Paris, 15 October 2024
Commentary by
- Keisuke Sadamori, Director, Energy Markets and Security
- Miguel G. Torreira, Global Utilities Strategy Lead, Accenture
- Kristen Panerali, Head, Clean Power and Electrification, World Economic Forum
- Damian Cortinas, Chair of the Board, European Network of Transmission System Operators (ENTSO-E)
As Europe races toward a clean energy future, modernising power grids is a critical challenge. The European Union Grid Action Plan, published last year and targeting over USD 600 billion in investments in the next six years, is an important step. However, delivering a clean energy future requires more than financial commitment.
Unprecedented collaboration across borders, sectors and stakeholders is essential to enable increased levels of renewable energy deployment, decarbonisation and economic growth.
Grid modernisation: Key to Europe’s future
Electricity grids are essential for the uptake of clean energy as well as for facilitating the electrification of our societies and industries. Europe’s electricity grids are evolving into the backbone that supports not only energy security, but also economic competitiveness and innovation.
In Europe, more than €584 billion of investment is needed this decade to achieve the Fit for 55 target of deploying 42.5% renewable power into the grid by 2030, according to the European Commission.
Furthermore, the report prepared by former Italian Prime Minister Mario Draghi The Future of European Competitiveness, stated that to remain competitive, Europe must significantly increase its investment in key sectors, including energy innovation, flexibility and infrastructure. The report highlighted that the EU’s general investment-to-GDP ratio needs to rise by 5% annually — levels not seen since the 1960s and 1970s — to meet decarbonisation and digitalisation needs.
Grid modernisation is a cornerstone of this effort to effort to establish Europe as a competitive and sustainable place to do business. The good news is that this work is already underway, with organisations like ENTSO-E, the European Network of Transmission System Operators, coordinating large-scale grid investments in the European grid.
Investing in the energy grid delivers significant societal benefits, according to key findings from ENTSO-E. Annual investments of €6 billion in cross-border infrastructure through 2040 are projected to yield €9 billion per year in generation cost savings. Additionally, the investment will help avoid 42 TWh of renewable energy curtailment each year, optimising renewable energy usage. This process will cut CO₂ emissions by 31 million tonnes annually, supporting climate goals and enhancing environmental sustainability.
Building a business case for grid expansion
Governments can strengthen the case for the significant investment required to build out the continent’s grids by building a strong economic rationale. This includes considering the direct impact of more clean energy deployment as well as indirect benefits including economic, technical, societal, and environmental considerations. Examples include job creation, skill development, health improvements, higher economic growth and resilience against extreme weather events.
Governments must also consider the opportunity cost and estimate the impact of taking no action. This could include the cost of renewables curtailment due to grid congestion and the annual cost of delayed electrification in terms of fossil fuel imports.
Given the level of investment needed, public funds alone won’t be sufficient. Thus, focusing on building the business case for grid investment is also key. Private companies will only invest if the expected returns are at least comparable to alternatives. The public and private sectors can work together to ensure a strong economic case propels strategies to strengthen the business case.
Collaboration for grid investments
Delivering on Europe’s clean energy future demands more than capital and investment. It requires a united front from European economies, aligning regulatory frameworks and showing unwavering political support for an integrated energy market.
According to IEA analysis, harmonising regulations, aligning investment strategies and acknowledging interdependencies between countries and sectors is crucial to accelerate progress and avoid bottlenecks. Only through a coordinated approach can truly informed decisions be made about where, when and how to invest in Europe’s energy infrastructure. Imagine planning for power transmission, distribution, transport and industry in concert, across geographical boundaries. This isn’t just efficient — it is necessary. As European’s and global energy landscapes evolve, with electrification driving demand and clean hydrogen on the horizon, planning must evolve too.
One case study in how collaborative efforts can deliver impact is the work of ENTSO-E, the EU DSO Entity (the European association of Distribution System Operations), Europacable (an industry association representing wire, cables and accessories producers) and T&D Europe (an industry association representing Europe’s grid technology providers). Together, they aim to streamline supply chain processes and enhance investment visibility for critical infrastructure projects both onshore and offshore. This collaboration ensures that Europe is not only prepared for the energy transition but is actively leading it.
Innovation in collaborative models
Many more areas demand attention. We need flexible financing models that allow for shared investment risks and encourage innovation in funding energy projects. We need to rethink energy tariffs to keep energy accessible and affordable, given the significant infrastructure investments ahead. We need to leverage fast-developing digital technologies to enhance collaboration across sectors and stakeholders to accelerate infrastructure delivery. Breaking down silos and bridging divides into new collaborations will be critical to a clean and equitable future.
The energy transformation is more than wires and pylons; it is the creation of a stable, supportive environment for investments that will shape Europe’s energy future. Grid operators, regulators, consumer advocates and tech innovators must align their perspectives towards a common goal: a grid fit for now and for the future.
For an in-depth analysis, read the World Economic Forum’s latest briefing paper on this topic.
Source – IEA