The path to deeply decarbonizing the global economy is actually a wire. The vast majority of the world’s electrical power moves across distance to reach demand centers, through a network of generators, long-distance transmission lines, local distribution networks, and equipment such as inverters and transformers. Our grids have developed over more than a century, and much of their operational architecture and their physical layout would be recognizable to a systems engineer a century ago. Today’s grid is the largest machine in the world. 

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Electrical transmission is not technologically magic, in that its operations are familiar to millions of engineers, but it is magical in a way. It allows us to transform primary energy – fuel – into final energy – electricity – and do so over great distances. The power grid is a machine for shifting energy in form (primary to final) and space (from point of generation to point of consumption). It is also the essential element in enabling a vast expansion of renewable power generation while also enabling new transactive business models, peer-to-peer energy trading, electrical energy storage and billions of electric vehicles. 

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In this letter, Voyager examines the imperative to greatly expand our existing long-distance power transmission grids, and the innovation required within our local grids and the business models that connect generators, utilities, and consumers. Interconnection is essential, but so too is intra-connection: building within the constraints of the existing grid.

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The Long Line Imperative: Interconnection

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From a decarbonization perspective, the case for transmission expansion is simple. First, we will need it to expand zero-emissions power generation to displace current fossil fuel-fired power generation. Second, we will need it in order to greatly expand zero-carbon power generation in order to accommodate a tripling of global power demand as we electrify everything, re-energize at least two billion machines, and transform myriad industrial and building sector processes. 

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It is important to note, too, what happens if the world does not massively expand the power grid. The International Energy Agency estimates that today’s announced pledges to reduce greenhouse gas emissions should lead to an almost 60% share of wind and solar in global power generation by mid-century. Indeed, solar itself is on track, in terms of cost and deployment capability, to meet its sectoral commitments needed to reach net zero. But – without expanded grid access, the world will fall quite short of what it has announced. With grid delays, the IEA says, wind and solar penetration will reach only 44% by mid-century. 

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Equally important: if today’s grid is not expanded, as electricity demand rises, then we will simply burn more coal and gas to provide electricity. In a grid-constrained world, according to the IEA, the global economy will consume about twice as much coal and twice as much gas as it would in a grid-abundant world. Coal consumption would still decline, but gas consumption would rise from the 2030s if grid build-out is delayed. Without dramatically expanded transmission, the world would use 113% more coal and gas (in primary energy terms) in 2050 than it would with ample wires and connection in the global grid. 

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The investment required for this future grid is in the tens of trillions of dollars. BloombergNEF estimates that transmission and distribution network expansion would require more than $21 trillion between today and 2050, and would result in more than 80 million kilometers of new wires – effectively doubling the combined length of today’s grid networks. 

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Global figures can under-state regional needs, particularly in the United States. In October, the Department of Energy estimated that today’s grid system would need to expand by 60% just by the end of the decade if the US is to be on a net zero pathway, and potentially triple in size by 2050. Much of that need, too, is for long-distance transmission and potentially complex transfer capacity between electricity regions within the US.

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And while 2050 projections can feel necessarily abstract, transmission needs are both immediate and acute for renewable asset developers today. The US has more than two terawatts of renewable power generation and storage assets awaiting interconnection to its seven independent system operator networks, about half again as much nameplate generation capacity as has been built in the US in the past 140 years. 

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It is a good sign for decarbonization that almost the entirety of that combined interconnection queue is for zero-carbon assets, but again without a massive grid expansion, only a small fraction of today’s queue will come to fruition. And, the impacts of lack of transmission are already very apparent in the California Independent System Operator, which controls almost all of California’s electricity supply. Curtailment of solar energy, in particular, is skyrocketing as solar’s expansion of generation capacity outstrips the transmission capacity needed to efficiently deliver it to the grid. Curtailment is particularly acute in the spring, when solar production is robust but grid demand is relatively low. In April of 2023, the state curtailed 671 gigawatt-hours of solar, equivalent to about 4% of the state’s overall power consumption that month. 

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Expanding today’s grid is an unfortunately slow and expensive process. The Department of Energy’s recent study found that in the US, interconnection times have nearly doubled in a decade from 2.1 years in the 2000s to 3.7 years in the 2010s. Longer interconnection time not only delays the integration of resources, it forces additional costs onto project developers. 

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Rationing Sunshine

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For emerging technologies reliant on electricity as an input, friction in transmission directly influences both emissions intensity and costs. In practice, wind and solar may be the cheapest forms of electricity generation, but long interconnection queues mean that many emerging companies will never benefit from the theoretically cheap and abundant renewable energy. At Voyager, we see many optimistic models of company unit economics reliant on accessible renewable electricity that are not realistic without significant transmission development. Inefficient transmission threatens the much-heralded manufacturing boom in the United States with higher costs and slower factory deployment, and even data centers are scrambling to find sufficient and reliable electricity sources at a stable price.

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Regulatory Realities

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We could write a book on the sclerotic permitting and regulatory inefficiencies that have created this market distortion - and indeed, many analysts have. Instead, as early-stage technology investors, our role is to examine the market as it is, and will be over the next decades, and to invest accordingly. In the United States, the current transmission impasse represents the confluence of the not-in-my-backyard rejection to proximate infrastructure construction and the strictures of permitting and regulatory review. In a recent survey, only 56% percent of Americans supported building high-voltage transmission to support expansion of renewable energy.  

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Fortunately, recent US policy is moving in favor of transmission (and renewable energy and storage) developers. Policy announcements in November 2023 include the expansion of the US 30% investment tax credit to cover the interconnection costs of renewable assets, subject to some very subtle but important distinctions within the US Treasury’s new guidance. The US Department of Energy proposed streamlined National Environmental Policy Act (NEPA) review for transmission, solar and energy storage. These are encouraging, but not yet sufficient.

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The Everywhere Imperative: Intra-connection 

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In a world where transmission expansion is both essential, slow, and expensive, founders and operators can turn their attention inward, so to speak, towards business models that work within the existing asset base. These models are about intra-connection: building and expanding within the network that exists today. Voyager highlights several opportunity sets here: 

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• Smart upgrades to the existing transmission and distribution network that work within existing rights-of-way and with today’s incumbent and established infrastructure. 
• Optimizing grids to reduce line losses within the existing network, insuring that zero-carbon energy that is generated today is delivered with as little loss as possible. 
• Valorizing energy in place, by capturing or creating value from energy that is otherwise stranded or islanded due to insufficient transmission infrastructure. European producers were early to explore a Power-to-X model that the United States’ Inflation Reduction Act stands to amplify. We are already seeing hydrogen startups targeting renewable power production that would otherwise be curtailed as a primary input.
• Vehicle-to-X models that allow the world’s future vehicle electric vehicle fleet to transact with other interconnected demand centers, and with each other, within the distribution network. 
• Energy storage models that allow otherwise-stranded renewable generation to be dispatched hours or days after being generated. 
• Development of powerful, technology-enabled microgrids which combine onsite power generation at industrial scale with highly transactive consumers and producers. Strategically deployed, these can occasionally avoid interconnection queues.
• Ongoing deployment, scale and regulatory support for virtual power plant models that can reduce local peaks in electricity demand without construction of new generating capacity and transmission infrastructure.

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Foundations for Scale

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Doubling the scale of the biggest machine in the world will require decades and trillions of dollars. It is essential if we are to deeply decarbonize; it is also not assured. The physical form of the future grid will represent the confluence of policy, technology, finance and development. Jurisdictions worldwide will need thoughtful policy to plan and permit new wires, and technology to best site, plan, and integrate what is built. Developers of assets, and developers of technology, must optimize for key directives: speed, cost, ease, and value. 

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At Voyager, we believe that entrepreneurs can create valuable, durable businesses that are fundamentally a response to our current constrained grids – and a hedge against those grids not expanding with the speed and scale required to reach net zero greenhouse gas emissions by 2050. Shortcomings in interconnection are opportunities for intra-connection. 

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That said, we also urge founders, asset owners, financiers, and builders not to view investment opportunities as binary. We need investment in both types of connection, and the demand for renewable electrons will be sufficiently gigantic that interconnection and intra-connection will not crowd each other out in the coming decades, or ever. 

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And we also need the smartest possible policy and advocacy devoted to both types of connection. That means operating at the national, and even international, level of planning long-distance bulk transmission networks, and operating at the regional, state, municipal and local level for enabling transactive, distribution-integrated business models. The most effective advocacy will do both in tandem, and view connection of any kind as an integrated effort to build, deploy, and scale. 

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