Why the Grid Needs a Digital Spine: Insights from the International Energy Agency
As global electricity demand soars and renewable energy expands, the IEA highlights the urgent need for digital solutions to optimize grid flexibility. Here’s how Energy Web’s Digital Spine can help
The International Energy Agency recently released two reports: its annual Electricity 2025 analysis and a discussion of current challenges in grid investment. These documents describe two key aspects of the global energy transition: global demand for electricity is increasing, and new renewables (including distributed energy resources) are expected to be the greatest contributor to new supply that meets it. If you dig a bit deeper, you can also see why the electricity system needs a Digital Spine, Energy Web’s solution to optimize grid flexibility and unlock the potential of DERs.
The energy transition continues
The IEA forecasts “soaring” electricity demand over the next three years. Most of this increase will occur in developing economies, but advanced economies are expected to see increasing demand as well, driven by electric vehicle adoption, new air conditioners, heat pumps, and (especially in the U.S.) new data centers.
This new demand will be met by new low-carbon generation. The IEA expects fully half of the new demand to be met by solar PV, the cost of which continues to decline.
But progress increases complexity
It is undoubtedly excellent news that low-carbon generation will meet new demand, but the IEA cautions that power systems need to further adapt to the changing fuel mix on our grids. A combination of traditional thermal plants that are relatively inflexible, new renewable generation that is variable, and new demand patterns (e.g., more air conditioning demand on hot days and more electric vehicle charging on workday evenings) result in higher volatility in power markets.
We already see these impacts. The Electricity 2025 report describes the increasing incidence of negative prices in wholesale electricity markets, which occurs when supply outsizes demand so significantly that market-clearing prices fall below zero. This can happen for any number of reasons, but as the energy transition continues we would expect to see it happen more frequently in areas where afternoon solar generation could far exceed air conditioning demand (think massive amounts of rooftop and utility-scale solar) or overnight wind generation is greater than nearby transmission capacity.
Negative pricing events are most common in the regions of the world that are furthest along the energy transition, including Australia, California, and Texas (three places with very high solar PV or Wind penetration).
Negative price events are not in themselves a problem; however, they are noteworthy because they suggest real challenges in power system operations, which will only increase as the energy transition continues.
Physical infrastructure improvements will be insufficient
One strategy to address these challenges is to increase investments in electric grids. This means increasing transmission capacity and upgrading other physical infrastructure in order to reduce constraints that contribute to negative pricing: if one location has more power supply than demand, simply ship the excess to a location that can use it (yes, we recognize that this simplified description glosses over the complexities of constrained dispatch, but it remains true that increasing capacity in an appropriately-planned way will reduce the impacts of system constraints).
Unfortunately, the IEA does not think such new investments will be sufficient, or at least not sufficiently fast:
Around 1.5 million kilometres of new transmission lines have been built worldwide over the last decade, but inadequate transmission remains major constraint on power system development, electrification and energy security. Among other issues, grid infrastructure has struggled to keep pace with the rate at which new renewable sources are entering the system.
Their report describes several reasons for this, including supply chain bottlenecks and permitting delays — problems that are unlikely to recede in an era of increasing trade protectionism.
Managing power systems requires new ways to provide flexibility
So if new transmission is insufficient, what is the solution? The IEA offers its perspective: “Optimising the use of existing grid infrastructure through digital technologies enhances efficiency and maximises the use of existing assets, providing a safety valve for networks and supply chains”
This is precisely what our Digital Spine solution does: facilitate integration of DERs to allow grid operators and market participants to efficiently, fairly, and securely operate the grid. It can wring cost savings out of existing operational processes or even allow new market configurations that until now have not been feasible.
As an example of the latter, we implemented our Digital Spine solution in Australia as part of the Australian Energy Market Operator (AEMO)’s Project Edge. In that project, AEMO and market participants demonstrated a new approach to integrating DERs into both transmission- and distribution-level operations: a two-sided market based on dynamic operating envelopes. An independent cost-benefit analysis found that implementing this approach could save consumers AU$5–6 billion over twenty years, and that the savings would accrue to both consumers with DERs and those without them. A separate independent technology and cybersecurity assessment found that the Digital Spine as the underlying data exchange was more scalable, stable, resilient, flexible, and secure than traditional point-to-point or centralized approaches.
If you or your organization are looking to increase your network’s efficiency and unlock the full potential of DERs, please see our Digital Spine webpage for more information or to contact us.
