Sustainable Energy - May Commentary

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The landmark power blackout which occurred in Spain & Portugal at the end of April has prompted debate and enquiry as to the suitability and resilience of the grid and the role of renewables in power generation. In this note we summarise the incident, and outline our thoughts around the implications, including the case for grid resilience, and the sensible scaling of renewables in the mix.

Europe’s largest power outage, with causes still unclear

At around midday on April 28th, Spain experienced a blackout which saw nationwide power supply falling by around 60% to 10GW taking around 18hrs to fully remedy. The resolution required a material draw from power interconnectors that connect the Iberian Peninsula to France and Morocco. Red Eléctrica, Spain’s grid operator, stated that two “loss of generation” events occurred within seconds of one another, taking 10GW of solar and 3GW of nuclear capacity offline. This caused material changes to the frequency of transmission onto the grid, causing system-wide failure. Whilst the specific cause of the upstream outage remains under investigation, we see three clear implications.

Remaking the case for grid transmission and distribution spending

irst, the case for grid resilience has been reaffirmed by this incident. Around 33% of the European grid is aged 40 years or older, well beyond its envisaged working life. There has been chronic underinvestment in the European grid; Spain in particular has seen essentially flat transmission and distribution (T&D) capex from 2010-21 at around €2bn per annum (pa), in spite of a significant modernisation in the generation fleet. This change in generation towards renewables introduces significant load variation and frequency adjustments to the grid, which in turn requires more modern grid infrastructure to transform, manage and distribute. Investment has begun to increase in the last 2-3 years but is still little higher than 2010-11.

We note that the two previous major European blackouts - Spain in 2001 and Italy in 2003 - unlocked a supportive regulatory cycle for T&D investment. We therefore see this outage as a significant opportunity within the grid equipment (e.g. portfolio companies: Schneider, Itron, Eaton, Hubbell), cable providers (Prysmian) and grid contractors (SPIE) sectors, which are exposed to T&D grid capex. The focus of this incident is of course Europe, but we have written for some time about the equivalent need for investment in the similarly aged North American grid, where we see substantial opportunity for the same group of investee companies to provide solutions.

Transmission & Distribution investment in Spain, 2010-24 ($bn)

Source: Goldman Sachs, April 2025

The role of renewables queried, but the case remains robust

Secondly, this blackout raises the question of the reliability of renewables within the grid. Spain, at the time of the outage relied upon c.80% renewable energy, principally solar. Intermittency, the variation in output from renewable energy, has introduced grid instability challenges. These can ordinarily be dealt with through the load management of conventional power plants (nuclear, hydro, gas, coal) which can moderate production to prevent the grid from being overloaded in the case of a surge or fill in with back-up power in the case of an outage. The speculated unavailability of such conventional power capacity in this incident might well explain the scale and length of the blackout. It may also prompt policymakers to question whether the grid can operate, in its current form, with such high levels of renewables penetration. Whilst we see this as an unwelcome headwind for the deployment of solar and wind in Spain, we caution that renewables constitute a significantly smaller share of electricity generation in the EU as a whole (17% wind and 11% Solar in 2024), and the US (10% wind and 4% solar in 2023), making the backdrop to the Spanish outage somewhat unique.

EU power generation by source, 2011-2024

Source: Ember, April 2025

The recent issues experienced in Spain and Portugal raise questions about power supply and the challenge of producing a flexible and functional grid. But they also highlight a demand issue: the step change in power consumption that is occurring in many parts of the world, including Europe. Spain, for example, has seen 4% growth in power demand so far this year. Supporting this has been growing electrification, and demand from data centres, where the pipeline of interconnection requests now equals an incremental 19GW of demand, equivalent to c.60% of Spain’s current power consumption.

We expect global electrification and data centre demand growth to lift total load growth from the 0-0.5% of the past decade to 1.5-2.0% for the next 5-10 years. The data presented below demonstrates this inflection for US power demand. We see renewables as the clear solution to this incremental demand, supplying power at the lowest marginal cost and being deployed with the shortest build times. Consequently, we see a case for renewable OEMs (Vestas, First Solar), and Power Utilities/IPPs (Iberdrola, Next Era) who deploy renewables as potential beneficiaries.

Global electricity demand growth (1950-2028E)

Source: Bernstein, April 2025

Regulated battery storage: a potential beneficiary

Finally, battery storage could be a beneficiary of the blackout. Regulated battery storage allows grid operators to manage load effectively and reduce the impact of intermittency that renewables introduce to the grid. Investments into regulated energy storage in Europe have been limited, with Spain currently having deployed c.100MW of capacity against a planned 12.5GW by 2030. This could conceivably be upsized and accelerated following the blackout and would likely be funded as part of a greater investment in the grid. We see opportunities here for the aforementioned grid contractors as well as battery OEMs (LG Chem).

Conclusion

We see the Iberian blackouts as a clear wake-up call that grids across the developed world require modernization and digitalization, after decades of underinvestment. We consequently see incremental growth potential for our investment opportunity set, with its exposure to grid spending. However, we recognize that this is far more than just a question of grid infrastructure. Rather, the blackouts will put further pressure on policy makers to reconcile the sharp inflection in global power demand growth, examined in our March 2025 monthly commentary, with supply. We see renewables as a key part of the supply solution, representing the cheapest and fastest route to new power, with events in Iberia remaking the case that they must be deployed in tandem with storage and grid modernization.

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