How Our Electric Grids are Blocking a Climate Revolution

The biggest and dirtiest secret of the energy market is that most of it is lost in generating, transmitting, distributing, and using it. Solving this problem would be revolutionary, reducing competition for resources that contributes to conflict as well as climate change.

Energy is one of the most valuable businesses in the world, worth trillions of dollars a year. It is the centerpiece of most discussions about climate change because it is associated with around 80% of human made greenhouse gas emissions. As nations compete for it, energy has also been a fuel for geopolitical conflict, and today, competition for resources lurks beneath the Russia-Ukraine war and even the Israel-Hamas crisis.

Before the war, Ukraine was the conduit through which Russia supplied Europe with 40% of its gas. After the war started, this stopped. Russia invaded Ukraine within 48 hours of the mothballing of the Nord Stream 2 pipeline that it had built, bypassing Ukraine to supply Europe. Russia has since occupied approximately 20% of Ukraine’s territory, including regions most richly endowed with natural resources like gas, coal, iron ore, and lithium.

When the Russian gas taps were turned off, Europe turned to other markets such as the U.S. and the Middle East, including Israel. Competition over Israel’s natural gas reserves did not cause, but lurks beneath, the current conflict. Israel recently entered the global natural gas export market. In 2022, after Russia’s invasion of Ukraine, Israel signed a MOU with Egypt and the European Union with a view to exporting natural gas from its Tamar gas-field, the closest of three offshore gas projects to Gaza. Although its planned EastMed pipeline to Europe never made it past negotiations with Turkey and lost support from the U.S., exports to Egypt were now to be liquified and sent to Europe to meet its needs to diversify from Russia. This offered a massive cash windfall for Israel. Hamas, Hezbollah, and Iran, however, looked on with a dim view. Exports from Tamar were halted two days after Hamas’s terrorist attack on Israel on October 7th, amidst security concerns. They recently restarted. Production at Israel’s other major gas-field, Leviathon, may yet be affected. Another gas field, Karish, is in territory that as recently as 2022 had been disputed by Lebanon and over which Hezbollah had threatened to “act”.

Past conflicts over natural gas and energy security concerns offer lessons. In 2014, when Russia annexed Crimea, the European Commission noted that every unit of natural gas saved was 2.6 units that E.U. member states need not buy from Russia. By 2022, it didn’t have a choice. It expressed its policy as “energy efficiency first” and mandated gas and electricity reductions at the same time as making billions in market incentives available.

Such are the realities at our current stage of the energy transition. Fossil fuels still represent around 80% of the energy economy. Substantially all transport depends on oil, and therefore so do the necessities on which society depends, such as food. Natural gas is key, particularly for industry, heat and power, and renewable energy will take decades, huge investment, and immense volumes of resources to displace it with low carbon and minimally polluting energy generation.

After $6 trillion invested globally in the clean energy over the last 20 years and another $3 trillion on the grid, we are far from electrifying everything. Indeed, only some 20% of energy is electricity. For electrification to be a solution for either decarbonization or energy security, it will need to scale up by orders of magnitude. First, electricity will need to be green, which would require at least a 3 to 4 times increase in renewable energy capacity. Then electricity will need to displace the other 80% of energy supply, which would require at least another 4 to 5 times increase from a higher base as well as substantial innovation in technology.

The received wisdom is that we need more energy and a better grid to transmit electricity and renewables coming into the system. However, according to the International Energy Agency (IEA), grids are the “weak link” for the energy transition. Already, projects equivalent to 5 times the volume of all wind and solar capacity added in 2022 are stuck in the queue for grid connections. Even if this current gridlock is addressed, the IEA projects the need to add or refurbish 80 million kilometers of grids by 2040, the equivalent of the entire existing global grid – or enough power lines to wrap around the earth approximately 2,000 times.

If tomorrow’s energy system relies on today’s electricity grid, then the clean energy revolution will not, as they say, be televised. Upgrading the grid is an incremental solution but fails on its own to address the core problem – that most energy is wasted in the losses associated with extracting and converting (10%), generating (50%), and transporting and distributing (10%). A large proportion of these losses take the form of waste heat, often because energy is generated far from the point of use, using technologies (using conventional fuels like gas and even ‘low carbon’ fuels like nuclear) that generate as much heat as electricity, but that can’t or don’t use it. Many of these losses can be solved cost effectively by decentralizing energy generation, bringing it close to the point of use so that the heat can be used, and to limit or eliminate transmission and distribution losses. This would achieve a step change in the efficiency of supply.

Yet more energy is wasted at the point of use. 70% of energy is used in buildings, industry, and transport. Buildings can waste a third of the energy they use just because of the wrong mechanical and electrical infrastructure, like lighting, air conditioning, and controls. This problem can be solved by upgrading the equipment and the savings generated cover the costs. Industry is less electrified than commercial or residential buildings but can make step changes in the way that it consumes heat by recovering it, storing it, and recycling it. Transport remains substantially a job for oil, despite modest electrification to date, and the “well to wheel” losses can be 75% plus. Electrification and lower carbon transport fuels increasingly represent cost effective solutions.

We need a revolution in efficiency. Simply investing more, whether it be renewable energy, or transmission grids, will not achieve the green energy revolution, especially when they are plugged into an inefficient system. At the same time, we need to do more with less. Energy efficiency is the largest, fastest, and cheapest source of greenhouse gas emission reductions, costs reductions, productivity gains, resilience, and energy security.

If we are more efficient, then we may only need a fraction of the energy we are using and competing for, and the challenges of achieving the green energy revolution cost effectively, as well as security of supply, may not be insurmountable after all.