Future-proofing the grid: an electrifying endeavour

The energy sector is getting a jolt. Consumers, companies and regulators are all demanding increased sustainability in our economies – a trend that requires an overhaul of the way we generate, transmit and consume energy, and major investment to make all that happen.

Power distribution grids, for example, need to be adapted to cope with the more intermittent supply of energy that comes from solar and wind sources. Grids must also become more resilient to withstand the demands of increased electrification and extreme weather. And they will need to move from a centralised model built around large power plants, to a decentralised model based on intermittent, smaller-scale energy projects.

These transformations are major projects that increase demand for copper and aluminium, which are essential for use in transmission lines, transformers and grids, which connect everything together. Such an infrastructure overhaul brings challenges. Supply issues can arise given environmental concerns around the extraction of resources which have, for example, led to the closure of one of the world’s largest copper mine in Panama. Bottlenecks in the processing of raw materials – exacerbated by labour shortages – pose another constraint.

DID YOU KNOW?

Electricity demand in the US
could increase at an annual rate
of 2.8% in the coming years.

And new energy sources and technologies can be expensive, creating inflationary pressures. But with government incentives, these challenges can be overcome – or at least navigated. While the transition to a green economy cannot be completed in a year or two, the race to meet emissions targets does require up-front, large-scale investments – specifically in the electrification of economies and the adaptation of power grids.

Governments in major economies have committed to meeting the goal of net zero emissions of greenhouse gases by 2050. To reach that target, major investment is required before 2030. With the added incentive to take a lead in new green technologies, governments are doing a lot to accelerate the energy transition with programmes like The European Green Deal and the Inflation Reduction Act in the US.

These initiatives are stimulating investment and creating business opportunities right along the energy value chain, from generation to distribution and consumption.

The opportunities begin with energy generation and the companies that make equipment for producing clean power. They continue with businesses that build grids and the components they require, such as switchgears, and extend further to makers of sensors to regulate lighting when rooms are not in use, and artificial intelligence solutions for the management of the transmission and distribution grid.

Investments made by big industrial companies aim to create a more sustainable economy by allowing customers to be more efficient via automation, digitalisation and electrification. Data centres add another layer of efficiency but require a lot of electricity. 

This retooling of energy infrastructures also throws up opportunities for smaller, privately held companies. One such example is a maker of switchgears that supplies manufacturers of cooling systems for data centres.

The reshoring trend plays into the energy transformation story too with, for example, the relocation of semiconductor production requiring that newly constructed manufacturing plants are sustainable. Indeed, demand stemming from semiconductors, electric vehicles, batteries and infrastructure has created a pipeline of mega projects – those worth more than USD 1 billion – for large-scale companies that are generally public listed.

For investors, the green transition presents attractive opportunities. The speed at which the US government has rolled out support for the green transition has supported higher valuations for affected companies there. And a healthy pipeline of mega projects is keeping up robust momentum for US industrial energy companies and their suppliers. Europe is playing catch-up after a slower start to its investment drive – a trend that presents strong growth prospects for the coming few years in particular. The outlook is rosy.