The world’s energy infrastructure is failing in ways that were foreseen

The global energy infrastructure is failing, quite predictably – and expectedly –.

Why is this important: For more than a decade, policy buffs have urged world governments to take advantage of low interest rates by spending trillions of dollars to make our economies resilient to inevitable climate change. Now that window of opportunity has closed and the necessary investments are going to be much more expensive.

State of play: Governments around the world have consistently made surprisingly short-sighted decisions about their energy infrastructure.

  • Germany steadily increased its dependence on Russian gas while reducing alternative energy sources such as nuclear power – even after Russia invaded Ukraine in 2014.
  • Britain closed its last major gas storage facility in 2017, leaving it no cushion against price volatility caused by Germany’s decisions.
  • Texas built a market-based system that did not incentivize private operators to build resilience to rare events like the winter storms of 2021.
  • California network is overloaded by the type of heat wave that will only become more frequent. He was only saved from power outages by a desperate emergency text alert.
  • China invested heavily in hydroelectricity, without diversifying enough into alternative energy sources that would not literally dry up in the event of a drought.
  • India need $1.5 trillion in energy investments between 2015 and 2040, according to a report by the International Energy Agency in 2014; eight years later, it hasn’t even started that kind of expansion yet.

The big picture: As the world warms, it needs to invest heavily both in renewable energy – to reduce its reliance on fossil fuels – and also in the power grid itself, so that electricity from a disparate array of sources and regions can be moved to where it is needed.

  • By the numbers: A Princeton report estimated the costs of upgrading the U.S. transmission network alone to be $2.4 trillion by 2050. (North America currently comprises five entirely separate networks: a in the east, one in the west, and three smaller ones in Texas, Alaska, and Quebec.)
  • The global cost to achieve a net zero economy by 2050 is in the order of $5 trillion per year by 2030. Force for Good provides a full overview of the estimates as an appendix to this report.

The catch: Grid upgrades like power generation capacity always face opposition from NIMBY: No one likes high voltage power lines in their backyard or windmills spoiling their views bucolic. Politicians therefore see no advantage in pushing them, especially when the benefits will be felt in the distant future, when they no longer stand for re-election.

The bottom line: For most of the past decade, infrastructure investment capital was cheap. This is why President Obama wanted to create a national infrastructure bank, which could have prevented some of the current crises.

  • The delay in mobilizing such investments means that everything has become more expensive, both in terms of the sums to be spent and in terms of the associated financing costs.

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