Energy’s forgotten giant – grid infrastructure plays catch-up as renewables gather pace

Increasingly, this electricity will be generated at great distances from the end consumer, as countries with sunny or windy climates sell to those with less renewables-potential. Demand for the high voltage direct current (HVDC) cabling needed to transmit this electricity is expected to grow dramatically over the next decade.

The question for governments and industry: can they secure the millions of kilometres of new cabling² needed to keep the clean energy transition on track?

Renewables set to transform emerging market economies

The transition to renewable energy is set to transform the geopolitical landscape. As the centre of gravity shifts away from fossil fuels, nations with high renewable energy potential will become the go-to for those lacking reliable wind, solar or hydropower. Already some emerging market nations are developing potentially economy-transforming energy exports, with a number of long-distance projects in the pipeline.

Among the most ambitious is a direct connection between the UK and a new solar and wind farm in the Guelmim-Oued Noun region of Morocco. Xlinks, the firm behind the project, plans to lay four sub-sea HVDC cables, each 3,800 kilometres long, to transmit enough electricity to power 7 million homes, 8% of the UK’s entire electricity need.³

Other African nations are planning similar ‘interconnections’. Tunisia, for example, will be the jump-off point for the first HVDC interconnector between the continent of Africa and mainland Europe, with a cable set to span the 200 kilometre stretch across the Strait of Sicily.⁴ In Namibia, which has among the highest solar irradiance potential of any country on Earth⁵, electricity interconnections are being put at the heart of the country’s green economic plan to turn Namibia into Africa’s renewable energy hub⁶.

Read also: The countries leading the energy transition

Cable factories “fully booked”

Offshore wind farms are being constructed ever further from land⁸, adding further pressure on HVDC cable supply. According to energy consultancy Xodus, cumulative demand for HVDC cables to connect to offshore wind will grow from 6,000 kilometres in 2024 to more than 56,000 kilometres by 2035.⁹

In China, a vast rollout of electricity infrastructure is supported by domestic HVDC cable manufacturers, but the rest of the world relies on just a handful of factories. Three firms account for 75% of the global market, and their order books are filling fast – Massimo Battaini, incoming chief executive at Prysmian Group, says the firm is “fully booked until 2026/27”. According to the Financial Times, the total value of new HVDC cable orders is likely to exceed USD 20 billion in 2024, a more than 500% rise from an average of USD 3 billion each year between 2015 and 2020.

Already, renewables projects are being delayed due to difficulties obtaining the cabling needed. For example, a cable linking France and Spain across the Bay of Biscay is running a year behind schedule, while a planned interconnection between the UK and Germany – known as NeuConnect – has been pushed back by at least four years.¹⁰

Could a supply shortfall derail the energy transition?

Ben Backwell, chief executive of trade association the Global Wind Energy Council, warns, “With companies already pointing to long lead times for key pieces of grid equipment, lack of supply chain capacity could become a major bottleneck… We run the risk of sleepwalking into shortages and squeezes that could delay or even derail the energy transition.” Consultancy 4C Offshore estimates that without significant efforts to ramp up manufacturing capacity, there will be a lack of HVDC cables outside of China from 2025 onwards.¹¹

To secure supply, customers with the biggest buying power are making larger orders and placing them earlier. In June 2023, for instance, state-owned Dutch electricity firm TenneT signed agreements for 7,000 kilometres of new HVDC cable worth USD 5.5 billion. Prysmian’s Battaini explains, “Customers are in a kind of panic mode. They realise that if [they don’t] move faster than the market, their capacity will be booked by someone else. So they are…giving us a downpayment for volume.”

The world’s cable manufacturers are sensing an opportunity. Major names including Italy’s Prysmian Group and Denmark-based NKT are commissioning more of the specialised ships needed to lay new cables out at sea, while at least USD 3.3 billion is slated for investment to expand existing cable factories or build new ones.¹² In the UK, for instance, XLCC is building the country’s first factory dedicated solely to manufacturing HVDC cable, and three more new factories are at advanced stages of planning.¹³

Read also: The rise of metals recycling in the energy transition

Investing in a forgotten giant

The HVDC cabling bottleneck is a microcosm of a broader challenge. The technology we need to switch from fossil fuels to clean electricity is largely ready, but the infrastructure is often failing to keep pace. In Australia, for example, rapid uptake of home solar panels is straining a grid designed only for one-way traffic – to pay for upgrades, homeowners will soon be charged for exporting their excess solar-generated electricity.¹⁴ Meanwhile in the UK, renewable developers are waiting up to a decade to connect to the grid, while necessary upgrades are made.¹⁵

At Lombard Odier, we are convinced that the energy revolution represents an attractive investment opportunity. Our strategy focusses on all aspects of the transition, from the exciting new technologies that are electrifying supply and demand – such as wind farms, ocean energy converters and electric vehicles – to the physical and digital infrastructure needed to connect and integrate them.

In the race to build a sustainable economy, investor attention often focusses on technological innovations at the expense of the nuts and bolts of the transition. According to Keith Anderson, chief executive at utilities firm ScottishPower, electricity grids are the “forgotten giant of decarbonisation and net zero.” For investors, this forgotten giant could offer a route to building long-term returns, while driving the transition to a sustainable, zero-carbon energy future.

¹ Executive summary – Renewables 2023 – Analysis - IEA
² Executive summary – Electricity Grids and Secure Energy Transitions – Analysis - IEA
³ The world's longest subsea cable will send clean energy from Morocco to the UK [update] (electrek.co)
⁴ The 600MW Tunisia-Italy Interconnector (ELMED) Project (nsenergybusiness.com)
⁵ The Prospective Direction of Solar Energy in Namibia | SpringerLink
⁶ How Namibia is moving towards a green and blue economy | World Economic Forum (weforum.org)
⁷ What is offshore wind and what does its future look like? | World Economic Forum (weforum.org)
⁸ What is offshore wind and what does its future look like? | World Economic Forum (weforum.org)
⁹ Will there be enough cables for the clean energy transition? (ft.com)
¹⁰ Will there be enough cables for the clean energy transition? (ft.com)
¹¹ Will there be enough cables for the clean energy transition? (ft.com)
¹² What can we expect next for HVDC? (dnv.com)
¹³ Will there be enough cables for the clean energy transition? (ft.com)
¹⁴ Electricity companies get green light to charge rooftop solar owners for exporting power to grid - ABC News; https://www.aer.gov.au/system/files/2023-12/Ausgrid%20-%20Revised%20proposal%20-%20Att.%208.14%20-%20Small%20customer%20export%20tariff%20fact%20sheet%20-%2030%20Nov%202023%20-%20Public.pdf
¹⁵ Renewables projects face 10-year wait to connect to electricity grid (ft.com)

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