How to prioritise financing for the power grid of tomorrow
From left to right: moderator Ana Rovzar, Head of Policy & Public Affairs – Global Renewables Alliance, Rainer Pflaum, CFO at TransnetBW and Michael Villa, smartEn Executive Director
The European Commission has placed a €584 billion ($630.6 billion) price tag on getting the power grid fit for purpose to meet 2030 targets. However, questions remain about how the spending should be prioritised and optimised.
A panel discussion at Enlit Europe showed speakers split on how to spend. For smartEn Executive Director Michael Villa, investments should be funnelled into meeting flexibility needs.
On the other hand, for TransnetBW CFO Rainer Pflaum, ensuring affordability needs to be the name of the game.
Understanding system flexibility needs
When it comes to investment priorities, Villa called for DSOs and TSOs to ensure they have a good understanding of system flexibility needs for all durations.
“For short term duration, daily, weekly and seasonal…then identify what needs to be done in order to support the system to face these system challenges.
“We know the European Commission’s figures. From now to 2030 the daily system flexibility needs on average in Europe will increase by 133% so if there is an increase, to have a flexible adjustment and operation of the grid within the same day, we need to have investment in all resources that can support the grid for these very quick fluctuations.”
Thus, said Villa, investing in large amounts of large-scale storage or big backup generation assets “will not make sense…if the need is less.”
The benefits offered by investing to accommodate flexibility needs are by no means insignificant.
According to a study carried out by smarten alongside DNV, a full activation of the flexibility from buildings, transport, and industry would save between €11.1 to €29.1 billion annually in distribution grid investments and avoid 15.5TWh (61%) of renewable curtailment.
More from Enlit Europe:
Enel Grids boss says energy transition must kickstart a competitive value chain
How Ukraine is evolving its energy system by building grid resilience
Flexibility coupled with digitalisation
However, for Pflaum, although flexibility is a key mechanism that can create this “break” in the system, affordability needs to be higher on the agenda.
“I understand the need for flexibility, of course, and for households it’s more or less easier than for industry,” said Pflaum, explaining that for flexibility to be fully integrated, digitalisation and innovation are needed first.
“Because from the old system, we have monolithic generation from large scale generation power plants, as well as nuclear plants, which allowed us, as a system operator, to use the balancing energy from these sites.
“For the future though, we don’t have this option, because in Germany, they shut down all these plants, and replaced with renewable energies.
“Whether from rooftop solar PV from the house near the load, or from wind, far from onshore and offshore, we need the grids to bring this electricity from the northern part of Europe to the southern parts. In Germany, from the northern parts to the industrialised centres in southwest Germany, where we lose 6.5GW of controllable electricity.
“Flexibility could be a break in the system, but flexibility also needs more digitalisation, because we need to bring a lot of data points, billions of data points, together and make it available for system operations. Otherwise, it wouldn’t work.”
Pfluam added that another pain point for flexibility is specific to steel and paper, where industries aren’t able to adjust their capacity according to the weather.
“Therefore, they need subsidies for storage, because otherwise they can’t bridge this situation.”
Affordability and interest rates
“I’m very grateful about the discussion, because it brings another aspect: affordability,” added TransnetBW’s CFO, referring to how the need for financing is coupled with a need for regulatory frameworks to bring in investors.
“We need not only the government but institutional investors, who are willing to invest in infrastructure. At the moment, at least in Germany, with the regulatory interest rate for equity, we are 2.5 percentage points behind the European average.”
According to Pflaum, a key challenge for attracting investors has been the issue of competitive interest rates.
“Investors are in the competition about capital and financing, and therefore go to the infrastructure where the interest rates are higher. So for me, affordability and suitable, reasonable interest rates belong together.
“Of course, we want to get carbon neutral, but we need for investors the right amount of return so that they are willing to invest. And for this, we need a stable, transparent and reliable regulatory framework.”
