By Gerard Wynn
LONDON May 2 The electricity transmission
sector has escaped the kinds of competitive pressures stalking
energy supply technologies, offering investors less risky, solid
growth, but they require massive expansion and upgrade projects
that often face delays.
Cut-throat Chinese competition has crushed margins in
renewable energy manufacturing, creating a cycle of falling
subsidies and rising overcapacity for wind turbines and solar
panels, which has led to layoffs and bankruptcies.
Meanwhile, cheap shale gas has undercut the economics of
renewable rivals in the United States, and nuclear power
throughout the developed world faces a continuing Fukushima
The electricity transmission sector faces less pressure -
the case for power distribution is unavoidable regardless of the
energy supply technology. There is clear demand to upgrade,
expand and replace ageing infrastructure, coupled with
high-value assets and less Asian competition.
In the International Energy Agency's central policy
scenario, over two-fifths of global investment in the power
sector will go to transmission and distribution through 2035.
While shares in solar and wind manufacturing leaders Vestas
and First Solar have dived nearly 95 percent
from mid-2008 highs, grid operators have fared better. Britain's
National Grid is up 6 percent since mid-2008.
Caution is needed, however, as shown by recent woes at
Siemens' power transmission unit following German
project delays it blamed on the regulatory approval process.
Britain, the Netherlands, Germany and China have all failed
to roll out grids in line with growing output of wind power, but
these are only delays to projects that will ultimately be
For example, Britain's grid operator at times has had to pay
wind farms in Scotland to switch off as a result of inadequate
transmission capacity to cities in England.
But parliamentarians have piled on pressure to resolve the
congestion: "It is utterly unacceptable that large costs are
incurred ... because the system cannot deliver electricity to
where it is needed," they said in a report last September.
"The UK electricity transmission system needs to be updated.
It is no longer good enough to patch up the old system."
British energy watchdog Ofgem estimates that the UK needs 32
billion pounds ($51.9 billion) of investment in transmission
assets by 2020.
In Germany, Dutch grid operator TenneT has
struggled to raise capital to develop grids to connect to
burgeoning offshore wind farms, leading to fears for the
country's renewable energy targets.
The delays stem both from liability rules for broken power
lines, where grid operators are nervous about having to
compensate wind farms, and the cost of converting to DC power.
In the case of offshore wind, remoteness from demand sources
makes direct current (DC) transmission more cost-effective than
AC, but it's still less proven in integrated grids.
The government may enlist the help of development bank KfW,
while TenneT says it plans to invest 14 billion euros ($18.5
billion) over the next 10 years in Germany and the Netherlands.
In another similar approach, the EU's Project Bond
Initiative is investigating how to cut investment risk in energy
transmission projects, to drive capital market finance involving
the European Investment Bank.
In China, central authorities have added new scrutiny over
the pace of wind project permissioning to ensure that the grid
keeps up in Inner Mongolia.
Some expansion simply comprises laying cables to connect new
sources of supply, including fossil fuels and renewable energy.
Illustrating the size of individual deals, German utility
E.ON last week awarded a 736 million pound ($1.2
billion) cable installation contract to UK construction firm
Balfour Beatty to connect its Humber Gateway offshore
wind farm to the electricity grid.
On a bigger scale, construction could expand into vast
supergrids such as linking wind power production across
northwest Europe from Ireland to Norway or the proposed Desertec
imitative connecting solar power in North Africa to mainland
But such initiatives are decades from completion, if at all,
and are tied to countries' strategies and ambitions for
deploying expensive offshore wind and solar power.
The advantages of a supergrid would be to ease congestion
and smooth supply, thus saving on backup generation. The
challenge is cost: the European Commission calculated the cost
of an offshore supergrid linking the North and Baltic seas at 90
Operators in Denmark and Britain on Monday said they would
review a possible link to handle offshore wind, in a potential
bilateral deal more achievable in the near term than grander
At the higher technology end, a more modern grid enables
more generation of low-carbon, intermittent and decentralised
power. Upgrading grids creates various investment opportunities.
To protect grids from swings in voltage, developers must
install voltage control systems ("reactive compensation") of the
kind UK-based EDF Energy Renewables contracted on Monday from
S&C Electric Company for a UK wind farm.
Such automated protection is also required against faults,
because more local generation in a distributed network creates
higher currents at the lower voltage end of the network.
That requires fast detection techniques to operate alongside
circuit breakers - technology development being funded by
Britain's Energy Technologies Institute, for example.
Another feature of a decentralised grid is that electricity
must flow in many directions rather than, as traditionally, from
a central power plant to a city or factory. That requires
automated switching devices to divert electricity in one
direction or another.
The more intelligent grid entails such automated
self-monitoring of a network, independent of a central back