predicted the U.S. will eventually fall behind Europe "due to a comparatively slow uptake of renewables."
Specifically, BNEF estimated that annual U.S. investment in grid infrastructure will more than double from current levels to exceed $100 billion by 2043.
However, Sanghera acknowledged that policy will be a key variable in the coming years. "Ultimately, policy has to come in and pave the way for this," he said. "If you want more renewables, the grid has to follow. You can't really have one without the other."
To that end, Sanghera pointed to advancements in undergrounding technology and new stakeholder models that can help overcome local opposition by giving affected communities a financial stake in new projects.
In the U.S., the Federal Energy Regulatory Commission is also in the midst of revamping its incentive policies for transmission buildout with an eye toward rewarding projects built pursuant to state and federal policies.
"I would say there are reasons to be optimistic," Sanghera said.