EU Action Plan for Grids: Europe’s Strategy for Upgrading Grid Infrastructure

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Background

With electricity consumption projected to grow 60% by 2030, driven by clean mobility, electrification, and heating demands, urgent grid expansion is critical. The EU Green Deal targets also aim to increase wind and solar capacity from 400 GW in 2022 to at least 1,000 GW by 2030. Meanwhile 40% of Europe's distribution grids are more than 40 years old and thus in dire need of upgrading. The EU has estimated that €584 billion in investments are necessary in order to adhere to the growing demand for electricity and to reach renewable energy targets.

In recent years, the EU has increasingly focused on improving grid infrastructure, with the European Commission (EC)  putting in place a legal framework, including the revised TEN-E Regulation. This regulation aligns energy infrastructure with the European Green Deal, promoting investments to reach a climate-neutral energy mix by 2050. Complementary measures like the Renewable Energy Directive III streamlines permitting of networks necessary for RES integration. Additionally, the Net-Zero Industry Act and the Reformed Electricity Market Design further streamline efforts to upgrade grids and scale up renewable energy.

EU Action Plan for Grids

The most comprehensive EU initiative for improving grids was launched on November 28, 2023, with the release of the EU Action Plan for Grids by the EC. The plan aims to tackle key challenges in expanding, digitising, and optimising EU electricity networks. It outlines targeted actions to unlock investments and accelerate grid development to meet 2030 renewable energy goals. The Plan outlines seven key objectives, each accompanied by specific actionable steps:

1. Accelerating PCI and PMI implementation: Projects of Common Interest (PCIs) are energy infrastructure projects with a pan-European impact that are essential for completing the internal energy market. On the other hand, Projects of Mutual Interest (PMIs) are infrastructure projects connecting EU Member States with non-EU Member States. The accompanying concrete action is that the EC, Member States and Transmission System Operators (TSOs) must strengthen support to PCI and PMI preparation, allow faster implementation and increase funding.
2. Improving the long-term planning of grids: A rapidly evolving energy landscape demands long-term transmission system planning to integrate renewables. Current visibility of network needs, especially at the Distribution System Operator (DSO) level, is lacking. Thus, the EU DSO Entity will improve grid planning by mapping the existence and characteristics of distribution development plans. Additionally, the European Network of Transmission System Operators for Electricity (ENTSO-E) will enhance top-down planning through 2050 by identifying offshore and onshore system needs and considering hydrogen integration.
3. Introducing regulatory incentives for forward-looking grid planning: Grids are typically regulated assets funded by consumers through network tariffs, so higher development costs usually raise tariffs and consumer prices. Limiting project development to current system needs may increase future system and consumer costs. This shows the importance of anticipatory investments, those that proactively address expected developments, looking beyond immediate needs of generation or demand. The EC will therefore propose guiding principles which identify conditions under which anticipatory investments in grid projects should be granted.
4. Incentivising a better usage of the grids: Grid connection queues cause delays in connecting renewables. Increasing visibility of available grid capacity helps direct connection requests to areas that can handle them faster. Many system operators have made grid hosting capacity maps available, but with divergent clarity and quality. Therefore ENTSO-E and the EU DSO Entity will agree on harmonised definitions for available grid hosting capacities to establish a pan-EU overview. To improve the use of existing grids, the lack of awareness among project promoters about rapidly advancing smart grid technologies must be addressed by promoting the adoption of smart grids and innovative technologies.
5. Improving access to financing: Funding the necessary grid reinforcements, estimated at nearly half a trillion, will require substantial resources at a time when public funds are limited and rising inflation and interest rates are hitting projects. The EC will work to identify tailored financing models and enhance dialogue to address obstacles to private investment. The EC will also increase visibility on opportunities from EU funding programs for smart grids and distribution grid modernisation.
6. Ensuring faster permitting processes: Infrastructure projects often face lengthy permitting due to crossing multiple jurisdictions and public concerns, sometimes even leading to court battles. The EC will support permitting acceleration by providing guidance and technical assistance on implementing existing legislative tools, and Member States are encouraged to adopt acceleration measures. To tackle public support, the EC will launch a Pact for Engagement to promote early, regular, and meaningful stakeholder engagement.
7. Improving grid supply chains: Grid project promoters face long lead times for procuring specific components, due to tight supply and rising raw material prices. Meanwhile, EU manufacturers are struggling to achieve economies of scale due to product specification divergences. To address these issues, ENTSO-E and the EU DSO Entity will work with technology providers to establish common specifications and facilitate investments in manufacturing capacity and supply chain security. The EC will also promote common technical requirements for generation and demand connections.

Takeaways

Overall, the EU Grid Action Plan presents a set of sensible top-down policy guidelines that address various issues currently hindering the improvement of grid infrastructure. However, its effectiveness remains uncertain. The most significant drawback of the Action Plan for Grids is its lack of sufficient financial incentives and legislative consequences. Of the €584 billion needed for investment, the only support directly linked to the Action Plan is increased funding for the Projects of Common and Mutual Interest, which constitutes a meagre €6 billion. Additionally, the priorities and actions outlined are non-binding, indicating that the EU is merely signalling the direction it hopes Member States will take.

Thus, while the EU is making commendable efforts to accelerate the enhancement of grid infrastructure, it is imperative that stronger measures, both financially and regulatory, are implemented in order to guarantee a sustainable future for Europe.