Two major Canadian investments announced Friday have refocused attention on an often overlooked sector seen as crucial for the low-carbon energy transition: distribution.
The Ontario Teachers’ Pension Plan said Friday it will pay £1.47-billion ($2.4-billion) for a 25-per-cent stake in SSEN Transmission, a division of Scotland-based SSE PLC, which delivers hydroelectric power from northern Scotland to the rest of Britain. The deal represents the pension plan’s largest-ever power distribution investment.
Separately on Friday, the Canada Infrastructure Bank and Canadian Imperial Bank of Commerce CM-T announced they have committed $135-million each in funding for Markham District Energy, which provides centralized heating and cooling for 230 buildings north of Toronto.
Together, the deals indicate a growing level of investor interest in the basic infrastructure required to decarbonize electrical and utility grids around the world.
“A lot of the attention gets put on the wind turbines, batteries, and solar,” said Evan Pivnick, program manager at Simon Fraser University’s Clean Energy Canada initiative, “but what doesn’t get much attention is how much the energy grid itself fundamentally has to change to support a new renewable-based energy system.”
“The distribution side is very essential and very underappreciated at this point,” Mr. Pivnick said. “Yet the transmission and distribution systems are going to be what makes the difference between achieving our [climate] targets and not.”
In the United States alone, there are thousands of renewable energy generation and storage facilities that are already complete but are still waiting to be connected to the national grid. According to data from the Lawrence Berkeley National Lab, cited by a McKinsey & Co. report published this year, the total surpassed 5,000 in 2020.
The size of the Teachers’ investment “is very exciting to us,” said Jason Wang, an Edmonton-based clean electricity program analyst for the Pembina Institute. “Especially in the case of a transmission project, it really indicates to us that huge investors see transmission as a safe place to put your money; a safe bet on the future.”
The SSEN transaction is the latest in a series of investments Teachers has made specifically in the power transmission and distribution space.
Last year, the pension plan took a 40-per-cent stake in Finnish power distributor Caruna, which is in the process of burying most of its power lines in order to “weatherproof” its grid. Also in 2021, Teachers purchased the entirety of power transmission network Evoltz, which owns more than 3,500 kilometres of lines spanning 10 Brazilian states.
While the terms of those deals were not disclosed, Dale Burgess, executive managing director of infrastructure and natural resources at Teachers, said the fund’s total infrastructure assets under management has grown by more than 60 per cent in the past five years: from $18.7-billion in 2017 to $30.6-billion in June, 2022.
The $270-million combined Canada Infrastructure Bank and CIBC investment in Markham District Energy is particularly relevant for the transition plans of countries like Canada, said Clean Energy Canada’s Mr. Pivnick. Decarbonizing home and commercial heating and cooling is another challenge that has not received sufficient attention or investment to date, he said.
Mr. Wang of the Pembina Institute said projects that can help decarbonize building heating and cooling systems are “incredibly important” to transition to a net-zero economy.
“We really have to tackle both electricity and heat in our economy in a two-pronged approach,” he said.