Jørgensen takes office: How to prioritise grid financing?

All eyes are on the newly appointed EU Commissioner for Energy Dan Jørgensen, who has pledged to bring down energy prices, a task that calls for hundreds of millions of euros into grids alone. But how should he prioritise this spend? This week’s Power Playbook looks back at Enlit Europe for inspiration.

In less than two days we’ll have just over five years until 2030 rolls in and comparisons are drawn between net-zero goals and results.

In less than two days, the energy mantle will fall upon the shoulders of Jørgensen, Denmark’s minister for Development Cooperation and Global Climate Policy, who has been approved as Europe’s new Commissioner for Energy and Housing.

And in less than two days, the clock will start ticking to see how Jørgensen tackles his key mandates: the framework for grids and bringing down energy prices.

This begs two questions: where and how should grid financing be prioritised?

During Enlit Europe, a group of sector executives, each representing a crucial element in the net zero journey, from transmission and distribution operation to flexibility and energy storage, pondered this very question.

Emerging tech and anticipatory investment

Said Oonagh O’Grady, vice president of International Origination at Hydrostor: “I think traditionally, grid infrastructure has been about price controls and just-on-time delivery.

“There is a step change needed in that. I think we’re seeing that already by giving DSOs and TSOs that little bit more flexibility with regards to investment.

“One: the system needs analysis and a top-down plan is critical to understanding what is needed and when. Two: it’s not just looking at the existing technologies, it’s about looking…at emerging technologies, or looking at commercially-ready technologies, albeit maybe not deployed at scale.”

“Adding a more complex layer is not just about sequencing. It’s about quick wins and newer, commercially proven technologies that could be deployed as interim solutions, albeit a long-term investment in offering longer term benefits to the grid.”

For Carmen Gimeno of GEODE, we need more anticipatory investments, an issue going down to consumer perception and awareness.

Consumers, says the secretary general, tend to take grid infrastructure for granted, assuming it will all be for free, a misconception stemming from political messaging.

And although the secretary general believes that consumers should ideally not be burdened by grid financing, she says that “now is the time to take risks.

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“I bring here to the debate the concept of these anticipatory investments, which regulators look at with certain concern. We do understand, but, we shouldn’t panic, because we don’t over invest without reason.

“And with all the long queues for connecting we now have in Europe, there will be these investments for non-regret, at least for a decade from now.”

Affordability & ‘the past is the past’

For Michael Villa, executive director of smartEn, a lot of it goes back to affordability:

“The network component in the retail tariff is already, on average, a big part of the share that the consumer needs to pay. If we are also in a scenario where we need to finance more modernisation of the grid, then the affordability element is going to be a major element.

“So those elements in the tariff that consumers pay needs to be duly justified. Otherwise, indeed, we are just going to have problems…”

Villa’s second point: “The past is the past…There was copper in abundance and that was deployed. The future, rather, will be first optimising the existing grid…”

Villa adds that with this, OPEX – in particular that of digitalisation – needs to be equally important as CAPEX.

“And when we are talking about digitalisation, it’s not just smart meters. It’s also the procurement of trading platforms, ideally by market players, that can help. This is a cost, because if a DSO or a TSO needs to set the procurement rules for choosing the best trading platform, these require skills.”

When it comes to grid expansion for new connections, adds Villa, or for major refurbishment, “We need to have a European, harmonised approach on this prioritisation, because now, the first-come, first-serve approach does not work.

“As Carmen was saying about the connection queues across Europe – this is a major block for electrification. For example, charge point operators are building chargers for fleets of electric vehicles that are electrified, but then they need to wait five years for connection. So the CPO goes bankrupt.

“It’s a problem. The solution is flex readiness. If those with flex capability need to be connected, then they should be prioritised, because then they are going to provide support for smart and efficient operation of the grids.”

Priority points for regulatory discussion

Villa’s point on prioritisation elicited a question on regulation; an angle all too pertinent considering the European Commission taking flight come December.

So what should policymakers prioritise?

For TransnetBW CFO Rainer Pflaum, a necessity is getting a more reliable and competitive regulatory framework.

“As the regulators become more independent in Germany…they should dedicate to a better regulatory framework in terms of returns and interest rates. Also, covering OPEX, which will rise in the next couple of years as the energy transition goes forward. So these are two major aspects…”

Villa and Oonagh’s answers also stretch into two.

Villa prioritises working with member states and system operators to “implement the existing framework that is already mandating both CAPEX and OPEX”.

Secondly: “a European, harmonised approach on how to finance and approach congestion.”

For Oonagh, it comes down to clear, tangible targets which, for long-duration storage, allows it to “begin that long lead time investment. That’s number one.

“Number two is… about ensuring that the full benefit that they bring to the system is actually reflected in the value of the assets. That, in my mind, is done through the design of business models,” she adds, referencing models such as the cap and floor mechanism in the UK.

For Gimeno, it all comes back to speed:

“We don’t have time. We talk about 2030, like five years and couple of months, but they go super fast. So, politicians should be really conscious and aware of the challenge of the speed.”

Europe is at a critical junction when it comes to EU grid financing and policy.

Just two weeks ago COP29 produced a lengthy pledge to add or refurbish 25 million km of grids by 2030 and 80 million km by 2040.

And when we look at the huge patchwork of policy progress the Union has seen, as packaged neatly by Ember’s EU’s Grid Policy Framework, it’s clear that there is going to be a lot on Jørgensen’s plate.

But, as illustrated above, there are clear priorities to inform his tenure as Commissioner.

And from what I’ve seen, we also need to continue investigating innovative forms of business models – take for example the flexibility incentives investigated in the Netherlands – while also looking again at how we can spur both the public and private sector to get in on grid financing.

Regardless, as Carmen Gimeno says: speed is of the essence.

But what do you think? 

Cheers,
Yusuf Latief
Content Producer
Smart Energy International

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