In this issue:

  • Renewables are nothing without their grid
  • Supply chain stresses and strains
  • A booming market for power cables – and an opportunity for investors

There’s a truism in the power industry that’s long been universal: everything that requires electricity also requires cables.

Power lines and high voltage cables are the cornerstones of electrification, after all.

As well as more clean energy, Britain and the wider world need miles and miles of extra cable to carry it (something my colleague Nick Hubble has pointed out in this newsletter).

Of course, without building the links needed to transport electricity from where it is generated to where it is needed, there will simply be no energy transition at all.

Electricity demand in the UK is forecast to more than double by 2040 as heat pumps and electric vehicles eat into current market dominance of gas-fired boilers and internal combustion engines, while heavy industry must also switch away from fossil fuels in favour of clean power.

In response to the needs of a more electrified economy, the government aims to increase the UK’s offshore wind power capacity to 50 GW by 2030, alongside anticipated growth in solar farms and battery facilities nationwide.

But according to Keith Anderson, boss of UK utility Scottish Power, for every pound spent on clean energy projects, another pound must be spent on upgrading the power grids. As he says, there’s no point investing in renewables without investing in the grid.

“It’s like buying a new iPhone and not having a cable to go with it,” says Anderson.

This requires vast amounts of new cabling spread out over equally vast distances, as developers try to best harness the wind and sun.

Indeed, analysis of Britain’s existing power grids and the country’s predicted electricity demand reveals that, within the next 17 years, more than 600,000 kilometres of electric lines will need to be either added or upgraded across the UK.

According to the data, engineers need to roll out more than 100 kilometres of electric cabling every day until 2040 if the government hopes to power the country towards its climate goals – in the UK alone.

Globally, nearly 50 million miles of overhead or underground power cables are in use, comprising both high-voltage transmission and lower-voltage distribution networks.

But the International Energy Agency (IEA) estimates that, by 2040, more than 30 million miles of new lines need to be built and more than 18 million miles of existing lines need to be replaced and modernised.

That’s equivalent to power cables long enough to reach from the Earth to the Moon 200 times over needing to be built over the next 17 years alone.

Supply chain stresses and strains

But the energy transition, just like all technological innovations, is only as strong as its weakest link.

Unfortunately, it’s looking increasingly doubtful that manufacturing capacity will align with the rapid pace at which new projects need to be built.

Evidence now points to a severe shortage of cabling that could entirely threaten the clean energy transition entirely.

Already, demand for interconnectors and other associated electrical infrastructure is putting unprecedented strain on supply chains for the cables needed for connection to the grid.

Undersea high voltage lines that connect offshore wind farms now face order backlogs of two to five years, with demand for such cables sent to set to ramp up significantly over the next ten years.

Up to now, offshore wind farms have mainly been placed in the close, easy locations, so connections are now having to go further out to sea than ever.

High-voltage cables look set to be in short supply for years or even decades, Britain’s first electricity networks commissioner, Nick Winser, warned in a landmark report last year. Already producers were struggling to meet demand.

National Grid, which owns and runs Britain’s transmission system and is developing new cables to the continent, says it is “operating in a constrained market” driven by “a limited number of suppliers globally”.

Just last year, the completion date of the £2.4 billion NeuConnect cable between the UK and Germany was put back four years to 2028, largely due to the difficulties in obtaining high voltage direct current (HVDC) cables.

Meanwhile, a link between Denmark and Britain has been delayed by problems including “unforeseeable cable market congestion”, while a cable linking France and Spain across the Bay of Biscay is also running one year behind.

But this is not just a UK issue.

Demand for high-voltage cabling is particularly acute in Europe, where Spain and Italy each have 150 GW of solar and wind projects waiting for a connection to the grid.

Meanwhile, grid operators in the US are also facing difficulties getting equipment, with the US Department of Energy flagging a “shortage of transformers and other grid components” in 2022.

Of course, where there are bottlenecks there is also opportunity.

A booming market for power cables

Put this all together and this is a market playing out in favour of the large industry incumbents.

Supplies of electricity cables are concentrated among relatively few companies in a market where there are high barriers to entry given the technical expertise and equipment required to make and install the cables.

These companies are now investing heavily to meet demand.

Indeed, investment in power networks needs to more than double to $600 billion a year by 2030 alone, according to the IEA.

The market for high-voltage cables, in particular, is booming, climbing from a typical $3 billion of new projects awarded per year between 2015 to 2020 to $11 billion in 2022.

This year, the estimated value of new orders is likely to exceed $20 billion before settling at between $18 billion to $20 billion per year, according to market insiders.

According to an industry study, the electricity interconnector market alone is expected to grow by over 14% per year over the next eight years, driven by the “electrification of everything” that is now underway. This is a really massive figure, given the traditionally low single-digit growth for businesses in the sector.

In short, we are now entering the third electrical infrastructure revolution after previous growth spurts at the turn of the 20th century and after the Second World War.

If it needs spelling out, a huge bounty is now up for grabs – and investors should position themselves accordingly.

And if you’re looking for a position to take right now in the energy space, then my colleague Sam Volkering has just the thing here.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom