Investing in grids to accelerate the energy transition

When The Economist ran a cover illustration of a young woman hugging a power pylon last April, it was not the first major media outlet to draw attention to the issue, but it got its point across like no other. The headline read, “Hug pylons, not trees.” After years of focusing on increasing the production of CO2-neutral energy, political and economic decision makers have now also turned their attention to another issue that is crucial to achieving the goal of zero emissions by 2050: the need to modernize and expand the transmission grids. 

“Power generation can be thought of as the heart of the energy system – and a reliable and efficient transmission and distribution grid as the arteries and veins,” says Tim Holt, Executive Board Member and Executive Vice President Grid Technologies at Siemens Energy. “And as countries around the world transition to renewable energy sources and aim to triple global renewable power capacity by 2030, the need for resilient grid technologies – for strong, unclogged blood vessels, so to speak – has never been greater,” he adds.

In some regions, grids have become a bottleneck for the energy transition - the infrastructure is lagging far behind the construction of renewable energy projects. By the end of last year, Spain and Italy, for example, each had more than 150 gigawatts of wind and solar capacity awaiting a grid connection, Bloomberg New Energy Finance data shows.

This is why Siemens Energy is investing in their global grid manufacturing capacity to meet demand. The company also plans to hire, not only workers on the factory floors are needed, but also project managers, design and commissioning engineers, financial professionals, legal experts, and HR professionals.

“We are betting on the availability of talent in order to build a sustainable energy future,” affirms Agustin Tenorio Bilbao, who is in charge of the growth program for Grid Technologies at Siemens Energy. He points to the endless possibilities for development in every part of the energy chain as something that differentiates Siemens Energy from its competitors. “We're present in over 90 countries. We are dealing with most technologies related to generation, transmission and process industries. These are unique perspectives that Siemens Energy can offer.”

Bloomberg New Energy Finance (BNEF) estimates that 152 million kilometers of power lines will be needed for the world to reach net-zero by 2050. That’s twice the length of today’s transmission grid. “From 2022 to 2030 the market is expected to grow by at least 10 percent per year,” adds Tenorio Bilbao. 

Tenorio Bilbao explains the factors that are driving the growth of the grid technology sector, “First, the way electricity is produced is changing. It used to be that you had a large power plant from which the transmission line carried the electricity to the end user. Now, with the rise of renewables, energy production is becoming decentralized.” 

This presents two challenges. In Germany, for example, the wind power plants are in the north, but the energy-hungry industry is in the south. This means that more high-voltage direct current (HVDC) transmission lines are needed to transport the electricity with minimal losses, compared to the widely used high-voltage alternating current (HVAC) transmission lines. There are a growing number of HVDC power interconnectors planned or under construction around the world – the EU alone wants to add 128 gigawatts of new interconnector capacity by 2040. 

“Next, wind and solar power generation, which is inherently volatile, adds a lot of complexity to the grid in terms of stability,” adds Tenorio Bilbao. And in the case of Europe and North America, a third factor is driving the sector’s growth – the need for refurbishment and replacement. “In the 1960s and 70s, there was a lot of investment in network technology that is now due for replacement,” says Tenorio Bilbao.

According to the latest data from the International Energy Agency (IEA), achieving net-zero emissions by 2050 will require a 92 percent increase in electricity generation by 2030 compared to 2020 levels. Decarbonization is driving a shift to electricity in many sectors, including transportation and heating. But there’s one relatively new sector that is increasingly hungry for electricity – data centers. 

Accounting for between one and two percent of global electricity demand today, data center energy consumption could double by 2026, from 460 TWh in 2022 to more than 1,000 TWh in 2026, according to the IEA. When asked in March 2024 about the biggest challenges facing artificial intelligence (AI), Elon Musk replied that it was no longer a shortage of chips, but the risk of running out of transformers and electricity.

The Siemens Energy investment reflects these market needs and includes a factory expansion for converter electronics in Nuremberg, Germany. Another investment in Germany is the new Vacuum Interrupters​ (VI) factory in Berlin, where climate-friendly switchgear products​ are being manufactured. Other expansions of manufacturing facilities are taking place in Austria, Croatia, Italy and India.

One of the most exciting projects is the construction of a large power transformer (LPT) production and refurbishment facility in Charlotte, North Carolina, USA, announced in February of this year, which will create up to 559 direct operating jobs and 285 construction jobs. At full capacity, the plant will produce 57 LPTs per year. Currently, more than 80 percent of these critical components are imported, with lead times of up to five years. Meanwhile, the demand is growing – the U.S. energy transition is in full swing, with $2 trillion in investments pledged to expand and modernize the U.S. grid by 2050.

In its latest report, released in January, the U.S. Energy Information Administration (EIA) predicts that solar energy will grow by 75 percent between 2023 and 2025, while wind energy is expected to grow by 11 percent. The Rocky Mountain Institute predicted in 2023 that wind and solar projects will generate at least 33% of global electricity by 2030, up from around 12% today. New transformers will be needed to distribute the electricity from the growing number of renewable generation facilities and to balance the power load when production from wind turbines and solar panels is affected by weather conditions.

Another investment is the expansion of Siemens Energy’s transformer factory in Kalwa, India. “We’re not only doubling the capacity of the factory, but we’re also creating a brand-new engineering hub that will allow commissioning engineers, design engineers, and project managers, as well as legal, financial, and human resources experts to work on the world’s most challenging projects,” states Agustin Tenorio Bilbao of Siemens Energy. “It’s not an engineering hub to serve India, it’s an engineering hub to serve the world.”