The Electricity Grid, the Energy Transition, and Policy Consistency: Recent Trends

November 1, 2023
Roy Hrab

On October 17, 2023, the International Energy Agency (IEA) released Electricity Grids and Secure Energy Transitions and the National Academies of Sciences, Engineering, and Medicine (NASEM) published Accelerating Decarbonization in the United States: Technology, Policy, and Societal Dimensions.  

Although the two publications differ significantly – in terms of the mandate of the two organizations, as well as the scope and geographic focus their respective reports – both come to similar findings and conclusions with respect to (1) the importance of the electric grid (including transmission and distribution networks) for achieving net zero and electrification objectives successfully; and (2) the need to avoid a lack of grid capacity becoming a bottleneck for investment.  

The Critical Need for Grid Investment

The IEA report finds that “Lack of grid development – expansion and strengthening, digitalisation, modernisation and more effective utilisation – presents risks to electricity security while both limiting the pace and increasing the cost of clean transitions.” (p. 10)  

Similarly, the NASEM report states, “Perhaps the single greatest risk to a successful energy transition during the 2020s is the risk that the nation fails to site, modernize, and buildout the electrical grid […] Expansion of the high-voltage interstate transmission grid is needed in addition to, rather than instead of, modernization of local electricity distribution systems...” (p. 9)

The Role and Impact of Distributed Energy Resources

Both reports recognize the importance of the need for the electric system to evolve and modernize to accommodate, manage, and control increased amounts of distributed energy resources (DERs).  

The NASEM report finds that “At a minimum, the local grid will require different types of local-distribution system planning and operation than in the past, so that it accommodates two-way flows of power on circuits, more DER installations, more technologies to visualize and in some cases manage and control flows on the local system, and so forth.” (p. 265)

The IEA report finds that “The deployment of distributed energy resources can create challenges for system operators, particularly considering that higher levels of electrification result in higher peak loads and potential congestion on distribution grids. Distributed energy resources add to system complexity, and, without active monitoring, increase the difficulty of anticipating and managing flows on the distribution grid.” (p. 78)

The Need for Forward-Looking System Planning

The reports highlight the need for utilities and their regulators to change how systems are planned so that grids are not a bottleneck, but instead ready to accept more DERs and increased electric loads expected from net-zero policies that encourage fuel-switching in heating, transportation, and industry.

The IEA concludes that “Grid plans need to integrate inputs from long-term energy transition plans across sectors, anticipating and enabling the growth of distributed resources, connecting resource-rich regions including offshore wind, and reflecting links with other sectors including transport, buildings and industry, and fuels such as hydrogen […] policy makers can speed up progress on grids by enhancing planning, ensuring regulatory risk assessments allow for anticipatory investments and streamlining administrative processes.” (p. 9)

Similarly, the NASEM report recommends that “Decision makers on utility service provision (i.e., state utility regulators for jurisdictional investor-owned utilities and boards of cooperatives, municipal electric utilities and other publicly owned utilities) should direct their utilities to carry out planning, public participation, investment projects, rate proposals, and other actions necessary to modernize and ready local distribution systems for increased deployment of distributed energy resources; for new loads driven by electrification actions in buildings, vehicles, and industry; for ensuring that all customers have equitable access to resilient and reliable power; and for operating and maintaining the local grid under much more complicated conditions than in the past.” (p. 267)


The reports provide many reasonable recommendations such as updating planning processes (including greater co-ordination between transmission and distribution, across economic sectors, and regions), reforming utility remuneration, cost allocation, market design, grid modernization, and streamlining regulatory, siting, and permitting processes.  

However, the reports point out the growing concern that without significant and immediate policy reform, neither the transmission nor the distribution system will have the capacity to accommodate the large-scale adoption of non-emitting generation, DERs, as well as electric load from fuel-switching that will be required in the clean energy transition. These bottlenecks and the delays they cause put energy transition timelines at risk, such as achieving a net zero emission economy by 2050.

For example, DNV’s October 11, 2023, Energy Transition Outlook 2023 points out that grid capacity issues are occurring: “in the near term, transmission and distribution grid constraints are emerging as the key bottleneck for renewable electricity expansion and related distributed energy assets such as grid-connected storage and EV charging points in many regions, including the US, Canada, and Europe.”  (p. 5)

Further, the IEA’s World Energy Outlook 2023, released on October 24, 2023, states “the time required to obtain grid connections can take several years and appears to be increasing rather than shrinking. This is hindering current projects and risks choking off new ones.” (p. 47)

Given this situation, it remains far from certain when and how quickly policymakers, regulators, utilities, and other sector stakeholders will move forward on these and similar recommendations. Why is that the case? Why are the issues becoming more pronounced? Clearly, concerns related to the grid are not related to an inability to identify problems or a lack of workable ideas solutions.

The reason for the lack of movement on grid evolution and expansion is the same one that has been hanging over energy transition and climate change related policies more broadly for many years: the absence of an enduring political commitment and clear, consistent, and coherent government policy direction. Both regulators and private actors are looking for strong national (and sub-national, where applicable) government direction before undertaking significant reforms and investments to facilitate the energy transition.

Strong, clear, and importantly, enduring government direction, however, does not appear forthcoming within a current global policy context dominated by concerns about affordability and the economy. For example, the recent polling report What Worries the World? by released by IPSOS in September 2023 found that the global top five concerns were: (1) inflation; (2) crime & violence; (3) poverty and social inequality; (4) finance/political corruption; and (5) unemployment. Climate change ranked 7th behind health care.  

This new policy reality centred around pocketbook and economic issues was illustrated most recently by the October 26, 2023 announcement by the Government of Canada of a temporary, three-year pause to the federal carbon tax on deliveries of heating oil. Similarly, on September 20, 2023 the Prime Minister of the United Kingdom announced a 5-year delay on banning new diesel and gasoline cars to 2035 (from 2030) as well as a delay on banning the installation of new fossil-fueled boilers. Easing cost burdens for families was the primary rationale in both policy announcements.  

If affordability and economic concerns persist, further policy volatility and uncertainty in many jurisdictions is a likely outcome, which may further slow needed reforms as well as energy transition investments.  

This environment makes it incumbent upon those seeking to advance (or perhaps maintain) regulatory and/or government policy reform related to the energy transition to be ready with compelling, credible evidence and analysis that addresses not only emission reductions, economic efficiency and reliability concerns, but also the key considerations of affordability, economic growth, economic competitiveness, and job creation.