A Case For Green Financing For More Transmission Infrastructure

In a provocative blog on the importance of the transmission sector and its role in the energy transition, two world bank staffers make the case for expanding the definition of green projects when it comes to transmission projects, to ensure faster adaption of these vital infrastructure to handle green energy projects.

The article comes at a time when the state of the transmission infrastructure has been blamed for not just slowing down renewable growth in regions as widespread as the US, Australia, and now, even China and India, but old, dilapidated infrastructure has also copped blame, especially in the US, for igniting forest fires due to poor maintainance.

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The authors argue that the transmission sector, somewhat like water supply, is built on a century old structure, using established technologies. With a share of 10% of the overall cost of energy supply, it has a disproportionate impact on the adoption and supply of renewable energy today, across the world.  Thus, at a time when there is talk of trans national transmission lines and links straddling continents, there is actually a case to allow faster investment flows into the sector to ensure such plans actually deliver.

The authors quote a US Department of Energy, report to cite how over 930 gigawatts (GW) of solar, wind, hydropower, geothermal, and nuclear capacity are currently waiting in interconnection queues for transmission access, along with over 420 GW of energy storage.

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Stressing that a significant part of the renewable assets build up, due to its very nature and requirements, involves building large-scale solar or wind facilities in remote areas away from the main grid, the transmission question can and does become a serious issue increasingly. With the headline focus on renewable capacity creation, generation, storage, and now hydrogen, it is time the transmission structure was also placed in the same spotlight.

Citing the current taxonomy, by the EU, which only considers transmission and network to be green if stringent criteria are met, such as having CO2 emissions intensity below a certain level the authors make the case to include “essential upgrades to the existing network, expansions to create parallel paths that ensure reliability, and smart grids that ensure security of the grid. Additionally, the timeframe allowed for planning is too short to see the long-term benefits of transmission lines, which have a lifespan of at least twice as long. Therefore, it is necessary to address these flaws in the methodology to prioritize transmission planning and achieve decarbonization goals.”

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In their working paper, they propose a methodology that combines elements of generation and transmission planning and provided motivating illustrative examples that may help to appreciate a broader definition of green transmission. By allowing transmission finance the same benefits as green finance, the probability of easing the shift to green energy, particularly in heavily coal powered economies like India, Indonesia, Kazakhstan, and South Africa will improve significantly, the authors argue.

The viewpoint of the writers articulates a very important issue across the world. Transmission infrastructure, which should really have been addressed along with the large shift to renewable energy a decade or more ago, is only gaining attention now when it is repeatedly turning up as the issue that matters. In India too, we have seen how many state discoms have actually resisted higher renewable power under the pretext of disruption to the transmission infra or even stability of the same. These arguments have worked far too many times with regulators to allow them more time, or delay projects.

One only has to look at the wide variation in valuations and project appraisal, when the power buyer from a renewable energy generator is a central entity like SECI or even NTPC, versus most state discoms, to understand the real financial shadow it casts on projects.

The urgency with which efforts are being made to redress the financial challenges of these discoms also indicates that the government recognises the issue. We certainly agree with the original premise here, to allow more climate finance to flow unhindered to transmission utilities too, as long as it expands and strengthens the grid to handle green energy better.