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Distribution grid investment to power the energy transition

Connecting the dots

The 2015 Paris Agreement marked an historic milestone in the transition to a climate-neutral world. Power grids are critical to enabling this energy transition, as they are key for energy demand electrification and renewable integration in the power system. Eurelectric, a number of Distribution System Operators (DSO), power utilities associations, and E.DSO, supported by Monitor Deloitte, developed this study to assess power grid investments required for the energy transition in Europe and to develop policy and regulatory recommendations.

Since the 2015 Paris Agreement, the EU has led the way in deploying ambitious decarbonisation policies and targets. Moreover, as part of the European Green Deal, the European Commission proposed in September 2020 to raise the 2030 greenhouse gas emission (GHG) reduction target to at least 55% compared to 1990. Power grids play a key role in achieving these goals: electrification reduces GHG emissions because it enables a switch to carbon-neutral electricity and has higher efficiency for most relevant applications. Electric production of energy carriers, such as green hydrogen and power-to-X, will also reduce emissions where direct use of electricity may not be appropriate.

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Achieving EU decarbonisation goals will require significant efforts in electrification, emission-free generation and energy efficiency at the European level. For example, approximately 510 GW of new renewable capacity would be installed at EU27+UK level (~70% connected to distribution grids), which implies an estimated 940 GW of renewable installed capacity by 2030, 50-70 million of electrical vehicles would be running in European roads and 50-70% of their charging will occurred in off-peak hours.

Power distribution grids are a critical element in the European energy transition because they serve as the base for electrification and capacity expansion, act as connecting points for renewables plants,  and help enable flexibility and demand management. Based on this study, European distribution power grids will require an investment of between 375-425 billion euros in 2020-2030 in EU27+UK.

Power distribution grid investments provide relevant benefits to the society around sustainability (i.e., allow electric mobility deployment and renewables), competitiveness (i.e., enable electricity price reduction and fuel import reductions, due to higher electrification with renewables), economy (i.e., manufacturing activity and quality jobs), and progress towards customer centricity (i.e., new services).

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As they try to deliver during the energy transition, DSOs must navigate challenges in three key areas:

  • Investment planning and execution—for example, monitoring the grid to anticipate investment needs and optimise planning.
  • Automation—modernising the grid and enhancing its stability and resilience, as well as enhancing data management and security.
  • Integrating massive renewable and distributed energy resources (DER)—this includes controlling grid imbalances due to higher variable RES penetration and enabling demand-side participation.

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A number of policies and procedures must be developed to help power distribution grids enable an efficient energy transition. These include:

  • Flexible and adaptative national planning frameworks aligned with the energy transition, removing regulated investment limits.
  • Facilitating DSO access to EU funds and making power distribution grids part of EU post-COVID recovery plans.
  • Properly involving local communities (for example, deploying training activities for local workers).
  • Simplifying authorisation and permit-granting procedures to mitigate barriers on strategic projects.
  • Defining efficient tariff structures to optimise long-term investments and facilitate power system economic sustainability at the country level.
  • Equipping DSOs with new role through the development of EU-wide regulatory frameworks.
  • Enabling cost-effective and forward-looking remuneration and incentive models to enable grid transformation and energy transition.
  • Developing flexibility through the definition of roles, infrastructure, economic signals and information exchange procedures.

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Monitor Deloitte provided analytical support and facilitated this study, working together with Eurelectric, power grid companies, country power utilities associations and E.DSO.

About Eurelectric

Eurelectric is the federation for the European electricity industry. They represent the power sector in over 32 European countries, speaking for more than 3,500 companies in power generation, distribution and supply. They contribute to the competitiveness of our industry, provide effective representation in public affairs, and promote the role electricity in addressing the challenges of sustainable development.

They draw on more than 1000 industry experts to ensure that their policy positions and opinions reflect the most recent developments in the sector. This structure of expertise ensures that Eurelectric’s publications are based on high-quality input with up-to-date information.

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Laureano Alvarez

Partner | Deloitte Consulting LLP

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