28-11-2023 12:32

Electricity grids: The backbone and bottleneck for the green transition

The green transition will not happen without a radical overhaul of the electricity grid. This urgent need opens up significant opportunities for companies and investors exposed to the theme, particularly in the Nordics. That’s according to a new in-depth report from Nordea’s ESG Research team.
High voltage towers in the dusk of the evening

Two pillars of the transition to a net-zero society – electrification and the shift to renewable energy – both rely on a transformation that’s often overlooked: reforming the electricity grid. 

“The grid is the backbone of the transition but also its main bottleneck,” says Marco Kisic, Head of ESG Research at Nordea and co-author of a new report, “Power to the grid.”

Today, electricity represents just 20% of the energy consumed in the world. If we are to limit global warming to 1.5°C in line with the Paris Agreement, the share of energy provided in the form of electricity will increase to 28% in 2030 and 53% in 2050. This big wave of electrification, spurred by new technologies such as electric vehicles and heat pumps, will increase demand for electricity from the grid.

In addition, with the shift away from fossil fuels, much more of that electricity will need to come from renewable energy sources, such as wind and solar. Over the next 30 years, renewable energy will need to fuel around 40% of global energy consumption for a net-zero scenario, up from 2% today.

Global energy demand split by source in the IEA 1.5°C scenario (EJ), 2022-50

Source: IEA and Nordea

Electricity split: Variable renewable energy to grow 16 times by 2050 vs. 2022 in a net-zero scenario

Source: IEA and Nordea

These changes mean a fundamental shift in the way the grid works, moving from a system of centralised, dispatchable electricity to one where power generation is highly fragmented and subject to weather variability.

The grid of the future: larger, interconnected and flexible

Electricity grids must be in constant balance, with supply matching demand at any point in time. Traditionally, coal and nuclear plants provide the baseload power for the grid, supplemented by more agile plants that fire up when demand surges. However, renewable energy sources, such as wind and solar, can’t be fired up on demand. They’re also dependent on the weather.

For example, on a windy summer day, Germany can produce around 70% of its power from wind and solar, and close to zero on a still winter day. On the other hand, on a windy summer day, renewable sources can also produce more power than the grid infrastructure can handle, leading to “curtailment,” or deliberate limiting of power generation to avoid overloading the system. 

In the new global energy economy, the grid will need to be able to balance periods with no renewable generation to periods with excessive generation. In addition, while the flows today go in one direction – from producers to consumers, future flows will be bidirectional. Energy from residential solar panels, for example, flows back to the grid.

“The only way to make this work is with an unprecedented upgrade of the electrical grid,” says Kisic. “The grid of the future will need to be larger, more interconnected and more flexible.” 

He points to interconnectors, energy storage, smart grids and demand management as some of the ways to keep the grid balanced, even in the face of dynamic conditions. 


The grid of the future will need to be larger, more interconnected and more flexible.

Marco Kisic, Head of ESG Research, Nordea

A call for action

In October, the International Energy Agency released a special report, finding that electricity grids are not keeping pace with the new global energy economy that’s emerging. The agency emphasised the need for urgent upgrades, both to physical infrastructure and the way grids are planned and managed. 

Investment needs to grow dramatically. While global investment in the grid has been flat for the past 10 years, at around USD 300bn each year, that will need to increase to around USD 700bn by 2030 in a 1.5°C scenario, according to the IEA. The European Union is taking notice. It is soon expected to release an EU Grid Action Plan, which could help spur investment. 

Global spend on grid (USDbn), historical and future

Source: IEA, BNEF and Nordea

Swedish, Norwegian and Finnish TSO grid investments - actual (2018-22) and planned (2023-30) (EURm)

Source: Svenska Kraftnät, Statnett, Fingrid

Nordic companies are among those best positioned to capitalise on the grid’s overhaul. Nordic transmission system operators (TSOs) stand out for having some of the most ambitious investment plans, with planned investments for 2024-30 at around 2.2 times the 2022 level. Electrification is moving rapidly in the Nordics and Northern Europe in general. The Nordics are also in a sweet spot when it comes to renewable power generation and could play an important role as an exporter to the continent, provided the grid can keep pace.

Four key growth areas

Nordea’s ESG Research team identifies four key growth areas at the core of the grid transformation:

  1. Higher interconnections: Cross-border and intraborder interconnectivity will play a crucial role in ensuring stability and balancing electricity supply and demand. This area covers cables, interconnectors, equipment and infrastructure.
  2. Digitalisation: Digital solutions will be needed to monitor, control and optimise the energy flow from the growing number of renewable assets.
  3. Energy storage: Storage solutions, such as battery systems and hydrogen, will play an important role in keeping the grid balanced.
  4. Demand management: This area covers strategies used to control demand by encouraging consumers to modify their patterns of energy consumption.