Power grids: opportunities in the energy transition?

power grid opportunities in the energy transition

This article summarizes our conclusions into power grids and power electronics, across all of Thunder Said Energy’s research. Where are the best power grid opportunities in the energy transition?

Power grids move electricity from the point of generation to the point of use, while aiming to maximize power quality, minimize costs and minimize losses. Broadly defined, global power grids and power electronics investment must step up 5x in the energy transition, from $750bn pa to over $3.5trn pa. This theme gets woefully overlooked. This also means it offers up some of the best opportunities in the energy transition.

(1) Electrification is going to be a major theme in the energy transition, a mega-trend of the 21st century, as the efficiency and controllability of electrified technology is usually 3-5x higher than comparable heat engines. It is analogous to the shift from analogue to digital. 40% of the world’s useful energy is consumed as electricity today, rising to 60% by 2050 (note here — our best overview of the upside in grids) propelling the efficiency of the primary global energy system from 45% today to 60% by 2050 (note here). Power demands of a typical home will also double from 10kW to 20kW in the energy transition (data here). Electricity demands of industrial facilities are aggregated here.

(2) Electricity basics are often misunderstood? If we have one salty observation about power markets, it is that many commentators seem to love making sweeping statements without understanding much at all. It is the energy market equivalent of wandering in off the street to an operating theater, and without any medical training at all, simply picking up a scalpel. This is a little bit sad. But it also means there will be opportunities for decision makers that do understand electricity and power systems. As a place to start, our primer on power, voltage, current, AC, DC, inertia and power quality is here.

(3) Power generation costs 5-15c/kWh. But variations within each category are much wider than between categories (note here). So generation will not be a winner takes all market, where one “energy source to rule them all” pushes out all the others. This view comes from stress testing IRR models of wind, solar, hydro, nuclear, gas, coal, biomass, diesel gensets and geothermal. And from 400-years of energy history. The average sizes of power generation facilities are here, and typical ramp rates are here.

(4) Transmission is becoming the key bottleneck on renewables and electrification in the energy transition. Each TWH pa of global electricity demand is supported by 275km of power transmission and 4,000km of distribution (data here). Connecting a new project to the grid usually costs $100-300/kW over 10-70km tie-in distances (data here). But bottlenecks are growing. The approval times to connect a new power plant to the grid have already increased 2.5x since the mid-2000s, averaging 3-years, especially for wind and solar, which take 30% and 10% longer than average (data here). Avoiding these bottlenecks requires power grids to expand. Spending on power grids alone will rise from $300bn pa to over $1.2trn pa, which is actually larger than the spending on all primary energy production today (data here).

(5) Power transmission also beats batteries as a way of maximizing renewable penetration in future grids. Rather than overcoming intermittency — solar output across Europe is 60-90% inter-correlated, wind output is 50-90% inter-correlated — by moving power across time, you can solve the same challenge by moving them over a wider space. A key advantage is that a large and extensive power grid smooths all forms of renewables volatility, from a typical facility’s 100 x sub-10-second power drops per day to the +/- 6% annual variations in solar insolation reaching a particular point of the globe. By contrast, different batteries tend to be optimized for a specific time-duration, while at long durations, the economics become practically unworkable. A new transmission line usually costs 2-3c/kWh per 1,000km (model here). Additional benefits for expanded power grids accrue in power quality, reliability and resiliency against extreme weather. These benefits will be spelled out further below…

(6) Upside for transmission utilities and suppliers? Our overview of how power transmission works is here. Operating data for high voltage transmission cables are here. Leading US transmission and distribution utilities are screened here. Leading companies in HVDCs are here. Offshore cable lay vessels are screened here. We have also screened Prysmian patents here. But the opportunity space is also much broader, which becomes visible by delving into how power grids work…

(7) Cabling materials. As a general rule, overhead power lines are made of aluminium, due to its light weight and high strength. Conversely, HVDC cables and household wiring are made of copper, which is more conductive. HVDCs are also encased in specialized plastics. New power transmission lines add 3-5MTpa of demand to aluminium markets, or 5-7% upside (note here). But we are more worried about bottlenecks in copper (where total global demand trebles) and silver.

(8) Transformers and specialized switchgear are needed to step the voltage up or down to a precise and prescribed level at every inter-connection point in the grid. The US transmission network operates at a median voltage of 230kV, which keeps losses to around 7%. Energy transition could double the transformer market in capacity terms and increase it by 30x in unit count (note here, costs and companies screened here), surpassing $50bn pa by 2035. Downstream of these transformers, the power entering industrial and commercial facilities will often remain at several kV, which requires specialized switchgear to prevent arcing. We see the MV switchgear market trebling to over $100bn pa by 2035.

(9) AC and DC. Wind and solar inherently produce DC power, but most transmission lines are AC. Hence they must be coupled with inverters and converters. At the ultimate point of use, AC power also usually needs to be rectified back to DC and bucked/boosted to the right voltage for each machine or appliance. The same goes for EV charging and EV drive trains. DC-DC conversion, AC-DC rectification and DC-AC inversion are effectively consolidating around MOSFETs. And we think one of the most interesting incremental jolts for the energy transition is the 1-10pp higher efficiency and rising market share of SiC MOSFETs. Leading companies in SiC and MOSFETs are screened here.

(10) Inertia and frequency regulation. All of the AC power generators in the grid are running in lockstep, ‘synchronized’ at around 50 Hertz in Europe and 60 Hz in the US. But the frequency of all the power generators in the grid changes second by second. If there is a slight under-supply of power, then what prevents the grid from collapsing is that energy can be harvested from the rotational energy of massive turbines weighing up to 4,000 tons and spinning at 1,500 – 6,000 rpm, as they all slow down very slightly. This sorcery is called ‘inertia’. Wind and solar do not inherently have any inertia (no synchronized spinning). But there are ways of partially mimicking inertia or adding synthetic inertia to the grid through flywheels, supercapacitors, synchronous condensers, batteries, smart energy. Our grid models reflect growing demand for infrastructure in all of these categories.

(11) Reactive power compensation. Apparent power (in kVA) consists of two components: real power (in kW) and reactive power (in kVAR). Inductive loads consume reactive power as the creation of magnetic fields draws the current behind the voltage in an AC wave. This lowers power factor in the grid, amplifies the current that must flow per unit of real power, and thus amplifies I2R losses. Large spinning generators have historically provided reactive power to energize transmission lines and compensate for inductive loads. Again, wind and solar do not inherently provide reactive power compensation and have historically leaned on the rotating generators. Renewable heavy grids will need to add reactive power compensation, expanding this market by a factor of 30x. The best opportunities are in STATCOMs and SVCs (leading companies screened here), capacitor banks at industrial facilities and Volt-VAR optimization at the grid edge.

(12) Electric vehicle charging: find the shovel-makers? Each 1,000 EVs will likely require 40 Level 2 chargers (30-40kW) and 3 Level 3 fast-chargers (100-200kW), so our numbers ultimately have $100bn pa being spent on EV charging in 2025-50. But we wonder whether EV chargers will ultimately become over-built, and the best opportunities will be in supplying components and materials to these chargers, rather than owning the infrastructure itself. Our best single note on this topic is here. Economics of EV charging stations and conventional fuel retail stations make a nice comparison.

(13) Motor drivers are another huge efficiency opportunity. There are 50bn electric motors in the world, consuming half of all global electricity. But most motors are inefficient, rotating at fixed speeds determined by the frequency of the AC power grid, rotating faster than they need to, which matters as power consumption is a cube function of rotating speed. One of the best efficiency opportunities in the grid expands the role of variable frequency drives to optimize motors (note here). Economics are screened here and leading companies are covered here. All of our work into electric motor efficiency and reliability is linked here.

(14) Without reliable and high-quality power grids, frankly, things will break. This is a statement made in patents and technical papers, again and again, discussing how lagging power quality enhances maintenance and breakage costs of expensive equipment. Fundamentally, this is why we think that commercial and industrial power consumers will increasingly invest more in power electronics, and there are so many hidden power grid opportunities in the energy transition.

(15) Power electronics is the broad category of capital goods that encompasses effectively everything discussed on this page. And this summary has hardly even scratched the surface. We think pure power electronics spending trebles from $300bn pa to $1trn pa by 2035 (model here). It is the same group of companies coming up again and again in this space (best note here). For example, we have attempted to break down Eaton’s revenues across 10,000 SKUs in 200 different categories here. We do think that the complexity in power grids and power electronics creates opportunity for decision makers that can grasp it.

All of our research — PDF research reports, data-files, economic models and company screens — into power grid opportunities in the energy transition is summarized below, in chronological order of publication.

Into thin air: beaming power as microwaves?

What if large quantities of power could be transmitted via the 2-6 GHz microwave spectrum, rather than across bottlenecked cables and wires? This 12-page note explores the technology, advantages, opportunities, challenges, efficiencies and costs. We still fear power grid bottlenecks.

Bottlenecked grids: winners and losers?

What if the world is entering an era of persistent power grid bottlenecks, with long delays to interconnect new loads? Everything changes. Hence this 16-page report looks across the energy and industrial landscape, to rank the implications across different sectors and companies.

Grid connection sizes: residential, commercial and industrial?

Typical Sizes of Grid Connections of different residential, commercial and industrial facilities in kW. The largest connections are needed for green hydrogen, aluminium and data-centers.

What are the typical size of grid connections at different residential, commercial and industrial facilities? This data-file derives aggregate estimates, from the 10kW grid connections of smaller homes to the GW-scale grid connections of large data-centers, proposed green hydrogen projects and aluminium plants. Also included are our notes on each category, data into 5GW of US micro-grids and assessments of the possible winners-and-losers from growing power grid bottlenecks.

A typical home in the developed world currently has a 10-15kW maximum power capacity. Exceeding this load may cause its circuit breaker to trip. Hence some homes may need upgraded grid connections to add electric vehicle chargers or heat pumps.

Office buildings that have crossed our screens typically require 50-500kW grid connections, rising to MW-scale connections for larger office buildings with 15,000m2 of space or more.

Other facilities with which we are all familiar include Walmart Super-Centers (1.3MW average grid connection), medium-sized hospitals (5MW), London tube underground stations (6MW) and airports (c10MW). Although again, capacity varies with size.

One excellent source for these numbers is looking at the sizes of around 1,000 US microgrids, with over 5GW of capacity, of which around 50% were constructed in the last decade, powered by CHPs (50%), gas turbines (17%), diesel generators (10%), solar (12%), wind (5%) and hydro (6%), and supported by 5 GWh of battery storage.

Number of microgrids in the US and the total capacity of microgrids constructed per year.

Light manufacturing and food-processing facilities will also tend to have an average grid connection of around 1MW, across c50,000 such facilities around the United States, which are aggregated in our database of electricity consumption by sector.

For larger facilities, we turn to our own economic models, to quantify the typical grid sizes. As usual, facilities with larger capacities will have larger power grid connections.

Size of grid connections will range from 10-30MW for 200kTpa chlor-alkali plants, 1MTpa cement plants, 1MTpa CCS compressors or 100,000 vehicle per year auto plants.

Finally we come to the true monsters, with grid connections above 100MW, such as larger data-centers, aluminium plants and proposed green hydrogen facilities, some reaching 2-3GW in scale.

Size of grid connection and growth trajectory determine whether industrial facilities will realistically need to generate their own power in increasingly bottlenecked power grids.

Power grids: the biggest bottleneck in the world?

Power grids will be the biggest bottleneck in the energy transition, according to this 18-page report. Tensions have been building for a decade. They are invisible unless you are looking. And the tightness could last a decade. Further acceleration of renewables may be thwarted. And we are re-thinking grid back-ups.

Solar inverters: companies, products and costs?

This data-file tracks some of the leading solar inverter companies and inverter costs, efficiency and power electronic properties. As China now supplies 85% of all global inverters, at 30-50% lower $/W pricing than Western companies, a key question explored in the data-file is around price versus quality.

Solar inverters convert the DC output from solar modules in an AC waveform that can be transmitted across power grids or used in electronic devices. This is achieved via pulse width modulation (explained here) using IGBTs and MOSFETs (explained here).

This data-file covers solar inverter companies and the costs of solar inverters. Twenty companies account for about 90% of global inverter shipments, and the ‘top five’ account for two-thirds of inverters, of which four are Chinese companies, such as Huawei and Sungrow, while we have also explored electronics from SolarEdge.

Our utility-scale solar cost models assume $0.1/W inverter costs, and this is borne out by the data-file. Although costs per watt approximately double for every 10x reduction in inverter size.

Chinese manufacturers sell inverters for 30-50% less than Western companies, suggesting challenged margins and strong competition.

Decent inverters on the market in 2024 convert 98% of the incoming DC electricity into AC electricity, and have advanced power electronics. The ability to control reactive power with a +/- 0.8 leading/lagging power factor is typical. As is the ability to limit total harmonic distortion below 3% (charts below).

While Chinese-made inverters are 30-50% lower cost than Western-made inverters, a key question explored in the data-file is whether this also comes at the cost of lower power quality. Our views and their implications are summarized in the first tab of the data-file. The backup tabs contain the full data behind all of the other charts above.

Hydro power: generation by facility, availability over time?

Hydro power generation by facility is tabulated in this data-file for the 20 largest hydro-electric plants in the US. The average US hydro facility achieves 43% availability, varying from 39% in hot-dry years to 51% in wet years; and from 33% at the seasonal trough in September-October to 53% at the seasonal peak in May-June. What implications for energy markets and backstopping renewables?

The US generates 260 TWH of hydro power per year, 6% of its total electricity, of which 130 TWH comes from its top twenty largest hydro facilities, with over 30 GW of combined capacity. For further details, please see our US energy and CO2 model.

Month-by-month hydro power generation is tabulated in this data-file, for the top twenty largest US hydro-power plants. For example, the single largest hydro facility in the US is the Grand Coulee Dam, on Washington State’s Columbia River, built in 1967, and now with 6.8 GW of nameplate capacity. However, different plants vary (chart below), so it is useful to average out the data (chart above).

How well suited is hydro for backstopping renewables? In the short term, from minutes to days, hydro is an excellent backstop for solar and wind (note below), with fast start-up times, fast ramp-rates and flexibility suggested by an average availability factor of 44% for large hydro facilities over the past 20-years. In other words, there is scope to dial hydro plants up or down.

For longer-duration renewables volatility, hydro may be a less effective backstop, however. Especially for solar. The availability factors of hydro follow a clear annual pattern, ranging from 30-65%, peaking at 53% on average in May-June fed by meltwater from spring, troughing at 33-34% in September-October after hot and drought-prone summers. Seasonality is plotted in the data-file.

To ensure resiliency in renewables-heavy grids, it should be noted that some years are rainier than others. Hence the annual availability across all large US power plants ranges from 39% to 51%.

The trend also appears to show hydro availability gently falling in recent years, possibly linked to hotter weather. Different studies vary but have estimated that climate change could lower hydro generation by around 10% by mid-century on average. Details in the data-file.

Hydro variability can impact global energy balances. Global electricity demand was 30,000 TWH in 2023. We find that a particularly wet or dry year, across the board, can sway global electricity market balances by as much as a full percentage point.

Please download the data-file for the underlying numbers into hydro power generation by facility, at the twenty largest US hydro plants, month-by-month, going back 20-years to 2003.

Harmonic filters: leading companies?

This data-file screens 20 leading companies in harmonic filters, tabulating their size, geography, ownership, patent filings and a description of their offering. Active harmonic filters reduce total harmonic distortion below 5%, with 97% efficiency, within 5 ms. Half a dozen companies stood out in our screen, including one large, listed Western capital goods company.

Power quality is increasingly important, as electricity demand grows, placing greater reliance on the power grids, which also increasingly feature non-linear loads such as variable frequeny drives, LEDs, EV chargers, data-centers, heat pumps, and inverter-based generation sources such as solar and wind. An introduction to power quality issues is presented in our overview of electricity.

Active harmonic filters are the most comprehensive method for avoiding power quality issues associated with harmonics, detecting harmonics in real time, then injecting opposing harmonics, in order to achieve a sinusoidal waveform, typically reducing total harmonic distortion below 5%, with 97% efficiency, within around 5 ms.

Hence this data-file screens 20 leading companies in harmonic filters, tabulating their size, geography, ownership details, patent filings and a description of their offering. The screen includes companies listed in the US, Europe, Japan and private companies. The landscape also includes a large degree of consolidation recently.

The costs of active harmonic filters are also tabulated in a backup tab, and can range from $100/kVA to $1,600/kVA, depending on the degree of harmonic filtering, responsiveness and efficiency.

We found that one large, listed Western capital goods company seems to have a leading offering in active harmonic filters, which is also reflected in premium pricing for its active filters in the chart above.

Another backup tab summarizes the details of some excellent case studies from Comsys, which is one of the leading companies in harmonic filters, screened in the data-file.

Another backup tab in the data-file computes total harmonic distortion based on a Fourier decomposition of AC waveforms, in order to chart the resultant waveform, after adding harmonics up to the 20th order.

Finally, another backup tab features our notes from technical papers and case studies into avoiding harmonics.

Solar and wind: what decarbonization costs?

The costs of decarbonizing by ramping up solar and wind depend on the context. But our best estimate is that solar and wind can reach 40% of the global grid for a $60/ton average CO2 abatement cost. This is a relatively low cost. Yet it still raises retail electricity prices from 10c/kWh to 12c/kWh. This 7-page note explores numbers and implications.

Wind and solar: curtailments over time?

Wind and solar curtailments

Wind and solar curtailments average 5% across different grids that we have evaluated in this data-file, and have generally been rising over time, especially in the last half-decade. The key reason is grid bottlenecks. Grid expansions are crucial for wind and solar to continue expanding.

Curtailments occur when wind and solar are capable of generating electricity, but operators cannot dispatch that electricity into the grid.

This data-file tabulates curtailment rates in California, Australia, the UK, Germany, Spain, Chile and Ireland, averaging c5% in 2022.

The main reason for curtailment is bottlenecks in the grid — i.e., moving renewables from points of generation, to points of unmet demand — rather than renewables having saturated total grid demand.

In a recent research report into the ultimate share of renewables in power grids, we calculated that based on their statistical distributions, solar would only start meeting 100% of a grid’s total demand around 1% of the time when solar was providing c30% of the total grid, while wind would only start meeting 100% of a grid’s total demand around 1% of the time when wind was providing 40% of the total grid (see below). We are not at these levels yet, in the countries in this sample.

The bottleneck is power grids. You might have a 100MW grid, composed of 10 x 10MW inter-connected nodes, and the issue causing curtailment is trying to flow 20MW through a 10MW node.

This confirms that meeting the theoretical potential of renewables (per the note above) requires vast grid expansion, and indeed, countries that have seen YoY reductions in curtailment rates have often achieved this by building new interconnectors.

Second, it gives a new lens on energy storage. Battery deployments can absorb low-cost renewables and prevent curtailment, by circumventing grid bottlenecks, especially for renewables developers who fear bottlenecks in the grid will be persistent.

Copyright: Thunder Said Energy, 2019-2024.