Eurelectric calls for immediate doubling of investments in Europe’s distribution grids

For the urgent modernisation of Europe’s distribution grids, investment needs to be doubled to €67 billion ($73 billion) per year from 2025 to 2040, dropping back to 1.7 times in the decade to 2050.

With current investment averaging €33 billion (US$36 billion) over the past five years, and considering the future demand and generation outlook to 2050, this is insufficient to deliver the energy transition as described in the REPowerEU plan, Eurelectric reports.

A failure to invest in the distribution grids’ modernisation will stall the connections of technologies such as renewables, heat pumps and electric vehicles (EVs), the organisation warns.

Moreover, the anticipated upsides of reduced carbon emissions, greater energy efficiency and lower energy bills may not materialise, or at least not as quickly as needed.

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Leonhard Birnbaum, Eurelectric’s President and CEO of E.ON, says that for a successful energy transition, the EU needs massive amounts of additional grid capacity.

“Whilst this [doubling of investment] will require a significant ramp up, the cost of not investing is even higher.”

Eurelectric’s analysis, Grids for Speed, is informed by data from DSOs serving more than half of European energy users along with national energy and climate and network development plans as well as proprietary data from EY, which prepared the report.

Grid reinforcement

The report points to the need to expand the distribution grids from the current 10 million km by about 1.7 times to 16.8 million km by 2050 and for example to double the number of transformers, with approximately 43% of the investment for this demand-driven reinforcement to deal with the increased demand from the electrification of heat and transport.

Replacement and renewal accounts for 27% of investment and will modernise ageing grid assets to optimise reliability and resilience and generation-driven reinforcement represents 12% to allow excess renewable generation in one local area to be diverted to wherever it is needed.

Other areas of investment are targeted resilience upgrades, smart meter installations and system digitalisation and substation automation, while smart grid technologies such as on-load tap changers, line voltage regulator and dynamic line rating can further optimise investments in targeted applications.

The report states that the electricity system is in an exceptional period of growth, meaning that the investment profile is front-loaded.

Investment innovation

Moreover, innovation is opening up new emerging grid strategies that can reduce the investment required by around 18% to €55 billion annually when supported by the right regulatory environment.

These include anticipatory investment, i.e. proactively oversizing grid capacity when constraints and other works occur in anticipation of future demand; asset performance excellence, i.e. use of real-time data and AI to optimise asset health; and grid-friendly flexibility, i.e. actively managing demand during peak times to defer grid growth.

Of these, anticipatory investments is the most cost-effective strategy for building out distribution grid capabilities that are fit for a decarbonised future, the report notes.

Regulation

The report states that regulation must now transform for DSOs and national regulatory authorities to unlock early investment at a larger scale than in the past 30 years.

Prioritisation is needed to deliver large-scale investment that creates most value for society and capex for grid expansion must be accompanied by opex that enables continued and efficient operation.

Examples include eliminating investments caps, fast-tracking grid permitting and procurement procedures and de-risking investments to spur private funding.

Supply chain

All of the increased expansion and other works will require increased volumes of critical materials such as copper, aluminium and electric steel, and these are urgently needed.

For example, to 2030 about 2.5Mt of copper and aluminium will be consumed annually to build out the distribution grid, with annual additions required of 172,000 transformers and 262,000km of conductors.

The lack of talent across the supply chain also must be addressed with for example, recent labour surveys having shown that there is a shortage of electrical mechanics and fitters in 15 EU countries.

Ultimately a net-zero distribution grid hinges on the supply chain’s capability to scale, the report notes.

Even if the required investment is realised, failure to address the challenges that are beyond the direct control of DSOs will compromise their ability to deliver grids for speed on time.