ERT Report: Underfunded Investments in the Development of Energy Transmission and Distribution Networks

The energy transition appears to be at a standstill as member states need total investments in transmission and distribution networks of euro800 billion by 2030 according to a study by the Energy Round Table, a body made up of the main energy developers from the continent.

They claim, according to Euractiv.de, that they cannot connect their solar panels and wind turbines to the grid, while many Europeans struggle with the costs of existing networks. Before this study, the European Commission estimated that by 2030 additional investments of 584 billion euros in energy infrastructure would be needed.

The study by consulting company BCG finds an investment gap of euro800 billion by 2030 and euro2.5 trillion by 2050. According to the major players in the industry, annual investments in network infrastructure were between euro22 billion and euro32 billion of euros in recent years. As a result, network investments forecasted by 2050 will be 60% lower than the original target, industry representatives say in the study.

We mention that in our country, according to a recent estimate drawn up by the Federation of Associations of Energy Utility Companies (ACUE) by 2030, investments of over 40 billion lei are needed for the development of distribution networks. Investments made by distribution operators in the development of the network totaled 13.5 billion lei in the last six years, however, in order to reach the targets that Romania has for 2030, a tripling of them is needed in a mandatory minimum scenario. Instead, Transelectrica has scheduled investments worth almost 7.1 billion lei in the period 2022-2031, but it is possible that that amount will increase with the commissioning of new electricity production capacities.

However, strengthening Europe's electricity grids is necessary if the continent is to continue its decarbonisation efforts. Major companies say more grid capacity is needed to power electric vehicles, industrial processes and heating and cooling, which are increasingly electrified. The system also needs to become more stable to be able to compensate for fluctuations in solar and wind power.

The report concludes that an annual doubling of network investment is needed if the EU is to meet its climate goals. This means an annual expenditure of between 70 and 84 billion euros annually.

According to BCG calculations, 60% of this amount will be spent on distribution networks, 25% on transmission networks, and the rest on cross-border connections and storage capacities.

European industrialists essentially propose solutions in three categories: accelerated approval procedures, a review of the design of the energy market and the strengthening of the European internal market. Local actors such as communities should be left out of the approval process.

"Permits will never be granted quickly if decisions are moved to the local level," Patrick Pouyanne, CEO of energy group TotalEnergies, was quoted as saying in the report.

The energy industry group says there is a need for "forward-thinking investment", where "knowledge of future generation and demand centres" means power lines can be built now, even if they are not needed immediately.

Regarding the electricity sector, ERT points out that the shift in production - from fossil fuels with high marginal costs to renewable sources where fixed costs dominate - requires a deep review of the design of the electricity market.

The European electricity industry association Eurelectric calls for long-term planning and a reform of network tariff rules. This is intended to ensure the financing of investments in the continent's electricity networks, expected until 2030, amounting to 584 billion euros.

The ERT report calls on EU member state governments to support state guarantees for private purchase contracts to bring more medium-sized companies, which are less familiar with targeted electricity procurement, into the electricity market in the long term. Big companies also believe the EU's preferred mechanism of "contracts for difference" should be limited. These contracts, which pay a predetermined amount regardless of daily electricity prices, would increase market volatility, say representatives of these companies, according to quoted sources. That volatility would lead to "extended periods of zero and negative prices," meaning that governments "supporting the contracts would have to pay full price or more."

At the same time, the players of energy states that governments should introduce a government-sponsored investment de-risking insurance policy to allow electricity suppliers to stay in business even in highly volatile energy markets, as was the case in 2022 .As well as asking governments to bear the risks of the electricity market, ERT also advocates better integration of European networks.

"Connecting Europe's electricity grids will enable the EU to increase its electrical security and integrate more renewable energy into energy markets," the report cited.

The proposals made in the report will be submitted to the European Commission to be discussed with the representatives of the member states in order to boost the investments necessary for the green transition.