Imagine a $500m project could save $130m per year, cut carbon and raise living standards. That is actually happening right now and we need the tools to do more of it.
From the water wheel to nuclear power, energy infrastructure has reshaped the world again and again over the centuries. So with global infrastructure leaders coming together this week at the Global Infrastructure Conference, one big question will be how energy infrastructure can reshape the world again.
Legacy is about more than old buildings
Be it decarbonisation or international development, how and where we generate energy is crucial. There is a real challenge, however, in dealing with our legacies. The industrial revolution – which created the modern world – was fuelled by coal and has left us deeply attached to burning fossil fuels.
This legacy is about more than old buildings that we cannot yet switch off without severely crippling modern life. China began its rise as a global industrial power as late as the 1950s but has more than 1,000 coal fired power plants. It is also still building more than 100,000 Megawatts of coal-fired power plants and it is not alone. Japan, India and Poland are all among the countries still building large coal-fired capacity.
This is happening because coal is still seen as an inexpensive and reliable option – very much in line with the default created in the 1800s. So while replacing fossil-fuel capacity matters, so does changing the way we think about infrastructure.
Making energy infrastructure truly sustainable
Fortunately, attitudes and imperatives are being changed by new infrastructure.
Renewable energy – and particularly wind and solar energy – still felt marginal as recently as the 1990s. That has changed as visibility has grown, results have been proven, technology has improved, and costs have fallen.
This is a progression seen most clearly in offshore wind. Early offshore windfarms were small and often had a “real-life” output of only 20% of their “nameplate” generating capacity. Modern facilities, however, have capacity several times that of a nuclear power station and “real-life” output has risen to around 50% in the best-performing successors.
Such advances have seen the price of renewable energy output fall dramatically. The International Renewable Energy Agency (IRENA), reported in 2019 that 56% of new renewable energy plants around the world produced cheaper electricity than coal fired power stations. They have also proven more resilient during Covid than many other power sources that dipped in production during 2020.
This reflects the dramatic fall in output price. The cost of energy produced by concentrated solar installations fell by around 50% in the last ten years, while wind power costs fell by around a third, making them something of a new backbone to energy supply in many countries. The cost of new installation has also fallen, with IRENA suggesting that solar module costs have fallen by 90% since 2009, while wind turbines fell in cost by 55%.
This raises a new challenge, however. With prices falling, how do we plan and pay for far more of this infrastructure?
Planning strategic infrastructure
The falling price and increasing visibility of sustainable infrastructure has changed mindsets. In countries with established renewable capacity, it is increasingly seen as the default option for new capacity. In countries with less developed capacity, it is seen as a future that needs to be caught up to. That second aspect has even seen renewables investment overtake oil or gas in the notoriously oil-and-gas-focused Middle East and North Africa.
Building any infrastructure can lead to local upset, however, both because of the disruption involved during development, and the lasting impact on views or living standards. Just as importantly, every investor needs to justify that any spend is as effective and efficient as possible. There are also questions to be answered about what happens when infrastructure reaches the end of its life and how it can be designed and built ever-more sustainably in the first place.
This is where rational problem-solving plays its part.
In the UK, windfarms appeared unpopular due to the impact on local views and a cultural love of open countryside. The solution to this was found offshore and the country has become by far and away the global leader in offshore wind capacity. It is also now leading the way in foundation-free offshore windfarms, potentially improving sustainability and lifespans further.
In the Middle East, meanwhile, the focus is naturally much more about solar power, and again, large empty expanses of dessert rather than the homes of their relatively lower-income populations, have become a rational part of decision-making for meeting fast-growing energy needs.
This rational problem-solving is part-and-parcel of all infrastructure sectors but in both cases additional infrastructure is then needed to connect remote energy to homes and workplaces.
Connecting strategic infrastructure
Transmission is the Cinderella of energy infrastructure. It isn’t talked about as much as generating capacity unless something goes badly wrong. But it also offers great opportunities to drive up sustainability.
Take Angola. The north of Angola has an energy surplus thanks to its huge hydropower capacity. The south of Angola, meanwhile, is highly dependent on small diesel generators fuelling small communities not yet connected to reliable electricity supplies.
To solve this, the African Development Bank has committed half a billion dollars to building a 343km transmission line from north to south. In doing so, it will reduce diesel consumption by 26.8bn litres per year and thus cut 80 megatons of CO2 emissions annually. Perhaps most crucially, this will also save the Angolan government $130m annually in diesel subsidies that are presently desperately needed by some of the poorest people in the world.
Such “no-brainer” investments may seem rare, but in many regards they may not be.
Paying for strategic infrastructure
Historically, infrastructure tended to be paid for by the state because the scale is so large and the returns were impossible to price, that only the state could invest. That has changed and in energy especially, companies and consumers can be charged for what they use while the world has developed effective carbon pricing to create a market return for investing in cutting carbon.
In this regard we have seen a rise in new finance options for infrastructure. Along with conventional funding mechanisms, the growth of public-private-partnerships around the world have helped to secure important projects. The further rise of sustainability-focused finance products like green bonds is also providing the infrastructure sector with new options for paying for projects.
The missing piece of the puzzle may simply be information. Growing mechanisms for assessing impact are still needed so that we can be sure green investments really are green, and so that the right projects are prioritised for investment.
This is the thinking behind the Asian Development Bank launching a transport outlook data service to help investors and governments understand where the greatest impact can be had. Seeing something similar emerge in the energy sector seems like the next vital step towards delivering a truly sustainable world.
The Global Infrastructure Conference brings together global infrastructure leaders each year to discuss the world’s biggest challenges and how they might be addressed. Taking place on Friday 10th and Monday 13th of September, IG will be there to report on all the news that emerges.