Indiana is the second biggest coal-consuming state in the US. It is also among America's top 10 producers. So why has it just decided to ditch coal? The simple answer is cost.
Having mined coal since 1830s, Indiana is ditching fossil fuel in favour of solar and wind because, says its major utility, the move will save consumers billions of dollars.
Indiana is not alone. In other US states, and in countries around the world, the cost of producing renewable electricity has fallen sharply, enabling solar and wind power to dethrone fossil fuels.1
That’s encouraging news as cities and countries battle to cut planet-warming carbon emissions.
However, cheap and clean energy is of no use unless it’s delivered to where it’s needed, day and night without fail. This is where the power grid comes into play.
Power grids match the amount of electricity being generated with the load, or the amount being consumed. But today’s grid infrastructure, already under stress from extreme weather events such as hurricanes or wildfires, is ill-equipped to deal with the rush of renewables.
The intermittent nature of solar or wind means these power sources are also ill-suited for large-scale energy distribution.
This is why the world needs to develop advanced transmission infrastructure.
To investigate possible solutions, members of the Pictet-Clean Energy Advisory Board (AB) and the strategy's investment team recently visited the National Renewable Energy Laboratory (NREL) in Denver and the Electric Power Research Institute in Palo Alto, two organisations renowned for their pioneering renewables research.
There, our AB members saw for themselves advances in renewable energy technology, and were provided with fresh insights on infrastructure needs around the adoption of electric vehicles and the challenges and opportunities involved in integrating a growing fraction of renewables into the power grid.
Breaking the grid-lock
The current grid is based on a one-way system in which electricity flows from power plants to homes and businesses. It relies on alternating current (AC) for both long distance transmission and local distribution.
AC has changed little since its development in the late 19th century, when it emerged victorious from the War of the Currents to become the standard for electricity grids worldwide.
Using a transformer, AC can be easily converted to different voltages. But its major shortcoming is that it loses power in transit. For a given voltage, an AC system has roughly twice the loss of a DC system, which can transmit energy more cheaply and efficiently over very long distances.
AC’s constraints become more obvious when it comes to distributing renewable energy because solar, wind and hydroelectric power is usually generated far away from where the energy is used.
Because of this, AC grids’ renewable capacity is limited to just 15 per cent of their total power mix, our AB members estimate.
Raising the percentage could destabilise the grid and lead to regular blackouts.
This is where DC could make a difference.
power play
How UHVDC will accelerate integration of renewable energy in grid
Source: Pictet Asset Management, Tepco, CEERT
In its modern form, ultra high-voltage direct current (UHVDC), is even more powerful, capable of using voltages as high as 1,100kV, compared with conventional DC’s 1.5kV.
UHVDC can also link unconnected AC transmission systems across different areas (see chart). This means a UHVDC-based macro grid lets operators tap into different clean energy sources hundreds or thousands of miles away throughout the day, and to effectively switch between sources depending on demand and weather.
Almost a decade after becoming the first country to adopt UHVDC, China debuted the world’s longest and most-powerful UHVDC line in early 2019. The new link stretches over 2,000 miles – more than the distance between London and Moscow. It delivers 66 billion kilowatt/hour of electricity from the country’s far northwest – home to abundant solar and wind power – to the heavily populated east, meeting demand of 50 million households.
HVDC is also gaining traction elsewhere, Europe is also planning to upgrade the grid infrastructure with an ambitious aim of turning itself into a "copper plate", in which a strong pan-European transmission network will make it easier to distribute power beyond borders, from sunny or windy regions to rainy and cloudy areas.
Germany, for example, is developing a HVDC grid link to transport renewable energy from the windy north to high-consumption regions of the south.
The 800km Sudlink project should help Germany achieve its national target of generating 65 per cent of its energy needs from renewable sources by 2030, compared with the current 38 per cent.
Critics say UHVDC's high upfront costs are a significant obstacle to its adoption.
Yet the long run benefits could be huge.
According to our AB members, the infrastructure projects in Europe usually pay for themselves in three to five years thanks to efficiency savings.
The grid infrastructure projects in Europe usually pay for themselves in three to five years thanks to efficiency savings.
Wyoming's wind
Crucially, the US, the world’s biggest energy consumer, has also become a DC convert.
The USD3 billion TransWest Express Project aims to install a UHVDC transmission line to bring wind power from Wyoming 730 miles to California, which is hungry for clean energy to meet its carbon reduction targets.
NREL estimates that the line will save USD1 billion per year for Californian consumers.2
Research by the Earth System Research Laboratory found that power grids like these that make better use of abundant wind power potential could cut carbon emissions by as much as 80 per cent compared with 1990 levels.3
Investing in the world’s transition to clean energy system
Thanks to new and innovative grid technologies, renewable energy has the potential to pick up speed. This represents a bright future for investors, who should benefit from a long-term transition to a low-carbon world.
The Pictet-Clean Energy portfolio invests in companies that are playing an important role in this clean energy transition.
The high voltage DC industry presents a wealth of investment opportunities as the market is poised to grow at a compound annual rate of almost 9 per cent to reach USD16.3 billion by 2026.4
Technologies that support the HVDC system should also experience growth. Take for an instance industrial semiconductors, which are critical in running the electric grid.
Silicon chips are needed to convert power between different AC and DC voltages and in different frequencies, which helps minimise power loss and maintain the stable flow of electricity.
Demand for industrial semiconductor is expected to double between 2016 to 2022 to USD81 billion, registering 10 percent-plus growth every year.5
Each thematic strategy benefits from a dedicated advisory board made up of eminent scientists, business leaders and academics. This enables us to test our views against experts in their respective fields, providing us with a deeper understanding of the regulatory environment and the trends supporting the theme.
Share this article
Important legal information
This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet.
This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested. Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares. This marketing material is not intended to be a substitute for the fund’s full documentation or for any information which investors should obtain from their financial intermediaries acting in relation to their investment in the fund or funds mentioned in this document.
EU countries: the relevant entity is Pictet Asset Management (Europe) S.A., 15, avenue J. F. Kennedy, L-1855 Luxembourg
Switzerland: the relevant entity is Pictet Asset Management SA , 60 Route des Acacias – 1211 Geneva 73
Hong Kong: this material has not been reviewed by the Securities and Futures Commission or any other regulatory authority. The issuer of this material is Pictet Asset Management (Hong Kong) Limited.
Singapore: this material is issued by Pictet Asset Management (Singapore) Pte Ltd. This material is intended only for institutional and accredited investors and it has not been reviewed by the Monetary Authority of Singapore.
For Australian investors, Pictet Asset Management Limited (ARBN 121 228 957) is exempt from the requirement to hold an Australian financial services license, under the Corporations Act 2001.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc. is registered as Portfolio Manager authorised to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
This website uses cookies to enhance user experience and to collect statistical data. You may refuse to accept cookies or change your settings by clicking the following link: Cookies policy. By continuing to browse this website, you accept the use of cookies for the above purposes.
