Grid development in Europe – how to strengthen the business case
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Five actions are proposed to strengthen the business and economic case for grid development in Europe in a new briefing paper from the World Economic Forum.
The paper, produced in collaboration with Accenture, highlights the need for significant grid development in the years ahead to achieve net zero targets but points out that for the investment to be possible a sound business case resulting in benefits for the investor is required.
Moreover, while the nature of the business case will vary across the value chain, the challenges are common. These include delays in permitting and approval, a lack of skilled workers, as well as supply chain issues and regulatory uncertainty which can threaten the robustness of the business case and delay investments in grid development and manufacturing capacity.
Based on input from TSOs, DSOs and other stakeholders in a roundtable organised in collaboration with ENTSO-E and the IEA, five actions have been formulated to address the need for such viable business cases.
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Action 1 – Assess grid investments holistically
Governments can strengthen the case for grid development by making a comprehensive economic case. This approach requires that the direct impacts and the costs of a delayed energy transition due to ‘non action’ be included, such as renewables curtailment due to grid congestion and the cost of stranded renewable assets awaiting connection permits.
In addition, decision-makers must also consider the indirect benefits from a system value perspective, including economic, technical, societal and environmental considerations, such as job creation, skills development and health improvements.
Action 2 – Improve the attractiveness of grid-related investments
Regulators can make investments more attractive to grid operators while protecting affordability for electricity consumers.
Potential actions include prioritising the streamlining of permitting procedures, defining adequate regulated rates of return aligned with the cost of capital, making anticipatory investments more attractive, adapting the duration of price control periods and enhancing public funding participation in investments that are essential for the future energy system.
Action 3 – Rethink consumer tariffs
Redesigning regulatory and tariff structures can encourage more optimal use of existing capacity and lower the overall energy transition cost.
Actions could include using real-time pricing, location-based pricing models and power (vs consumption) based pricing, making sure that grid capacity pricing signals are not counteracted by other incentives or rebalancing non-energy-related costs currently included in electricity tariffs to alternative taxation mechanisms.
Action 4 – Adopt a comprehensive approach to network planning
Grid planning is increasingly challenged to accommodate increasing demand for electrification, renewable supply and flexibility resources.
It can be optimised across several dimensions, including expanding planning across countries, energy vectors and grid levels, expanding horizons beyond the traditional 10-year time frame to align with 2040 and 2050 decarbonisation goals and enhancing the integration of flexibility in long-term planning.
Action 5 – Accelerate infrastructure delivery
To address the permitting, supply chain and other infrastructure challenges, regulators, policymakers, grid operators and technology providers must work together to promote innovation in workforce, technology, business models and policies.
Actions could include developing training and internship programmes to enhance skills, fostering industry alliances and strategic partnerships to advance R&D of novel solutions, aligning on common technical specifications and accelerating the integration of AI and digital technologies to improve workforce productivity.