Power system digitalisation is crucial for clean energy transitions and security in developing markets, but investment is lagging

Unlocking Smart Grid Opportunities In Emerging Markets And Developing Economies

Report by the IEA 3DEN initiative details the high cost of delaying investments and lays out targeted actions to stimulate grid digitalisation

Digital technologies can greatly improve the functioning of power grids to help successfully integrate clean energy sources, but a lack of investment in these networks could slow down the energy transition and increase costs, particularly in emerging and developing economies.

According to a new report by the International Energy Agency, digital technologies could save USD 1.8 trillion of grid investment globally through to 2050 by extending the lifetime of grids, while also helping to integrate renewables and minimise supply interruptions. However, failing to upgrade and digtialise network infrastructure properly could cut economic output in emerging and developing countries by almost USD 1.3 trillion as reduced productivity, lost sales and wasteful outlays on backup generation push up costs and put net zero targets at risk.

Unlocking smart grid opportunities in Emerging Markets and Developing Economies is the first flagship report of the Digital Demand-Driven Electricity Networks Initiative (3DEN). It will be presented at 14:00 CET on 6 June 2023 at a special event, Powering the Future: Leveraging digitalisation for efficiency, resilience and decarbonisation, and livestreamed on the IEA website. The session is part of the IEA 8th Annual Global Conference on Energy Efficiency, which runs from June 6-8 in Versailles, co-hosted by IEA Executive Director Fatih Birol and French Minister of the Energy Transition Agnès Pannier-Runacher.

Electricity is the fastest-growing source of final energy demand, and will continue to outpace growth in total energy consumption over the next 25 years. The IEA estimates that electricity demand in emerging and developing economies (excluding China) will grow by around an additional 2 500 TWh by 2030, roughly equivalent to five times the current demand of Germany.

Expanded electrification and greater reliance on variable solar and wind power, as well as electricity storage, requires more sophisticated approaches to match demand and generation, especially during peaks. Chronic underinvestment has left many electricity grids unable to cope with such challenges. Electricity supply interruptions can also affect critical infrastructure, water and food supplies, access to medical assistance, telecommunications, and mobility, with serious repercussions for human health and well-being. Moreover, the inefficiency resulting from technical losses in grids account for around 1 gigaton of CO2 emissions annually, which is equivalent to twice the emissions of all the cars in Europe.

Digitalisation is a key enabler to overcome some of the obstacles facing electricity networks, operators and utilities today. Digital solutions enable utilities to better predict demand and supply imbalances, and to locate and fix faults more quickly. But current global investment in grids is far short of what is required for net zero emissions by mid-century. Annual investment will need to more than double to around USD 750 billion by 2030, from around USD 320 billion today.

“Power grids are among the unsung heroes of the energy transition, but they need massive investment’’ said Dr Birol. “While much attention goes to solar panels and electric vehicles, it is grids that connect everything together. By digitalising our grids, our power systems become more reliable and secure, and our utilities can better manage the balance of electricity supply and demand. The longer we wait to upgrade and digitalise our grids, the more expensive it will get.’’

3DEN is a cross-agency initiative of the IEA accelerate progress on power system modernisation, backed by Italy’s Ministry of Environment and Energy Security.

"Digitalisation offers tremendous opportunities to enable more sustainable, reliable, efficient, and affordable power systems, and contributes to achieving climate goals. Targeted actions and strategic investments are required starting now. The scale of this transformation is massive, and strong international cooperation and knowledge sharing is key,” Gilberto Pichetto Fratin, Italian Minister of Environment and Energy Security. “We are delighted to collaborate with the International Energy Agency and UNEP, in the 3DEN project, to accelerate clean energy transitions globally, particularly in emerging economies and developing countries.”

In conjunction with the 3DEN project, the Italian Ministry of Environment and Energy Security has launched a pilot smart grid pilot programme, managed by the United Nations Environment Programme (UNEP). Projects are currently being implemented in Brazil, Colombia, India, and Morocco. The achievements and lessons learned from these projects are being used to inform IEA analysis and policy guidance.

Today’s publication is the first of a series of IEA 2023 reports on grids and digitalisation that will form a growing portfolio of insights and policy guidance. It will be followed by further analysis examining the shifts in electricity landscapes needed for net zero objectives and the policy actions needed to address these changes, while maintaining security, affordability, and sustainability.