The takeaways
- Rising electricity demand and increasing supply-side complexity are creating a structural imperative to accelerate grid investment worldwide.
- Network operators and businesses across the value chain are using new financing structures, demand-anchored planning, grid-enhancing technologies, and other solutions to deliver expansion projects that yield attractive returns.
- The biggest gains will go to firms that combine solutions into innovative business models that rapidly add grid capacity where and when it’s needed.
The increasing use of electricity has been one of this century’s great drivers of business value. The addition of generation and storage capacity; the introduction of new electric equipment for industry, transport, and buildings; and the broadening of energy access have opened vast markets and rewarded the companies that ventured into them. These developments have also set the stage for an investment super cycle centered on power grids—the networks that must expand and modernise to carry more electricity. Grid expansion offers a once-in-a-generation commercial opportunity for network operators, as well as investors, manufacturers, tech providers, and service firms.
Two structural trends give rise to the grid-expansion opportunity. On the demand side, electricity consumption looks to be on a steep growth trajectory, lifted by the data centre boom and by end-use electrification across the economy. Network operators that match new grid capacity with credible load commitments can secure bankable, long-term revenue streams. On the supply side, big renewable installations, fresh interest in nuclear power, and rapid uptake of distributed resources have brought more complexity. That complexity, too, presents opportunities for grid operators capable of moving power across regions, integrating more nodes, replacing aging assets, and improving grid utilisation and reliability.
What’s more, the grid-expansion opportunity creates pull across the value chain, offering growth prospects to providers of capital, equipment, tech, and services. Annual investment in transmission and distribution networks—which was roughly US$182 billion in 2024—is forecast to reach $471 billion in 2050, according to new analysis by PwC and Oxford Economics. The ramp-up will invite banks and private-capital players to develop new financing models and investment platforms. Meanwhile, backlogs for critical equipment, such as cables and transformers, and tight engineering and construction capacity create premiums for firms that can scale up manufacturing, standardise designs, streamline project management, and deliver at speed.
The upside is already visible across leading markets. Novel financing arrangements have unlocked expansion capital for grid operators, manufacturers, and contractors. Grid-enhancing technologies and digital tools—many powered by AI—help operators improve throughput, efficiency, and performance without big capital outlays on wires and equipment. Regulatory reforms are reducing the uncertainty that hangs over projects with long investment horizons and are clarifying how costs and benefits are allocated, so that network owners and investors can commit funding with confidence.
In this article, we examine seven transformative ways that companies across the grid ecosystem have responded to the expansion opportunity.
New financing options for grid investment
Rising needs for capital expenditures on power grids are creating opportunities for investment firms to generate long-duration, infrastructure-style cash flows for their clients. The key is to structure financing in ways that match operators’ specialised requirements. Because many operators must manage a key financial metric—the ratio between funds from operations (FFO) and net debt—it can be hard for them to finance grid projects through borrowing. Regulations that cap grid charges commonly limit operators’ FFO even as their debt balloons, which drives down one of their most important metrics and potentially reduces their creditworthiness. In addition, companies financing grid projects must manage the interplay between available tax incentives and global minimum-tax rules.
Value pathways: Equity-centred financing structures can help grid operators raise expansion funds without undermining their FFO-to-net-debt ratio. TenneT, a transmission system operator in the Netherlands and Germany, has issued subordinated hybrid securities that are partially recognised as equity, preserving FFO-to-net-debt ratios. Privatisation of some grid assets can allow operators to raise equity without affecting their balance sheets. Public–private partnerships offer another route. In Australia, some operators work with private entities to design, build, finance, and operate grid projects.
Regulators have helped by adjusting tariffs to permit earlier recovery of investments, as we’ll explain below. Proposed updates to the UK’s price controls framework for network operators, for example, would accelerate cost recovery. Others, like the Netherlands Authority for Consumers and Markets (ACM), have moved from real to nominal returns. In some markets, multilateral development banks help build effective regulatory frameworks or spur private participation with measures such as US dollar–linked tariffs.
Demand-anchored expansion planning
Network operators can justify expansion plans and raise funds more easily when they’re confident that new infrastructure will bring in grid charges. Deciding how much capacity to build and where and when to do so requires careful judgment. Too much expansion makes system costs unsustainable; too little means missing out on growth. Finding a balance is especially challenging today. Many operators’ interconnection queues are full of prospective energy loads—including from data centres—whose outlook is uncertain. The risk for operators, investors, and ratepayers is that those loads never come online or get shut down after just a few years.
This echoes a decisive period in the 1970s and 1980s, when grid operators invested heavily in infrastructure due to an expected surge in demand. After new demand didn’t materialise, many were saddled with debt and stranded assets. Today, operators seeking expansion capital are taking measures to secure demand—and the associated cash flows—in advance.
Value pathways: Some jurisdictions are centralising system planning. The Australian Energy Market Operator, for one, sets out an integrated plan for network, generation, and storage investments. Governments are reducing the risks of grid expansion by backstopping projects that operators initiate before sufficient demand is established and by acting as market makers. One such approach involves buying new grid capacity up front, to ensure it generates returns for the operator, and selling it to energy users later. Some grid operators and energy users have mapped out expansion projects according to a lock-step approach that establishes new demand as a prerequisite for capital investment. For example, some US utilities are formalising demand commitments (PDF) with long-term contracts requiring exit fees or by seeking guarantees from energy users to finance grid upgrades.
Grid operators are also changing the way they manage interconnection queues. In the UK, a connections reform package seeks to prioritise projects deemed ready and needed (in contrast to systems operating on a first-come-first-served basis elsewhere). Auctioning places in the queue and charging fees to remain in line can bring down so-called ‘phantom demand’ from speculative applicants. Factoring price elasticity and substitution effects into demand-forecasting models can give operators a more accurate outlook. In addition, AI applications help operators modernise the application process and review and prioritise requests more often.
Tech-enabled optimisation of capacity and demand
The most economical, least risky approach to boosting grid capacity involves building no infrastructure at all. With grid-enhancing technologies, operators can increase the throughput and reliability of existing assets at a modest cost and with faster deployment than major builds. On offshore wind projects, for example, PwC analysis suggests that a 25% increase in the utilisation of existing transformer platforms can deliver as much capacity as building another asset—saving 1–2% of total capital expenditure. Adding demand-side flexibility, via demand-response programmes or virtual power plants, is another way to make assets more productive. One study found that increasing the capacity of virtual power plants in the US could reduce peak loads by 10–20% by 2030. Utility-sponsored energy efficiency programmes for large users have also proven to free up grid capacity.
Some operators have started relaxing technical constraints and running assets at higher capacities, closer to performance thresholds. This approach can lower reliability, a tradeoff operators must weigh carefully. Another option is to give discounts to customers who agree to receive guaranteed power most of the time, rather than 24/7, so that operators can create spare capacity during peak periods.
Value pathways: The barriers to full use of grid-enhancing technologies, demand-side initiatives, and innovative contracting tend to be of a regulatory rather than a financial nature. Overcoming them requires cooperation between grid operators, energy users, and regulators. Operators, for their part, can create flexible markets and encourage participation from the demand and supply sides. Many regulators provide incentives for network operators to implement various non-wires alternatives to achieve reliability and efficiency gains while reducing capital and operating expenditures. Tapping into available tax incentives and credit mechanisms can further help operators improve capital productivity and enhance returns.
Cross-border integration of energy resources
Long-distance transmission adds cost-effective reliability to the grid by moving cheaper electricity from renewable installations to high-demand areas, even in different countries or regions. For example, the proposed SunCable project would transmit electricity from Darwin, Australia, to Singapore via a 4,500-kilometre underwater cable. Planned multinational grids would connect groups of countries, such as the Association of Southeast Asian Nations, to various generation sources. Cross-border transmission lines can face obstacles, though: research shows that US transmission projects spanning state boundaries are less likely to succeed than in-state projects.
Value pathways: Building long-distance transmission lines requires aligning the interests of transmission and distribution operators and ensuring that projects generate enough income to attract investment. Companies often find it advantageous to agree in advance on methods of measuring and paying for benefits and to allocate costs according to forecasts. Regulatory design matters, too: the right recovery frameworks convert system-level benefits, such as reliability, into cash flows. Incentives, tax-depreciation regimes, property taxes, and carbon-pricing arrangements can also vary greatly across regions, so companies will benefit from carefully managing these factors on cross-border projects.
Tariff and cost-allocation enablers
Certain tariff policies can work against grid operators’ plans to expand capacity and serve more customers. Regulations on grid charges can make expansion projects uneconomical by preventing operators from recovering costs in a reasonable time frame. Volumetric (per-kilowatt-hour) charges for fixed system costs can force legacy electricity customers to pay for investments that mainly benefit new users. That can prompt large customers to buy less power from the grid or disconnect from it altogether. It can also dissuade industrial companies from electrifying. The result for operators is a shrunken customer base and less income.
Value pathways: Tariff reforms that establish new cost-allocation models can help operators avoid customer defection and increase revenues enough to make expansion projects investable. Two-part tariffs combining a grid-connection charge with a volumetric price can distribute fixed system costs more evenly. Dynamic pricing and rebates for reducing peak-period energy use provide incentives for demand flexibility. Some US utilities have introduced special rate classes for new large-load customers, requiring them to pay for capacity whether they use it or not. Location-based pricing can help grid operators alleviate congestion and steer new connections to more favourable areas.
Supply-chain reinforcement
Demand for grid equipment (such as transformers, cables, and high-voltage components) and materials (such as copper and steel) has risen so quickly that manufacturers can’t keep up. Lead times for cables and power transformers nearly doubled between 2021 and 2024, according to the International Energy Agency. These production backlogs now dictate costs, schedules, and risk exposure for many grid-expansion projects. Evolving import tariffs on key goods and materials also affect sourcing decisions. Conscious of these factors, one large European transmission system operator mapped its sources of critical components for expansion to mitigate risky dependencies.
Extreme specialisation in component design also makes production less efficient. By one estimate, it’s possible to buy more than 80,000 different distribution transformers.
Value pathways: Under some framework agreements, operators make longer-term (five- to ten-year) commitments to purchase equipment from manufacturers that pledge to add capacity. Such agreements help manufacturers raise much-needed growth capital. Grid operators have also combined orders for common components and equipment to stabilise demand for suppliers, and some have started collaborating on purchases of more expensive items such as transformers and cables.
In addition, more standardised component specifications would help manufacturers forecast demand more easily and thereby achieve economies of scale. Governments are also helping relieve choke points. Ofgem, the UK electricity regulator, lets transmission owners buy equipment years in advance so they can avoid manufacturing delays in new projects.
Innovation in design and execution
Lengthy timelines, contractor scarcity, and fragmented standards for grid projects mean that execution capability matters more than ever. Regulatory mandates can have a significant influence, too: where governments place caps on the revenue that grid projects can earn, the pace of execution largely determines project profitability. Project managers must also manage complex interdependencies among grid assets. When a battery storage installation provides backup power for its owner and stability for the grid, companies must carefully plan for and implement the controls that manage the operations.
Value pathways: Modularisation and standardisation of designs and plans, combined with programmatic delivery models, help contractors improve margins. Grid operators are also experimenting with engineering, procurement, and construction (EPC) contracts. Output-based contracts reward low-capex solutions, and long-term agreements give EPC firms the certainty they need to invest in systems and personnel. Some grid operators involve EPC firms in not just project delivery but also management, giving them more reason to optimise projects for the long term.
To seize the grid-expansion opportunity, grid operators and their value-chain partners must pursue fresh solutions to long-standing problems. The approaches described here—creative financing, demand-anchored planning, tech-led optimisation, cross-border integration, tariff reform, supply-chain collaboration, and smarter project execution—are all helping accelerate grid projects and improve their economics. And most work better in combination: smart-grid initiatives depend on new forms of financing; demand-based planning produces reliable equipment orders that encourage manufacturers to scale up. Grid operators, investors, and suppliers that partner on expansion programmes will generate significant value while leading the buildout of energy infrastructure that underpins growth for decades.
About the author(s)
The authors thank Antony Cook, Chris Durieux, Benjamin Gough, Tony Histon, Guillaume Laffitte-Rigaud, Paul Micallef, Sambitosh Mohapatra, Simon Oates, James O’Reilly, Vicky Parker, and Tom Pearce-Smith for their contributions to this article.
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