This is Dana Perkins and you're listening to Switched on the B and EF podcast. And today I'm joined again by Tom Rowlands Reese as my co host and we have a conversation with Felicia Amanov from our Grids and Utilities team. We talk about how much money is going into grid investment, whether it's enough, and why now more than ever, it is needed. We all know that grids are a pretty critical part of infrastructure, from the transmission systems operators who connect electricity generation sources to the distribution systems operators and how they then connect to consumers. It's all of these lines that make the energy transition possible. Despite increased investment in the power grid in twenty twenty three, up seven percent from the year before, it's still not enough to meet a net zero pathway in the majority of markets around the world. This is for a variety of reasons, including increased grid requirements owing to artificial intelligence and data centers, alongside the need for more expensive grids as lines are moved underground in order to adapt to a changing climate that includes extreme weather events. This is in addition to the sheer number of new projects waiting in line to connect to the grid where renewable energy is trying to grow. Felicia pulls from research found in the twenty twenty four Power Grid Investment Outlook, and I also recommend taking a look at the New Energy Outlook twenty twenty four colon grids. This was a grid specific report founded on research found in b and EF's long term scenarios and was published on the twenty eighth of October. BNF clients will be able to find these at b and EF go on the Bloomberg terminal or at BNF dot com. Right now, let's jump into Tom and my discussion with Felicia about grid investments, expectations, and our current reality. Felicia, thank you very much for joining the show.

This is Dana Perkins and you're listening to Switched on the B and EF podcast. And today I'm joined again by Tom Rowlands Reese as my co host and we have a conversation with Felicia Amanov from our Grids and Utilities team. We talk about how much money is going into grid investment, whether it's enough, and why now more than ever, it is needed. We all know that grids are a pretty critical part of infrastructure, from the transmission systems operators who connect electricity generation sources to the distribution systems operators and how they then connect to consumers. It's all of these lines that make the energy transition possible. Despite increased investment in the power grid in twenty twenty three, up seven percent from the year before, it's still not enough to meet a net zero pathway in the majority of markets around the world. This is for a variety of reasons, including increased grid requirements owing to artificial intelligence and data centers, alongside the need for more expensive grids as lines are moved underground in order to adapt to a changing climate that includes extreme weather events. This is in addition to the sheer number of new projects waiting in line to connect to the grid where renewable energy is trying to grow. Felicia pulls from research found in the twenty twenty four Power Grid Investment Outlook, and I also recommend taking a look at the New Energy Outlook twenty twenty four colon grids. This was a grid specific report founded on research found in b and EF's long term scenarios and was published on the twenty eighth of October. BNF clients will be able to find these at b and EF go on the Bloomberg terminal or at BNF dot com. Right now, let's jump into Tom and my discussion with Felicia about grid investments, expectations, and our current reality. Felicia, thank you very much for joining the show.

Thank you for having me.

Thank you for having me.

You've got two of us asking you questions today. So I'm on with Tom hosting again. Nice to have you.

You've got two of us asking you questions today. So I'm on with Tom hosting again. Nice to have you.

Tom.

Tom.

Hi that DNA.

Hi that DNA.

So a common theme that we've talked about in so many of these podcasts has been this need for updating the grid. We need to build new infrastructure, so we need more grid connections, we need more reliable grids, and then we're going to talk about this today. We're going to actually talk about how demand is increasing as well. We've had you on the show to talk about grids before, but as we get into this update where we really are going to follow also how much investment is required. Can you just frame the problem for everybody, so we're all starting from the same place.

So a common theme that we've talked about in so many of these podcasts has been this need for updating the grid. We need to build new infrastructure, so we need more grid connections, we need more reliable grids, and then we're going to talk about this today. We're going to actually talk about how demand is increasing as well. We've had you on the show to talk about grids before, but as we get into this update where we really are going to follow also how much investment is required. Can you just frame the problem for everybody, so we're all starting from the same place.

So about a year or two ago, I feel like everyone was complaining about the grids. Renewables couldn't connect, ev chargers, couldn't connect, and unfortunately we haven't quite yet solved that. But what we have now is the plans for how to solve that. So what we did in the grids team is we looked at the grid development plants. We're ten major markets across the globe, so this represents about half of global grid investment, and what we can see is the significant plan ramp up and spend. So between twenty twenty two and twenty twenty three, you saw grid investment rising seven percent, and we think that for this year the growth will hit thirteen percent. So you really see that that annual growth coming in and that is even when we net out the effect of inflation.

So about a year or two ago, I feel like everyone was complaining about the grids. Renewables couldn't connect, ev chargers, couldn't connect, and unfortunately we haven't quite yet solved that. But what we have now is the plans for how to solve that. So what we did in the grids team is we looked at the grid development plants. We're ten major markets across the globe, so this represents about half of global grid investment, and what we can see is the significant plan ramp up and spend. So between twenty twenty two and twenty twenty three, you saw grid investment rising seven percent, and we think that for this year the growth will hit thirteen percent. So you really see that that annual growth coming in and that is even when we net out the effect of inflation.

Well, I can't wait to talk about plans because we love thinking about what could be in the future, especially as things are gaining momentum, but just to help us think a little bit about this demand end of things. While grids have featured and have been certainly a buzzword on this show, a buzzword that a lot of people are talking about right now is AI and artificial intelligence, how we're going to build it into all of our jobs, and how it's going to.

Well, I can't wait to talk about plans because we love thinking about what could be in the future, especially as things are gaining momentum, but just to help us think a little bit about this demand end of things. While grids have featured and have been certainly a buzzword on this show, a buzzword that a lot of people are talking about right now is AI and artificial intelligence, how we're going to build it into all of our jobs, and how it's going to.

Revolutionize the world.

Revolutionize the world.

But it also is incredibly data heavy and energy consuming. So can you just talk a little bit about how AI and data centers feature in terms of grid demand.

But it also is incredibly data heavy and energy consuming. So can you just talk a little bit about how AI and data centers feature in terms of grid demand.

Yeah, absolutely, So this is a topic that's increasingly come up over the last year. And truth is, we don't don't yet know where AI energy demand will be in a few years time, but what we do see in especially the US, but also to some extent in Europe, is increasing grid connection requests from these large scale data centers. And these data centers are often huge.

Yeah, absolutely, So this is a topic that's increasingly come up over the last year. And truth is, we don't don't yet know where AI energy demand will be in a few years time, but what we do see in especially the US, but also to some extent in Europe, is increasing grid connection requests from these large scale data centers. And these data centers are often huge.

They are like larger than your typical coal or gas power plant.

They are like larger than your typical coal or gas power plant.

And for the US, we have a number from a PRI so that's the Electric Power Research Institute that estimates that by twenty thirty, about nine percent of all electricity generation in the US might have to go to data centers. And that's compared to four percent today and in Europe we don't yet know where this will go, but there's yeah, a lot of connection requests.

And for the US, we have a number from a PRI so that's the Electric Power Research Institute that estimates that by twenty thirty, about nine percent of all electricity generation in the US might have to go to data centers. And that's compared to four percent today and in Europe we don't yet know where this will go, but there's yeah, a lot of connection requests.

So let's talk about then the plans to fix it. So what categories would you break that down in? Where were going to take the conversation today?

So let's talk about then the plans to fix it. So what categories would you break that down in? Where were going to take the conversation today?

So a grid investment plan is really trying to predict the future for the next few years, and in getting that right, you need to have an idea of where your electricity demand is going, but you also need to know where your generation is going to come from. So a big part of the investment going on in Europe at the moment is rewiring the grids to go from supporting your old fashioned fossil fuel power plants to your new renewables which is mainly wind and solar. And you have some countries like the UK and Germany where this shift is huge because in the past you've had these large electricity demand centers in Germany industry for example, that has been in the south of the country and now you're building a lot of offshore wind, which in germany's in the north of the country, so suddenly you're having generation come from the wrong place.

So a grid investment plan is really trying to predict the future for the next few years, and in getting that right, you need to have an idea of where your electricity demand is going, but you also need to know where your generation is going to come from. So a big part of the investment going on in Europe at the moment is rewiring the grids to go from supporting your old fashioned fossil fuel power plants to your new renewables which is mainly wind and solar. And you have some countries like the UK and Germany where this shift is huge because in the past you've had these large electricity demand centers in Germany industry for example, that has been in the south of the country and now you're building a lot of offshore wind, which in germany's in the north of the country, so suddenly you're having generation come from the wrong place.

So what you need to do is build.

So what you need to do is build.

These enormous power lines all the way across the country to get the power to where the industry needs it. And this takes time and it gets expensive, and it gets especially expensive because a lot of people don't love pilons. They're those big transmission towers that you often see next to the roads when you're driving. Maybe not what you want in your backyard. It's slightly same issue as those onshore winter turbines, which is why we went offshore in the first place. So now what Germany is doing is they're putting their cables underground and that can double or sometimes even triple.

These enormous power lines all the way across the country to get the power to where the industry needs it. And this takes time and it gets expensive, and it gets especially expensive because a lot of people don't love pilons. They're those big transmission towers that you often see next to the roads when you're driving. Maybe not what you want in your backyard. It's slightly same issue as those onshore winter turbines, which is why we went offshore in the first place. So now what Germany is doing is they're putting their cables underground and that can double or sometimes even triple.

The cost of the line per mile.

The cost of the line per mile.

So that's why you see these huge investment plans coming. The UK has this slightly easier time. It doesn't need to dig these trenches for the cables because it's an island, so it can go offshore. But the cost implications there are similar. So in the UK, you're bringing wind power from north to south by going offshore and putting those cables under the sea instead.

So that's why you see these huge investment plans coming. The UK has this slightly easier time. It doesn't need to dig these trenches for the cables because it's an island, so it can go offshore. But the cost implications there are similar. So in the UK, you're bringing wind power from north to south by going offshore and putting those cables under the sea instead.

Can I ask a question about these plans because I understand all the problems you've identified and how they're intensifying, But those problems maybe the AI one is a little bit of a new dynamic, but a lot of these problems around where renewables are located and not new. And you know, as you say, we've been complaining about this for two years, I would say for longer than two year, as people have been saying the grid is inadequate and insufficient. So these plans, I suppose, from what you've described there identifying what the grid needs to look like physically, but do they address some of the issues as to why the necessary change that has needed to happen hasn't happened in the different markets.

Can I ask a question about these plans because I understand all the problems you've identified and how they're intensifying, But those problems maybe the AI one is a little bit of a new dynamic, but a lot of these problems around where renewables are located and not new. And you know, as you say, we've been complaining about this for two years, I would say for longer than two year, as people have been saying the grid is inadequate and insufficient. So these plans, I suppose, from what you've described there identifying what the grid needs to look like physically, but do they address some of the issues as to why the necessary change that has needed to happen hasn't happened in the different markets.

Yeah. Part of it is now that these plans are not just identifying where you need the grid, but they're actually sort of concrete plans with dedicated amounts of investment that you're going to build these projects. And part of why this hasn't happened in the past is that over the last couple of decades, in a lot of the industrialized world, you've seen a decline in electricity demand, so industries have moved abroad and you've had energy efficiency, meaning that yeah, overall power demand is lower, and in that kind of environment, you do end up with spare capacity on the grid.

Yeah. Part of it is now that these plans are not just identifying where you need the grid, but they're actually sort of concrete plans with dedicated amounts of investment that you're going to build these projects. And part of why this hasn't happened in the past is that over the last couple of decades, in a lot of the industrialized world, you've seen a decline in electricity demand, so industries have moved abroad and you've had energy efficiency, meaning that yeah, overall power demand is lower, and in that kind of environment, you do end up with spare capacity on the grid.

So the grid.

So the grid.

Companies have sort of gotten used to being in this mindset that actually what they need to do is to save money and have low grid fees for customers. And this whole culture of saving is like, you know, it came with a good purpose. The regulators and the grid companies were trying to keep those rates low. But then as your renewable energy projects really started taking off, then you were suddenly in a situation where you actually should have invested ahead of need. You would have needed to build your grid slightly larger just in case. And this paradigm of anticipatory or investment or investing ahead of need is something that's only now just starting to gain traction. And yeah, in the UK you've had a whole new regulatory scheme to allow this type of investment, but yeah, they weren't thinking like this five years ago, and that's why we're where we are.

Companies have sort of gotten used to being in this mindset that actually what they need to do is to save money and have low grid fees for customers. And this whole culture of saving is like, you know, it came with a good purpose. The regulators and the grid companies were trying to keep those rates low. But then as your renewable energy projects really started taking off, then you were suddenly in a situation where you actually should have invested ahead of need. You would have needed to build your grid slightly larger just in case. And this paradigm of anticipatory or investment or investing ahead of need is something that's only now just starting to gain traction. And yeah, in the UK you've had a whole new regulatory scheme to allow this type of investment, but yeah, they weren't thinking like this five years ago, and that's why we're where we are.

So in a way, demand growth is like a catalyst for the paradigm.

So in a way, demand growth is like a catalyst for the paradigm.

Well, partially in the US you are now seeing a lot of demand growth, and that's because of data centers mainly. You'd also see new demand from electric vehicles and heat pumps. But actually in Europe demand hasn't quite taken off as fast as it would need to from these new electrified, low carbon sectors, and as a result of that, there was for a while a hesitancy to invest a lot in grids, and I think it just took a couple of years for their regulators that ultimately can cap the grid spend to come around and just realize that the grid rates will have to go up. We need to get that offshore wind especially integrated, because at the moment, those wind farms are often getting paid to shut off and that is just money down the drain, that's energy wasted. And in Europe you don't have nodle electricity pricing, so a lot of the time it's the grid operator that instructs the plants what to do. And this cost has just massively increased in the last couple of years. So now consumer rates have gone up even without that increase in investment. So now that the investment will happen, it will be a while of higher grid fees, but in the long time it.

Well, partially in the US you are now seeing a lot of demand growth, and that's because of data centers mainly. You'd also see new demand from electric vehicles and heat pumps. But actually in Europe demand hasn't quite taken off as fast as it would need to from these new electrified, low carbon sectors, and as a result of that, there was for a while a hesitancy to invest a lot in grids, and I think it just took a couple of years for their regulators that ultimately can cap the grid spend to come around and just realize that the grid rates will have to go up. We need to get that offshore wind especially integrated, because at the moment, those wind farms are often getting paid to shut off and that is just money down the drain, that's energy wasted. And in Europe you don't have nodle electricity pricing, so a lot of the time it's the grid operator that instructs the plants what to do. And this cost has just massively increased in the last couple of years. So now consumer rates have gone up even without that increase in investment. So now that the investment will happen, it will be a while of higher grid fees, but in the long time it.

Will cheaper, which then is the question is you know, in order to figure out how to increase investment, let's talk about who's actually paying for it. So is it tax dollars and is this essentially a policy discussion and grids are something that we need to see collectively like roads, where they're more or less a common good or is it going to be paid a play? And is it those of us who are consuming, whether it's a company or an individual ultimately or seeing higher prices because it's so directly linked to consumption and therefore that's how it's being funded.

Will cheaper, which then is the question is you know, in order to figure out how to increase investment, let's talk about who's actually paying for it. So is it tax dollars and is this essentially a policy discussion and grids are something that we need to see collectively like roads, where they're more or less a common good or is it going to be paid a play? And is it those of us who are consuming, whether it's a company or an individual ultimately or seeing higher prices because it's so directly linked to consumption and therefore that's how it's being funded.

Yeah, so grid companies throughout Europe and the US are actually they're private companies.

Yeah, so grid companies throughout Europe and the US are actually they're private companies.

So this is this is not tax money.

So this is this is not tax money.

This is private capital that's invested with an expectation to make a return. That said, there are some government grant schemes and in the US you saw both the Infation Reduction Act and the Bipartisan Infrastructure Bill dedicating a lot of funding to grids. So we've checked around ten billion US dollars that are going out in these different grant programs.

This is private capital that's invested with an expectation to make a return. That said, there are some government grant schemes and in the US you saw both the Infation Reduction Act and the Bipartisan Infrastructure Bill dedicating a lot of funding to grids. So we've checked around ten billion US dollars that are going out in these different grant programs.

For grids across the US. But these grants tend to.

For grids across the US. But these grants tend to.

Be really focused on innovation and bringing something new. So the bulk of grid investment, you know, the typical reinforcement, making that power line larger, connecting that new demand, that is really just that private capital.

Be really focused on innovation and bringing something new. So the bulk of grid investment, you know, the typical reinforcement, making that power line larger, connecting that new demand, that is really just that private capital.

But then what's the incentive to build them underground and make them, you know, less visible to the eye, because presumably the incentive for the ultimate retail end of this is to keep prices as low as possible.

But then what's the incentive to build them underground and make them, you know, less visible to the eye, because presumably the incentive for the ultimate retail end of this is to keep prices as low as possible.

Yeah, So, how grid investment works because it's a natural monopoly. You only have one grid company in your neighborhood, you can't pick someone else, So that means the regulator has a lot to say on how you invest. And that said, these regulators tend to often be these independent government bodies, so they're not directly political, but politicians of course give them their mandate and their main goals, which has been to protect consumers, but now that's shifted. So part of what the regulators try to achieve is help their governments, whether it's a state or country, governments achieve their renewable energy targets and also protect consumers from interruptions to their electricity supply. So in the US especially, you've seen extreme weather starting to wreak havoc on grids across many parts of the country, whether it's hurricanes or wildfires, and the overheadlines especially are very sensitive to disruptions. So by making targets for grid companies to put their lines underground. It increases the quality of your supply and you can have power even when there's extreme weather going on.

Yeah, So, how grid investment works because it's a natural monopoly. You only have one grid company in your neighborhood, you can't pick someone else, So that means the regulator has a lot to say on how you invest. And that said, these regulators tend to often be these independent government bodies, so they're not directly political, but politicians of course give them their mandate and their main goals, which has been to protect consumers, but now that's shifted. So part of what the regulators try to achieve is help their governments, whether it's a state or country, governments achieve their renewable energy targets and also protect consumers from interruptions to their electricity supply. So in the US especially, you've seen extreme weather starting to wreak havoc on grids across many parts of the country, whether it's hurricanes or wildfires, and the overheadlines especially are very sensitive to disruptions. So by making targets for grid companies to put their lines underground. It increases the quality of your supply and you can have power even when there's extreme weather going on.

It's a form of climate adaptation. Ultimately, yeah, it is.

It's a form of climate adaptation. Ultimately, yeah, it is.

It is absolutely like the amount of spending on this is quite significant. I think it's Southern California. Edison is dedicating eighteen percent of its capital expenditure just for proofing against wildfires.

It is absolutely like the amount of spending on this is quite significant. I think it's Southern California. Edison is dedicating eighteen percent of its capital expenditure just for proofing against wildfires.

Do you think though, I mean the way you've described it. Ultimately, I mean, in these regulated monopolies, the incentive for private investors is to invest as much as they possibly can because they get a regulated rate of return which is typically more favorable than what they'd get if they put their money in the bank. So ultimately it's the gatekeepers of this investment are the regulators. That's how I've always understood it. Are we seeing a change in how regulators are thinking? And is it even across the board?

Do you think though, I mean the way you've described it. Ultimately, I mean, in these regulated monopolies, the incentive for private investors is to invest as much as they possibly can because they get a regulated rate of return which is typically more favorable than what they'd get if they put their money in the bank. So ultimately it's the gatekeepers of this investment are the regulators. That's how I've always understood it. Are we seeing a change in how regulators are thinking? And is it even across the board?

I think there's been a definite change in how regulators are thinking. And it's not only about keeping their investment as low as possible anymore, because they have these other goals now, which is to support the decarbonization and also of course to protect the consumers against power cuts. Essentially, so I think there's been a definite paradigm shift in that.

I think there's been a definite change in how regulators are thinking. And it's not only about keeping their investment as low as possible anymore, because they have these other goals now, which is to support the decarbonization and also of course to protect the consumers against power cuts. Essentially, so I think there's been a definite paradigm shift in that.

That said, though, with approving.

That said, though, with approving.

New grid spend, especially when it's going up a lot, there is a lot of pressure from the public and from politicians to get this right because you don't want to spend a lot of money on building the grid in the wrong place. So this is I think the challenge where the regulators are currently sort of battling these two opposing goals, of which one is affordability and one is to make sure that the.

New grid spend, especially when it's going up a lot, there is a lot of pressure from the public and from politicians to get this right because you don't want to spend a lot of money on building the grid in the wrong place. So this is I think the challenge where the regulators are currently sort of battling these two opposing goals, of which one is affordability and one is to make sure that the.

Grid is ready for the future.

Grid is ready for the future.

And to get that balance right, you want to know where to build the grid, and this is where the long cues of renewable energy projects come in as a bit of a problem.

And to get that balance right, you want to know where to build the grid, and this is where the long cues of renewable energy projects come in as a bit of a problem.

So in both the US many.

So in both the US many.

European countries, you have so many renewable energy projects trying to connect to the grid, and you don't always have visibility of which ones are actually going to get built. So if you're having projects all over the country but only half of them are going to get built, how do you know where to build out the grid?

European countries, you have so many renewable energy projects trying to connect to the grid, and you don't always have visibility of which ones are actually going to get built. So if you're having projects all over the country but only half of them are going to get built, how do you know where to build out the grid?

And this is again where new.

And this is again where new.

Policy changes are helping make that predictability a bit easier. So the UK is in the middle of the process of implementing a system where you kick projects out of the queue if they're not progressing, so you will get a little bit more update as the grid company on which projects are real projects, and that will help you plan the grid nowhere to build it out, because ultimately, as long as the generation and the demand which you forecasted turns up, that grid investment will make a return because you have enough generators and enough consumers that with their grid fees pay the grid company, and yeah, strong incentives for investment.

Policy changes are helping make that predictability a bit easier. So the UK is in the middle of the process of implementing a system where you kick projects out of the queue if they're not progressing, so you will get a little bit more update as the grid company on which projects are real projects, and that will help you plan the grid nowhere to build it out, because ultimately, as long as the generation and the demand which you forecasted turns up, that grid investment will make a return because you have enough generators and enough consumers that with their grid fees pay the grid company, and yeah, strong incentives for investment.

So tell me a little bit more about that. So you're talking about real projects versus projects that are just not going to see the light of the day. A reel of a problem is that how many of these projects that are in the pipeline to be built are not happening and therefore making it really difficult for grids to go in in an effective way.

So tell me a little bit more about that. So you're talking about real projects versus projects that are just not going to see the light of the day. A reel of a problem is that how many of these projects that are in the pipeline to be built are not happening and therefore making it really difficult for grids to go in in an effective way.

So it's very hard to say what percentage of projects are never going to get built, because ultimately it could just be that they've been postponed forever. In the US, one of our research reports concluded that only about one in ten wind and solar projects that have applied for a grid connection in the last ten to fifteen years have actually received a permit to connectow.

So it's very hard to say what percentage of projects are never going to get built, because ultimately it could just be that they've been postponed forever. In the US, one of our research reports concluded that only about one in ten wind and solar projects that have applied for a grid connection in the last ten to fifteen years have actually received a permit to connectow.

Very low rate and very slow.

Very low rate and very slow.

And in California and New York, where this is particularly bad, only about two percent of projects have been issued to the permit to connect and then the works can commence and the grid is upgraded. So yeah, you do have a lot of those projects that just hang around. And both in California and New York they've started implementing what they call cluster studies, so they sort of lump many projects together and try to process them at the same time do all the grid modeling, get an idea for what upgrades are needed, and this is meant to speed up the process. But we have still not yet seen the effects of this policy change, so it's just been in the last year when it's been implemented, so we need to wait a little bit longer. In the UK, the situation is also particularly bad, so BNF we model net zero scenario for various regions, and the wind and solar capacity that's currently in the queue trying to connect to the UK grid is four times larger than what we think the UK will need by twenty thirty and then at zero scenario, so that means that by this metric, it would mean that you have four times too many projects. And yeah, there's simply not a need in the power system for this much wind and solar, So that clearly shows that you have some projects that are are never going I get built.

And in California and New York, where this is particularly bad, only about two percent of projects have been issued to the permit to connect and then the works can commence and the grid is upgraded. So yeah, you do have a lot of those projects that just hang around. And both in California and New York they've started implementing what they call cluster studies, so they sort of lump many projects together and try to process them at the same time do all the grid modeling, get an idea for what upgrades are needed, and this is meant to speed up the process. But we have still not yet seen the effects of this policy change, so it's just been in the last year when it's been implemented, so we need to wait a little bit longer. In the UK, the situation is also particularly bad, so BNF we model net zero scenario for various regions, and the wind and solar capacity that's currently in the queue trying to connect to the UK grid is four times larger than what we think the UK will need by twenty thirty and then at zero scenario, so that means that by this metric, it would mean that you have four times too many projects. And yeah, there's simply not a need in the power system for this much wind and solar, So that clearly shows that you have some projects that are are never going I get built.

Do you think that's some of this? I mean, because it sounds to me like that one of the constraints on progress is the capacity of the grid to take on new projects. And then maybe in response to that, a lot of developers are like over populating the pipeline because they know not all of their projects can get accepted. So you have this this sort of Now you have this other problem, which is a lot of these projects aren't going to get built, and the developers know that from the start, and it's it's only partly because the grid constraints. Is also the way that the industry has responded to that that creates this very stark dichotomy between what is possible what is needed. It's not a dichotomy, it's a tricotomy between what is needed, what is possible, and what is in the pipeline.

Do you think that's some of this? I mean, because it sounds to me like that one of the constraints on progress is the capacity of the grid to take on new projects. And then maybe in response to that, a lot of developers are like over populating the pipeline because they know not all of their projects can get accepted. So you have this this sort of Now you have this other problem, which is a lot of these projects aren't going to get built, and the developers know that from the start, and it's it's only partly because the grid constraints. Is also the way that the industry has responded to that that creates this very stark dichotomy between what is possible what is needed. It's not a dichotomy, it's a tricotomy between what is needed, what is possible, and what is in the pipeline.

Yeah. I couldn't have said it better myself. That's exactly the problem. The chicken and egg grids are certainly featured on the show. But another theme that comes up often when we're talking about the energy transition is just how much additional money needs to be flowing into some of these areas in order for us to see this low carbon transition to these newer assets that are going to be less polluting. Now we know that some of this is going to come through policy, not everything is actually going to get the money that it needs. I mean, that's just seems to be what we're watching right now, is we're working towards these twenty thirty you know, missions targets, and some of them are maybe falling a little bit short halfway through this critical decade. So then let's pivot to a part of the world where we can essentially see what happens with capitalism and fewer rules, one might say, which is URKAT, which is Texas's grid with the absence of really involved policy. How are you seeing the grid play out there in this wild West, if you will, of what happens on a grid and in a power system overall, when you know, kind of left to see what happens with market forces. Yeah, so Texas and and ERCOT is an interesting example of that. And I think here we come back to the issue with predictability that we talked about a little bit before. So when you don't have the kind of top down, centralized you know, this is how we wander energy landscape to evolve. You don't have those like big, say offshore wind targets that you see in many European countries, then you can end up in this kind of situation where Texas is at the moment, where the amount of new demand trying to connect is just too much for the grid to handle. And in Texas, the new demand especially it's been from crypto, it's now aid in data centers. It's not just a lack of grid capacity, it's also partially a.

Yeah. I couldn't have said it better myself. That's exactly the problem. The chicken and egg grids are certainly featured on the show. But another theme that comes up often when we're talking about the energy transition is just how much additional money needs to be flowing into some of these areas in order for us to see this low carbon transition to these newer assets that are going to be less polluting. Now we know that some of this is going to come through policy, not everything is actually going to get the money that it needs. I mean, that's just seems to be what we're watching right now, is we're working towards these twenty thirty you know, missions targets, and some of them are maybe falling a little bit short halfway through this critical decade. So then let's pivot to a part of the world where we can essentially see what happens with capitalism and fewer rules, one might say, which is URKAT, which is Texas's grid with the absence of really involved policy. How are you seeing the grid play out there in this wild West, if you will, of what happens on a grid and in a power system overall, when you know, kind of left to see what happens with market forces. Yeah, so Texas and and ERCOT is an interesting example of that. And I think here we come back to the issue with predictability that we talked about a little bit before. So when you don't have the kind of top down, centralized you know, this is how we wander energy landscape to evolve. You don't have those like big, say offshore wind targets that you see in many European countries, then you can end up in this kind of situation where Texas is at the moment, where the amount of new demand trying to connect is just too much for the grid to handle. And in Texas, the new demand especially it's been from crypto, it's now aid in data centers. It's not just a lack of grid capacity, it's also partially a.

Lack of generation.

Lack of generation.

But I think Texas is a good example on how these two things, generation and enough gride capacity can be two sides of the same coin. So Urka, Texas is a grid region that's actually not interconnected with the rest.

But I think Texas is a good example on how these two things, generation and enough gride capacity can be two sides of the same coin. So Urka, Texas is a grid region that's actually not interconnected with the rest.

Of the US or with its.

Of the US or with its.

Neighboring states, and that also makes this whole capacity issue more acute because you cannot import power from somewhere else, and you also have a renewable energy generation is more concentrated in some parts of the state, and if you're trying to connect something in this region, you can have a slightly better chance because you have some local power generation. But even so, these data centers need baseload, so even when the wind doesn't blow and the sun doesn't shine, they need some generation. And when you have a situation with a lot of variable renewables, having a large interconnected grid is really advantageous because you get variability in weather across vast distances. So Texas and are not being connected with other grids in the US as it's a political decision, but from a pure grid operation point of view, it would make sense to have larger grid areas connected.

Neighboring states, and that also makes this whole capacity issue more acute because you cannot import power from somewhere else, and you also have a renewable energy generation is more concentrated in some parts of the state, and if you're trying to connect something in this region, you can have a slightly better chance because you have some local power generation. But even so, these data centers need baseload, so even when the wind doesn't blow and the sun doesn't shine, they need some generation. And when you have a situation with a lot of variable renewables, having a large interconnected grid is really advantageous because you get variability in weather across vast distances. So Texas and are not being connected with other grids in the US as it's a political decision, but from a pure grid operation point of view, it would make sense to have larger grid areas connected.

So with Texas, we're seeing in terms of population that is a state that is growing in terms of energy demand, it's also growing. There are more AI data centers actually going into that state, So you know, can you just walk me through what that investment is looking like in Urkut in order to meet this increase in demand.

So with Texas, we're seeing in terms of population that is a state that is growing in terms of energy demand, it's also growing. There are more AI data centers actually going into that state, So you know, can you just walk me through what that investment is looking like in Urkut in order to meet this increase in demand.

Yeah, absolutely, So to give some numbers on how much peak power demand, which ultimately is what matters for grids, has increased, So it has doubled since nineteen ninety and reached eighty six gigawatts in twenty twenty three, and now Urkott is anticipating that another sixty seven gigawatts of new load, so that's almost doubling peak power demand by twenty thirty. So with that anticipation, you would really expect to see the grid investment numbers going up. And we looked at the spend plans in Urkot and checked nine point two billion of investment for twenty twenty six. So it again it shows how with that lack of central planning, the plans just don't go very far out and you can't have that sphere capacity sort of planned in for when demand suddenly increases. So yeah, we're going to need to see a lot more grid investment in Texas for this is square out.

Yeah, absolutely, So to give some numbers on how much peak power demand, which ultimately is what matters for grids, has increased, So it has doubled since nineteen ninety and reached eighty six gigawatts in twenty twenty three, and now Urkott is anticipating that another sixty seven gigawatts of new load, so that's almost doubling peak power demand by twenty thirty. So with that anticipation, you would really expect to see the grid investment numbers going up. And we looked at the spend plans in Urkot and checked nine point two billion of investment for twenty twenty six. So it again it shows how with that lack of central planning, the plans just don't go very far out and you can't have that sphere capacity sort of planned in for when demand suddenly increases. So yeah, we're going to need to see a lot more grid investment in Texas for this is square out.

And can I just ask that nine point two billion dollars how much of that is for the distribution grid and how much is for transmission? A lot of the issues I've been talking about just now are more related to transmission, but obviously I know that there's a big drive for distribution investment as well.

And can I just ask that nine point two billion dollars how much of that is for the distribution grid and how much is for transmission? A lot of the issues I've been talking about just now are more related to transmission, but obviously I know that there's a big drive for distribution investment as well.

Yeah, so what the plans for showing at the moment is about fifty to fifty on transmission and distribution in Texas, and that's actually a slightly higher share for transmission than what we've seen in California.

Yeah, so what the plans for showing at the moment is about fifty to fifty on transmission and distribution in Texas, and that's actually a slightly higher share for transmission than what we've seen in California.

Where we also looked at the grid plans.

Where we also looked at the grid plans.

In California, the grid spend is a lot more concentrated on the distribution grid side of things because California has all that rooftop solar, it has very ambitious target for electric vehicles, whereas in Texas well, electric vehicles have an quite taken off yet. And the largest spent driver that we see again on the distribution grid is to prove against extreme weather. Hurricanes, storms, wildfires take down those overheadlines and you need undergrounding. So there's actually been a quite a big public outcry for increasing that resiliency spend in Texas to avoid power cuts. So that's really what you need on the distribution grid. Transmission. You need to connect all those renewables, large scale renewables, whether it's solar, wind and these huge, huge data centers.

In California, the grid spend is a lot more concentrated on the distribution grid side of things because California has all that rooftop solar, it has very ambitious target for electric vehicles, whereas in Texas well, electric vehicles have an quite taken off yet. And the largest spent driver that we see again on the distribution grid is to prove against extreme weather. Hurricanes, storms, wildfires take down those overheadlines and you need undergrounding. So there's actually been a quite a big public outcry for increasing that resiliency spend in Texas to avoid power cuts. So that's really what you need on the distribution grid. Transmission. You need to connect all those renewables, large scale renewables, whether it's solar, wind and these huge, huge data centers.

Let's head to a different continent. You looked at a couple of different countries in Europe. Can you give me an example of one that is making progress in terms of gridspend? Where are we seeing this as a priority in Europe.

Let's head to a different continent. You looked at a couple of different countries in Europe. Can you give me an example of one that is making progress in terms of gridspend? Where are we seeing this as a priority in Europe.

I think the UK is really the prime example of making grid spend a priority, particularly on the transmission grid side of things. So in the UK you have this type of top down certainty when it comes to political targets for decarbonization. So even though we now have a new government, the decarbonized station targets are still in place. They've actually increased the ambition a little bit and that means that the grid operator can start planning for a grid system where you don't yet have the actual projects applying for a connection. So normally you would start building out the grid only after you've had a sufficient volume of say windforms applying for connection. Now the UK transmission grid, according to the most recent plan, is being built out to the amount of capacity that the government targets shows for twenty thirty five and twenty thirty so that really helps. Even though the grid is currently under strain, it means that there's now a real chance to solve these problems in the next ten years. Because transmission is still slow to build out. On the distribution grid side, we're not, unfortunately seeing the same type of progress almost anywhere in Europe, and part of that is because you don't have the same type of strong government targets. We don't know how many electric vehicles there will be in five or ten years time. Like of course there's targets, but currently we're lagging on those targets. Electric vehicles sales have dropped, so the distribution grade operators are still doing a little bit more business as usual, and their major headache is from rooftop solar, which you've seen increase a lot in Germany. So there the easy solution has been to start pairing rooftop solar with batteries, then immediately causes a lot less problems. So sometimes the distribution grade operators can you know, they can have a little bit of an easier time if you solve the problem partially behind the meter then letting it all flood and cause nuisance on the grids.

I think the UK is really the prime example of making grid spend a priority, particularly on the transmission grid side of things. So in the UK you have this type of top down certainty when it comes to political targets for decarbonization. So even though we now have a new government, the decarbonized station targets are still in place. They've actually increased the ambition a little bit and that means that the grid operator can start planning for a grid system where you don't yet have the actual projects applying for a connection. So normally you would start building out the grid only after you've had a sufficient volume of say windforms applying for connection. Now the UK transmission grid, according to the most recent plan, is being built out to the amount of capacity that the government targets shows for twenty thirty five and twenty thirty so that really helps. Even though the grid is currently under strain, it means that there's now a real chance to solve these problems in the next ten years. Because transmission is still slow to build out. On the distribution grid side, we're not, unfortunately seeing the same type of progress almost anywhere in Europe, and part of that is because you don't have the same type of strong government targets. We don't know how many electric vehicles there will be in five or ten years time. Like of course there's targets, but currently we're lagging on those targets. Electric vehicles sales have dropped, so the distribution grade operators are still doing a little bit more business as usual, and their major headache is from rooftop solar, which you've seen increase a lot in Germany. So there the easy solution has been to start pairing rooftop solar with batteries, then immediately causes a lot less problems. So sometimes the distribution grade operators can you know, they can have a little bit of an easier time if you solve the problem partially behind the meter then letting it all flood and cause nuisance on the grids.

Presumably, a big part of the disparacy between distribution grid investment between the US and Europe is a lot of where the investment is going in the US is in undergrounding, which isn't necessary in Europe so much because in a lot of countries it's already happened.

Presumably, a big part of the disparacy between distribution grid investment between the US and Europe is a lot of where the investment is going in the US is in undergrounding, which isn't necessary in Europe so much because in a lot of countries it's already happened.

Yeah, Indeed, a lot of the distribution grids in Europe are already underground and have been so for a long time. You see this more in North Europe where you get cold winters, so there's been a long time need.

Yeah, Indeed, a lot of the distribution grids in Europe are already underground and have been so for a long time. You see this more in North Europe where you get cold winters, so there's been a long time need.

To protect the grid. What you do see in Europe in terms of undergrounding is.

To protect the grid. What you do see in Europe in terms of undergrounding is.

Now on the transmission side, so that has nothing to do with protecting against weather, but that is because people don't like those pilots. So both in France and Germany you're now seeing an increasing amount of transmission projects going underground, and that at cost, but it makes the landscape look a little bit prettier unless you happen to love pilots.

Now on the transmission side, so that has nothing to do with protecting against weather, but that is because people don't like those pilots. So both in France and Germany you're now seeing an increasing amount of transmission projects going underground, and that at cost, but it makes the landscape look a little bit prettier unless you happen to love pilots.

We talk a lot about the way that the grid is constraining the energy could transition and more investment is needed and regulate as a bottlenecks. This is a narrative that is everywhere. Sometimes to hear people talk about it, it sounds like it's an unsolvable problem. But at the start of the show, you mentioned seven percent growth of investment last year. We're expecting thirteen percent this year. This is not a low base that we're talking about, so those are really quite impressive numbers. So should we be being optimistic about the direction things are going in.

We talk a lot about the way that the grid is constraining the energy could transition and more investment is needed and regulate as a bottlenecks. This is a narrative that is everywhere. Sometimes to hear people talk about it, it sounds like it's an unsolvable problem. But at the start of the show, you mentioned seven percent growth of investment last year. We're expecting thirteen percent this year. This is not a low base that we're talking about, so those are really quite impressive numbers. So should we be being optimistic about the direction things are going in.

I definitely think there's reason to be optimistic about the course of directions. There has been a massive recognition that the grid build out needs to happen, and now those plans have actually been approved and the thing is building out the grid, especially on the transmission side. It just takes time, so whatever new policies you put in place, you're going to see a few years lag before that's solved. On the distribution grid side, you've also seen significant optic in new technological solutions, so for example, putting batteries on the grid can really help balance renewables, it can help with stability issues, and now there is more and more regulatory regimes that actually reward grid companies for taking innovative approaches, so there's a lot of things you can do also in the meantime while you're waiting for those large slow upgrades. In the US, there's been numerous studies about how if you put sensors on the grid and you measure the temperature, then you can safely push through more power at many times of the day, and we are seeing these solutions being rolled out. It just takes time, but yeah, I would still be optimistic that and a fere as time will be there.

I definitely think there's reason to be optimistic about the course of directions. There has been a massive recognition that the grid build out needs to happen, and now those plans have actually been approved and the thing is building out the grid, especially on the transmission side. It just takes time, so whatever new policies you put in place, you're going to see a few years lag before that's solved. On the distribution grid side, you've also seen significant optic in new technological solutions, so for example, putting batteries on the grid can really help balance renewables, it can help with stability issues, and now there is more and more regulatory regimes that actually reward grid companies for taking innovative approaches, so there's a lot of things you can do also in the meantime while you're waiting for those large slow upgrades. In the US, there's been numerous studies about how if you put sensors on the grid and you measure the temperature, then you can safely push through more power at many times of the day, and we are seeing these solutions being rolled out. It just takes time, but yeah, I would still be optimistic that and a fere as time will be there.

So we've really spent the show today talking about the US and Europe, but we know that the story often differs continent by continent and country by country. What would you consider to be the parts of the world that are extremely different than the countries that we've talked about today.

So we've really spent the show today talking about the US and Europe, but we know that the story often differs continent by continent and country by country. What would you consider to be the parts of the world that are extremely different than the countries that we've talked about today.

I think China is a good example of a grid that's operated quite differently. You have a much larger state involvement and that top down level. Even so you still see issues on the distribution grids in China. So even in kind trees where the policy system and the groids are operated differently, you see the same kind of challenges from the energy transition. A lot of new renewables in a very short time. It's just challenging to build enough grid for that. So yeah, we're seeing differences but a lot of similarities across the world.

I think China is a good example of a grid that's operated quite differently. You have a much larger state involvement and that top down level. Even so you still see issues on the distribution grids in China. So even in kind trees where the policy system and the groids are operated differently, you see the same kind of challenges from the energy transition. A lot of new renewables in a very short time. It's just challenging to build enough grid for that. So yeah, we're seeing differences but a lot of similarities across the world.

Perhaps we can pair up with our China team next time and get them on here to talk about, you know, very different dynamic Felicia, thank you so much for joining today, and Tom, it's always good to be talking with you.

Perhaps we can pair up with our China team next time and get them on here to talk about, you know, very different dynamic Felicia, thank you so much for joining today, and Tom, it's always good to be talking with you.

Thanks, Dina, thank you.

Thanks, Dina, thank you.

Today's episode of Switched On was produced by cam Gray with production assistance from Kamala shelling. Bloomberg n EF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment, a vice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANNIAPH not be considered as in sufficient upon which to base an investment decision. Neither Bloomberg Finance Lp Nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.

Today's episode of Switched On was produced by cam Gray with production assistance from Kamala shelling. Bloomberg n EF is a service provided by Bloomberg Finance LP and its affiliates. This recording does not constitute, nor should it be construed, as investment, a vice, investment recommendations, or a recommendation as to an investment or other strategy. Bloomberg ANNIAPH not be considered as in sufficient upon which to base an investment decision. Neither Bloomberg Finance Lp Nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.