Efforts needed to level up the EU electricity grid – ECA

Large-scale grid investments are crucial to modernise the EU’s ageing electricity network and to support the transition from carbon-based to green energy.

In recent years, several initiatives and legislative packages have been developed to reach the EU’s climate and energy goals.

Russia’s war of aggression against Ukraine increased the need for alternatives to gas, including the electrification of the EU economy.

During the 2014-2020 budgetary period, roughly EUR 5.3 billion in EU funding was available for grid investments.

From 2021 to 2027, the amount increased to approximately EUR 29.1 billion, mainly due to the Recovery and Resilience Facility (RRF), which is the largest funding source.

A large part of the EU electricity grid dates from the last century: almost half of the distribution lines are over 40 years old. To ensure the EU’s competitiveness and autonomy, we need modern infrastructure that can support our industry and keep prices affordable, said Keit Pentus-Rosimannus, the ECA Member responsible for this review.

If the current pace continues, grid operators’ investment plans will total EUR 1,871 billion between 2024 and 2050. This is below the European Commission’s estimate of investment needs, which ranges between EUR 1,994 and EUR 2,294 billion.

The EU’s electricity demand is expected to more than double by 2050, so significant grid investment is inevitable. But we must use every tool available to minimise investment needs: new technology, storage solutions, and more flexible grids can all help to bring costs down, Keit Pentus-Rosimannus noted.

Need to address bottlenecks

According to the ECA review “Making the EU electricity grid fit for net-zero emissions”, modernization should accelerate but is hampered by poor grid planning, lengthy permit procedures, and limited public acceptance, as well as shortages of equipment, materials, and skilled labour.

The ECA points to mitigation measures, such as better coordination and integration of grid planning practices, streamlining permits, and the use of modern technology.

Optimising the electricity system can help to reduce investment needs, the auditors note. Pressure on the grid can be eased by adapting more flexibly to daily, weekly, and seasonal fluctuations in energy consumption and generation, thereby reducing the need for large-scale grid expansion.

Technology offers many opportunities here (e.g. by developing and scaling up new storage solutions), even though some options can still be too expensive.

Strengthening interconnections between the different EU countries would also help considerably. Tools such as smart meters can be effective at smoothing out demand peaks, but their roll-out is still slow in some member states.

In addition, consumers who produce electricity locally and energy communities that produce and consume electricity collectively can play an important role.

Balance investment needs with affordable power

Regulatory frameworks are crucial for investment decisions. Funding arrangements are particularly important in a situation where some operators face increased credit risks and struggle to access the necessary upfront investments.

Regulation also determines how much operators earn and how they are remunerated.

Users are typically charged through network tariffs, which generally allow operators to earn a return on their grid investments while covering asset depreciation and operating expenses.

However, striking a balance between investment needs and ensuring that electricity bills remain affordable for consumers – particularly households and energy-intensive industries – is a challenge.

The ECA review notes that it is difficult to predict the long-term impact on electricity bills of grid investments and of integrating renewable energy sources along with grid tariffs; bills include taxes and the cost of electricity itself.