Europe’s energy infrastructure investment needs – €2 trillion to 2040

The planned investment needs in EU’s energy infrastructure are expected to grow significantly, new analysis indicates.

With the estimated amount totalling over €2 trillion ($2.1 trillion) from 2024 to 2040, the vast majority is due to be directed towards electricity infrastructure, especially at the national level, the analysis prepared for the European Commission indicates.

More specifically, electricity distribution dominates, accounting for the lion’s share, €730 billion ($764.7 billion), over the period, which is driven by the shift to renewable energy and electrification requiring extensive modernisation and expansion of networks.

Transmission infrastructure also attracts considerable investment, over €472 billion ($495.2 billion), largely due to investments in the national transmission infrastructure, which constitutes more than 70%, with the balance, around €130 billion ($136.4 billion), in increased cross-border interconnections and offshore connections.

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Hydrogen infrastructure also shows substantial investment needs, amounting to almost €170 billion ($178.3 billion) between 2024 and 2040.

The majority, almost two-thirds, are for hydrogen pipelines, both new and repurposed, expected in the period 2024-2034, with the balance in storage, import terminals and electrolysers.

Carbon capture and storage, however, is the infrastructure category with the lowest investment need, with current estimates ranging from €13.6 ($14.3) to €19.3 billion ($20.3 billion) up to 2040, with a focus mainly on pipeline development.

Investment unequally distributed

The analysis shows that the investment needs steadily increase from 2024 to peak around 2027 to 2029, primarily due to the early expansion of hydrogen infrastructure, then broadly flatten into the 2030s.

It also shows that the energy infrastructure investments are not equally distributed across the EU.

For example, the largest part of the distribution investments are planned in north-western Europe, while the focus for transmission investments is central-western Europe.

Overall Germany, France and the Netherlands together account for over half the total investments up to 2040.

However, this might change over the years and could be partly due to some member states being further advanced in planning than others.

In addition to these existing investment plans, additional investments also are expected to be announced and developed over the coming years to meet investment needs.

Investment financing

In addition to the infrastructure investment outlook, the analysis comments on its financing, requiring both public and private funding.

Public funding is considered to play a pivotal role in de-risking large, capital-intensive projects, particularly those in early stages of development, high-risk technologies and cross border infrastructure.

In particular EU financial support is expected to be significantly important especially in the newer technologies and the cross-border activities, where the developments are harder to predict, such as electricity transmission with significant cross border impact, offshore electricity infrastructure, hydrogen and CO2 transport and storage infrastructure.

Ultimately the type of financing support depends on the type of infrastructure and the country conditions, but generally it can be in the form of grants, EU-backed loans and guarantees or equity. Mechanisms similar to the Connecting Europe Facility for energy for cross-border investments and the modernisation and innovation funds also are expected to play an important role.

EU financial support also can play a role in cases where the returns on infrastructure investments are regulated by national regulatory authorities, for example involving TSOs and DSOs.

In some cases financial support could reduce the cost burden on grid users. For some DSOs, rising investments could be matched by increasing demand, keeping tariff rates stable, but for TSOs and other DSOs grid tariffs are more likely to rise, making EU support potentially valuable in limiting these increases and ensuring affordable grid access.

The analysis ‘Investment needs of European energy infrastructure to enable a decarbonised economy‘ was prepared by the consultancies Trinomics, Artelys and LBST.

Originally published on Enlit World.