05
^{GRID MODERNIZATION}
The grid investment gap

Why utilities must modernize fast

^{GRID MODERNIZATION}

The grid investment gap: why utilities must modernize fast

Grid modernization is now a system-wide imperative

The electric grid modernization global perspective

This article examines the solutions available to meet fast-growing electric demand in a new T&D paradigm.

The electric grid congestion imperative

With renewable and electricity demand growth, multiple network congestions are happening or will happen. What is the grid congestion situation, and what solutions can be leveraged to secure the supply at fair costs?

Grid balancing: algorithmic warfare on the grid

Challenges, market chaos, suitable market design, the flexibility arsenal and perspective.

Flexibility in power markets

A global view on need and readiness organized around six key dimensions.

Climate change adaptation for T&D operators

Climate change leads to more frequent and more intense weather events. Discover how utilities can make their networks more resilient and respond faster and more efficiently to the disasters. Adapt or pay.

Electricity flows will more than double by 2050, intensifying grid challenges worldwide

Electrification is at a new tipping point. Electricity demand is expected to more than double by 2050. Meeting it will require around 80 million kilometers of new or upgraded power lines by 2040, almost doubling today’s global network.

Continuous economic growth is increasing overall energy demand by around 2% each year.
As fossil fuels are replaced by low-carbon electricity, electricity demand is growing faster, at around 3% to 4% per year.
Investment in low-carbon energy is now roughly twice the investment in fossil fuels.
The main demand drivers are: transport electrification; booming data center demand; reindustrialization and industrial decarbonization; heat pumps and low-carbon hydrogen; the next phase of electrification in developing countries; and expanding wind and solar connections, which is, by far, the largest area of energy investment.

The network model has fundamentally changed

Historical paradigm	New paradigm
Centralized and dispatchable generation	Distributed and variable generation
Passive demand	Flexible and controllable demand
Post-event correction	Imbalance prevention
Hardware-centric operations	Software- and data-centric orchestration, AI
Thermal and hydro reserves	Storage, demand response, interconnections
Centralized and sequential operations	Local and multi-horizon operations
Historical paradigm	New paradigm

The climate change adaptation challenge

Storms, heatwaves, droughts, wildfires, heavy rain, floods, cold snaps and wet snow are affecting networks more frequently and severely. The impact reaches every voltage level, across both underground and overhead lines.

Grid operators must reduce these risks, make networks more resilient and respond faster when severe weather strikes. Climate adaptation is therefore a major trigger for grid transformation, not a separate infrastructure issue.

Various other challenges should be met

Many aging grids must be replaced or modernized.
Real-time balancing, flexibility management, outage management and climate response are making operations more complex.
Operating models are being renewed and, in some areas, reinvented through digital technologies, data and AI.
The smart grid model must extend intelligence, visibility and automation deeper into the network.

New lines are essential, but slow and capital-intensive. Operators must do more with
existing grids

A landmark 2021 study by the International Energy Agency found that building new high-voltage transmission lines can take more than 10 years across the full lifecycle, from decision-making and planning to permitting, construction, and commissioning.

Grid investment is already growing by more than 10% a year, increasing the costs ultimately borne by consumers. Yet this is still not enough to keep pace with electricity demand. As IEA Executive Director Fatih Birol said, “Any dollar invested in renewables should trigger a dollar invested in grids.” The world remains far from that ratio.

The challenge is therefore twofold: expand and modernize the grid, while extracting more capacity, resilience and efficiency from existing assets. Building new infrastructure alone cannot deliver the required pace at an affordable cost.

Figure 1: Grid investment is rising, but the gap remains

Global grid investment is estimated at $541 billion in 2026, compared with $694 billion invested in renewables in 2025.
Smart-grid investment represents approximately 15% of total transmission investment and 30% of total distribution investment.

^{Sources: IEA analysis based on financial statements of transmission and distribution companies; S&P (2026), Capital IQ data; and Global Transmission (2025) data.}

Figure 2: Grid-enhancing technologies can unlock more from existing networks

Grid-enhancing technology solutions	Capacity increase	Cost	Implementation lead time
Dynamic Line Rating Temporarily increasing line capacity under specific technical conditions (sag control)	20-30%	$	1-2 years
Dynamic Transformer Rating Temporarily increasing transformer capacity under specific technical conditions	5-15%	$	1-2 years
Topology optimization Using software to optimize network configuration and relieve constraints	5-15%	$	1-2 years
Advanced power flow control Using flexible AC transmission systems to modify line reactance	10-20%	$$	2-3 years
Storage as a Transmission Asset (SATA) Operating lines close to 100% of their thermal rating	30-40%	$$	2-3 years
Reconductoring Retrofitting lines with higher-capacity conductors	50-100%	$$$	3-4 years
Voltage uprating Increasing the voltage level (for example, from 10 kV to 20 kV)	100-200%	$$$$	4-7 years
New HV lines	10-20%	$$$$$	7+ years

Global grid investment is estimated at $541 billion in 2026, compared with $694 billion invested in renewables in 2025.
Smart-grid investment represents approximately 15% of total transmission investment and 30% of total distribution investment.
^{Sources: IEA analysis based on financial statements of transmission and distribution companies; S&P (2026), Capital IQ data; and Global Transmission (2025) data.}

A capital-intensive transformation with a growing digital and AI dimension

Capital intensity and dimensions

Building or modernizing the electric networks requires significant investment with
various characteristics:

Projects range from around two years for low-voltage lines to more than 10 years for high-voltage lines in some geographies.
Permitting can account for up to half of total project duration, depending on geography and local regulation, while larger assets often face strong local opposition.
Underground lines are more resilient to climate-related events but can cost several times more than overhead lines.
Grid assets typically remain in service for 40 to 50 years, making today’s decisions long-term commitments.
Asset investment planning tools improve project efficiency by supporting grid-enhancing technology choices, prioritizing critical lines, securing project lifecycles and managing assets from cradle to grave. Intelligent engineering platforms provide a complementary engineering backbone.
Because public grids are regulated assets, transmission and distribution system operators must comply with local rules and secure regulatory approval for projects.
Investment intensity and the efficiency of both investment and operations directly affect electricity costs. Affordability is therefore a critical success factor for the energy transition.

The digital and AI opportunity

Grid technologies are moving from hardware-centric to software- and data-centric operations. Digital, data and AI now account for around 20% of total grid investment, and that share is growing.

Alongside asset investment planning, five digital domains stand out. Each can improve asset management and operational efficiency, but each requires deliberate investment, operating model change and disciplined scaling.

Network instrumentation. Equip critical lines and nodes first so that grids can generate reliable data, extend intelligence to the edge and support greater automation.
The control room of the future. Rising operational complexity is increasing the need for integrated digital tools, better situational awareness and progressively higher levels of supervised automation.
Balancing and flexibility. Use a broader portfolio of flexibility resources and market mechanisms, as explored in the companion WEMO articles on grid balancing and flexible markets.
AI industrialization. Move beyond isolated pilots and quick wins where the use case is mature. Generative and agentic AI can support parts of the grid operations value chain, provided operating changes, governance, acceptance and human oversight are part of the design from the outset. The combination of the control room of the future and agentic AI has the potential to reshape grid operations over time.
Digital engineering. Use digital and AI-enabled engineering tools to manage the portfolio of grid expansion and modernization projects more efficiently.

Conclusion

The modernization challenge cannot be solved by choosing between new infrastructure and smarter use of existing assets. Utilities need both. The leaders will be those that combine disciplined capital planning, grid-enhancing technologies, resilient engineering, digital operations and carefully industrialized AI to expand capacity at speed while protecting reliability and affordability.

Author

Philippe Vié

Senior Advisor, Energy and Utilities, Capgemini