Electricity distribution grids in Europe will need investments of between €375 billion and €425 billion this decade to modernize aging infrastructure and expand the network to connect more renewables, according to a study by Eurelectric, an industry group.
The projected investment figures, calculated using data from 10 European countries, would require ramping up annual grid spending by 50% to 70% in the 2020s compared to investments made in 2019.
The study's release follows calls from several large distribution grid operators for more generous spending on energy infrastructure, with regulators tightening the screws on allowed returns in the sector even as the need to invest in the energy transition accelerates.
Johannes Teyssen, CEO of E.ON SE, one of the continent's largest power providers, called for an "investment wave" in local grids in October 2020, saying that connecting vast amounts of electric vehicles or coping with demand-side load management would remain pipe dreams until networks are upgraded and digitalized.
But while companies say they need to spend more money on their grid assets, regulators have moved to tighten allowed spending and investor returns, including in countries such as the U.K. and Germany. Britain's regulator recently softened a proposal to slash allowed equity returns in U.K. power and gas networks in half after facing intense criticism from utilities.
The results from the Eurelectric study, which was carried out with consultants from Deloitte, show that Germany has by far the largest investment need among EU countries over the coming years, followed by France.
Overall, the biggest investment driver is aging infrastructure since about one-third of the EU's distribution grids is already more than 40 years old. Half of all networks could cross that threshold by 2030.
Another issue is the expansion of networks to integrate variable renewable resources such as solar and wind, with 70% of new plants expected to be connected at distribution level, according to the study. The electrification of other sectors, from transportation to industry and buildings, will require further capacity investments.
Aside from new networks, the increase in natural disasters and extreme weather events also makes it necessary to invest in more resilient grids to ensure security of supply, while investments are also needed in modern equipment and new tools, such as cybersecurity software and drones for predictive maintenance.
Eurelectric's scenario-based analysis assumes 510 GW of new renewable capacity installed across the EU and in the U.K. by 2030, including 40 GW of capacity for self-consumption. That would more than double existing capacities.
The study assumes power demand will grow at an annual rate of 1.8%, with electricity demand for industry and power-to-X applications reaching about 3,530 TWh by 2030. It projects there will be between 50 million and 70 million electric vehicles on the street and 40 million to 50 million heat pumps installed.
The resulting investment need is calculated using national data from Denmark, France, Germany, Hungary, Ireland, Italy, Spain, Poland, Portugal and Sweden.
Eurelectric said the rise in power prices and grid tariffs as a result of higher investments could be kept moderate if policymakers and regulators "provide the right framework conditions and a smart tariff design." It said the investment boost needed would create hundreds of thousands of jobs and could save more than €175 billion in annual fossil fuel imports.
"Grid investments are urgently needed for the energy transition and they hold a huge potential for job creation," Kristian Ruby, Eurelectric's secretary general, said in a statement. "We call on policymakers to improve investment frameworks and tariff design, facilitate access to EU funds and accelerate authorization and permit granting processes."