Global electricity demand is rising faster than ever due to many factors, including economic growth, urbanisation and increased electrification due to technologies such as electric vehicles. To cope with the increasing demand, the power grid capacity also needs to increase. Our estimates suggest that, under our base case temperature rise scenario (i.e. plus-2.5°C), the global power transmission network will need to double in size by 2050, with an approximate minimum cost of ~$6 tn, rising to ~$11 tn under our <2°C scenario.
The transmission network will be at the core of electrification and, therefore, decarbonisation, but the massive expansion envisaged may be difficult to achieve – not only because of the cost, but also due to the extent of the build required as well as the difficulty and time horizons for major transmission line projects to move ahead. This could, indeed, prove to be a brake on decarbonisation efforts.
The transmission network is at the heart of decarbonisation
Transmission lines are high-voltage power lines that transport electricity over long distances, from power plants to substations located near population or industrial centres, at which point the transmission network switches to the distribution network. This Insight only considers the transmission component of electricity distribution.
The size of the transmission network is measured in ‘circuit kilometres’ that are different from linear kilometres, as a kilometre length of transmission line may contain more than one circuit, depending on the types of conductors and power lines used. Given transmission line circuits have an upper capacity range dictated by economics and technical constraints, higher electricity demand will require additional circuits, which means a more extensive transmission network. Here, we estimate the length of additional circuits that will need to be built to meet increased future electricity demand and the financial implications of this.
In addition to increasing the capacity of the transmission network, we believe there is a more pressing, short-term consideration regarding flexibility of the grid (i.e. a greater ability to move power from anywhere it is generated to anywhere it is used), which is needed for the transition to renewable power that has variable outputs. However, this latter area is not a focus of this Insight.
Transmission networks are not configured for renewables
To understand the transmission line build requirement under decarbonisation, we carried out secondary research on the length of the transmission network in 38 countries between the years of 2010–2024 and, in Figure 1 below, these are compared to electricity demand in the respective countries.
Figure 1 shows there is a strong, positive correlation between transmission line length in circuit kilometres and electricity demand in a country; and we believe this can be used to understand how transmission networks will develop with electrification. There are several outliers but, in many cases, these can be explained by country characteristics such as geography and proximity of population centres to power plants.
In this latter regard, a key factor appears to be whether a country relies on hydroelectric power. For example, Canada and Brazil are outliers and sit well-below the trendline, with a larger transmission network than would otherwise be expected for their level of electricity demand. One explanation is that these countries cannot choose where hydroelectric plants are located, as this decision is dependent on natural water resources. Therefore, these powerplants are often long distances from population centres, requiring long transmission lines. As highlighted in Figure 2, hydro power accounts for ~62% and ~57% of Brazil’s and Canada’s electricity generation respectively, so this is a major factor. Brazil and Canada also have very large land areas with a low population density, as highlighted in Figure 3, meaning transmission lines must travel over much longer distances to reach population centres.
Conversely, there are outliers above the trendline, including Germany and South Africa, which have shorter transmission line lengths than would otherwise be expected for their level of electricity demand. These countries have smaller land areas and, importantly, high population densities. Therefore, transmission lines do not need to be built over long distances to reach population centres.
Further, the German network was built based on historical use of coal, gas and oil power generation. These facilities can be sited close to population centres. Therefore, transmission line requirements are lower. However, as these countries move to renewables, this may prove a disadvantage – one that is already apparent in Germany as it shifts to relatively high level of renewables and the limitations of transmission network become apparent. That is, constraint and capacity payments made by the German network operator are increasing in line with renewables’ output, and currently amount to ~€75–85 /MWh of renewables power on the grid (n.b. this relates to the flexibility of the grid and its ability to absorb variable renewables). These issues will impact the development of the grid that, ultimately, may not be optimal from either a cost or technology perspective.
Russia also lies above the trendline, with shorter transmission line lengths than would be expected for its level of power generation. This could be explained by the fact that, even though Russia has a low population density, as shown in Figure 3, its population centres are concentrated in the western part of the country, around major cities such as Moscow and St Petersburg. Therefore, the power grid is concentrated in a relatively small area of the country, so transmission lines do not need to span large distances. Gas, coal and oil also form a large proportion of the grid in Russia, therefore, generating facilities can be co-located with demand centres.
Essential expansion: Doubling the size of transmission networks
According to CRU’s Power Transition Service, our base case forecast shows global electricity demand will increase from 30,081 TWh in 2024 to 59,778 TWh in 2050 – an increase of ~99%. Under our <2°C warming scenario, CRU forecasts world electricity demand will increase to 85,009 TWh in 2050, an increase of ~183% from today.
Using the above relationship, we can estimate the size of the transmission network needed by 2050 to support such increases in electricity demand and this suggests, in our base case forecast, the global transmission network will need to expand by ~5.9 M ckm between 2024 and 2050, as shown in Figure 4.
Under our <2°C global warming scenario, the world will need and additional ~11 Mckm. Obviously, this has implications for metals’ demand such as copper, aluminium and steel which are used to build underground and overground power cables, transformers in substations and transmission towers and pylons. Improved temperature monitoring and application of AI may allow unit transmission line capacity to be increased and this could reduce the amount of infrastructure required, but we believe the impact of this will be marginal.
Increasing transmission lines will be a cost burden for countries
From secondary research, we identified a global, average cost of overhead, AC transmission lines at ~$1 M/ckm, assuming two circuits per installation. The apparent relative consistency of these costs by country suggests that major components, such as transformers and cables, are priced globally. Some cost factors, such as civil engineering requirements and pylons may have more local content and pricing, but these contribute less to total costs. Therefore, under our base case, we forecast the required investment in transmission capacity could be, as a minimum, of the order ~$6 tn globally, rising to ~$11 tn under a <2°C warming scenario. Costs would be higher if underground lines are built, either for technical, practical or local opposition reasons. As such, transmission network build requirements pose a major economic burden for countries, particularly those with high expected increases in electricity demand. As suggested previously, further costs, not assessed here, will be associated with required improved grid flexibility.
Transmission network expansion: Key to the energy transition
To cope with rapid increases in electricity demand globally, transmission networks urgently need to be expanded and upgraded. The high cost of building these power lines poses a major financial hurdle for countries that are forecast to see significant increase in electricity demand. Furthermore, transmission line projects typically have long gestation periods and – particularly in developed countries – often face opposition, especially for lower cost, overhead power lines. Thus, given investment into the transmission network is a necessary precursor of electrification-driven decarbonisation, financial and/or other obstacles may mean it becomes a limiting factor for the energy transition.
CRU’s Power Transition Service provides data on power mix, electricity demand and power costs by country and we are developing a database of power transmission networks. If the changing power market is of interest to you, contact us and we’d be happy to talk though our work.
Written by Nancy Stitt, Intern, Multi Commodity Analysis; Additional contribution from Paul Butterworth, Research Manager, Economics and Sustainability
