The clean energy transition is about to cost more

The Financial Times reported on the market for electricity cables (such as those that connect between countries) back in July (paywalled):

Demand for interconnectors and other energy infrastructure such as wind turbines is growing rapidly, putting unprecedented strain on supply chains for electricity cable and the converter stations needed for connection to the grid. 

Supplies of both are concentrated among relatively few companies, with high barriers to entry. The potential difficulty of securing raw materials such as copper, and a lack of skilled labour needed for factories, risk putting a brake on new supplies.

Manufacturing slots are booked up, and costs are climbing. “You’re in a dogfight”, says one senior wind industry executive, describing a scramble for converter stations.

Many countries are trying to increase their renewable energy generation, as well as interconnecting electricity infrastructure between countries. All of this requires high-capacity electricity cables and associated equipment. The effect of this increasing demand on the market for electricity cables is shown in the diagram below. The market started at equilibrium, where the supply curve S0 met the demand curve D0. The equilibrium price of electricity cables was P0, and the quantity of cables traded was Q0. With demand increasing to D1, then there are two possibilities. First, if prices are kept at the original price of P0, then the quantity of cables supplied remains at Q0, but the quantity of cables demanded increases to QD. There will be a shortage of electricity cables. Alternatively, the market adjusts, and the price increases to the new equilibrium price of P1 (where the supply curve S0 meets the new demand curve D1), while the quantity of cables traded increases to Q1. Of course, the electricity cable suppliers would prefer the price to rise, since that means higher profits for them.

These dynamics apply not just to the electricity cables, but also to the other equipment and infrastructure required for the clean energy transition. So, with increasing demand for electricity cables, it seems likely that the infrastructure required for clean energy transition is going to cost more.