Electricity generation choices get simpler. Low prices for solar and wind energy are no longer a novelty. While the search for the best battery technologies and battery deployment strategies continues, the economics of solar and wind as generation technology of choice continue to get more entrenched. And while the climate change mitigation arguments for choosing renewables have been present for decades, these and the economic arguments have been joined in the past year by a newer – and for many countries, highly compelling – argument: energy security. The spillover effects of Russia’s invasion of Ukraine on predictable availability and prices of natural gas have made wind and solar seem that much more attractive. The IEA reports that renewables are set to account for over 90% of all new capacity expansion in electricity generation over the next five years. Thanks to the reduced attractiveness of natural gas, the EIA’s projection for renewable generation expansion is up 30% from only a year ago. For policy-makers, many of the complexities involved in selecting which electricity sources to invest in are fading away.
A spending surge for infrastructure repair and protection. Infrastructure policy-makers have become increasingly concerned about cyberattacks in recent years. With the unfolding of the Russian war on Ukraine, a big new source of concern has emerged for the same policy-makers: drone attacks. The Russian military’s repeated attacks on Ukraine’s infrastructure using long-distance drones have demonstrated to many countries – and many non-state actors – a whole new means of inflicting damage on adversaries. And while not necessarily cheaper than mounting cyberattacks, the use of drones is way less complex than cyberwarfare, with low barriers to entry. We can expect plenty of “copycat” attacks on infrastructure in many places, coming on top of increased damage to infrastructure from extreme weather events. This in turn will mean we can also expect the need – both real and anticipated – for infrastructure repairs to consume more and more of infrastructure budgets.
AI comes to T&D. The plunging costs of wind and solar electricity generation have been a boon from many perspectives. As noted above, they are increasingly simplifying choices for policy-makers, and leading to way to cheaper and cleaner electricity. One consequence of this, however, has been increased complexity for electricity grids. Electricity transmission infrastructure, and grid operators, need to accommodate rapidly shifting sources of generation in ways that were not previously required. The growing use of energy storage from batteries has added more complexity to grid management. Increased concerns regarding damage from extreme weather events, cyberattacks, and now potentially drones, adds yet further complexity. While some grid operators have begun to deploy Artificial Intelligence tools to manage this complexity, we expect that this process will step up to a whole new level in coming years.
Electric Vehicle sales pass 10 million. As reported by Bloomberg New Energy Finance, annual sales of EVs closed in on the 8 million mark in 2022. Bloomberg expects total sales of plug-in vehicles to top 14 million in 2023, with sales of commercial EV vehicles rising as much as 60% year-to-year. BNEF’s forecast would imply that 15% of all new car sales for would be for EVs.
Coal payouts pick up more steam. The first deal paying for early coal-fired plant retirement came through in November 2022, arranged by the Asian Development Bank. The complex structure provides funding to retire Indonesia’s Cirebon 660-Megawatt coal-fired plant 10 to 15 years ahead of schedule. While a drop in the bucket relative to Indonesia’s greenhouse emissions, let alone global emissions, this is an encouraging start to a process predicted by Infrastructure Ideas over the past two years. The ADB’s Energy Transmission Mechanism hopes to find more takers, while South Africa has proposed a far larger plan to its donor partners (see “South Africa Pitches a $84 Billion plan to shift from coal to clean energy”).
The World Bank’s Reorganization gets contentious
World Bank infrastructure financing starts edging back up. Infrastructure financing at the World Bank has been fairly flat, and trending downwards over the past several years: combined new commitments for the IBRD and IDA in energy, transportation, water and sanitation have dropped from 33% of all lending in 2018 to 27% in 2022. Expect this trend to start reversing. With the strong push from major shareholders for the World Bank to focus much more strongly on “global public goods,” in particular climate change, “climate smart infrastructure” can be expected to play a much larger role in the World Bank in coming years.
Aid budgets feel the pinch. Official Development Budgets have been coming under increasing pressure in recent years, due to a combination of fiscal pressures and internal politics in major donor countries. With the twin priorities of rebuilding Ukraine and fighting climate change at the top of the agenda in 2023, expect that ODA for anything other than Ukraine or climate change becomes increasingly scarce. This will hamper the ability of low-income governments, in particular, to finance increases in development expenditures.
Road budgets feel the pinch. For policy-makers in transportation in developing countries, 2023 will be a difficult year. As noted above, ODA budgets for anything other rebuilding Ukraine and fighting climate change can be expected to be tight. One large alternative source of capital for infrastructure, China’s Belt and Road Initiative, has also sharply reduced new financing in the last three years. At the same time, budgets for rebuilding and protecting infrastructure can be expected to claim an increased share of resources. While private capital associated with new renewable generation can pick up some of the slack in energy infrastructure, this private capital is not likely to become dramatically more attracted to transportation. This will leave the road sector in many countries, by far the largest part of transportation investments, dealing with much less available capital in the near term.
Chinese infrastructure financing remains hard to find. The last few years have seen major efforts by western governments to promote alternative infrastructure financing vehicles to counter China’s Belt and Road Initiative. The EU’s “Global Gateway” initiative was unveiled in December 2021, the same month that the new US Development Finance Corporation finished its second year, while the G-7 Partnership for Global Infrastructure and Investment was announced in July 2022. The irony is that these alternatives are ramping up as the BRI’s infrastructure financing appears to be ramping down. New BRI investments in energy and transport have been at their lowest level since 2016, according to data from the Green FDC 2022 BRI Investment report, while a previous Infrastructure Ideas column in 2021 (“Where did all the Chinese money go?”) noted the consistent decline in BRI infrastructure financing to developing countries since 2015. While the reasons for the decline in Chinese overseas infrastructure financing remain debated, there is no sign of any imminent rebound.
The era of drone regulation arrives. As already noted, we should expect plenty of “copycat” drone attacks on infrastructure in many places, following the lead of Russia’s military. The ease of deploying armed drones, and using them to target infrastructure, will be creating anxiety in many countries. Already in the US, attempted drone attacks on energy facilities – apparently from lone individuals or small groups – have been noted. In Mexico, cartel militia have been making wide use of drones to attack various targets. As drones seem set to become the “Kalashnikovs” of the 21st century, expect policy-makers to focus intensively on regulations for the use of drones – without the same political pushback which we’ve seen to gun regulation in the US.
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