As we enter further into 2024, developers still anticipate governments to take action and overcome the challenges we have regarding an inadequately connected, outdated, and centralized energy grid. Within the EU, the pivotal question emerges: Can the EU Action Plan for Grids, backed by a €584 billion investment until 2030, truly address developers’ pressing grid concerns?
Table of contents
- The energy grid: A linchpin for renewable energy integration
- The energy grid expansion dilemma: A matter of priorities
- The time factor: Energy grid infrastructure vs. renewable energy projects
- Our take on the future of grid expansion: A (potential) paradigm shift
- The European Investment Bank enters the chat
- The impact of lacking expansion is already showing
- Final thoughts
The energy grid: A linchpin for renewable energy integration
The grid’s role in successful renewable energy integration is undisputed. However, insufficient investments in grid expansion pose a growing challenge for developers. IEA data reveals a staggering worldwide backlog of at least 3000 GW of renewable power projects, with 1500 GW in advanced stages, in grid connection queues. This figure mirrors five times the combined PV and wind capacity added in 2022, representing only countries disclosing queue data, covering just half of global wind and solar capacity.
The energy grid expansion dilemma: A matter of priorities
Just as you can’t land a plane without a runway, you can’t get more renewable energy without a proper grid in place.
So, while it seems intuitive that the energy grid expansion should precede new projects, the reality, as evidenced by the growth of renewable energy parks versus local grids, suggests different priorities—until now. The recently amended European Renewable Energy Directive and EU Action Plan for Energy Grids recognize the urgent need for grid expansion and modernization, crucial for meeting decarbonization targets. With much of the current grid infrastructure aging, the challenge intensifies, given projections of renewable energy reaching 1236 GW by 2030 under the REPowerEU Plan.
The time factor: Energy grid infrastructure vs. renewable energy projects
Energy grid infrastructure takes on average five to 15 years to plan, permit, and complete, compared to one to five years for renewable projects. To meet climate targets, the IEA is proposing nearly doubling grid investments to over €547 billion by 2030. The EU’s current €23 billion annual investment in its grids falls short, but the proposed increase to €584 billion signals a potential turning point. In wattage, this means an additional 64GW of additional supply by 2030.
Our take on the future of grid expansion: A (potential) paradigm shift
A paradigm shift is imperative for successful renewable energy integration, as we also cover in our piece on why grid codes matter. Political will and financial commitments are evident, but some questions remain unanswered.
For example, the EU Commission calls on local Regulators to address speculative requests and to disincentivize connections for weaker projects but has yet to give clear guidance to Member States on how to deal with the issue. Also, different technologies have varying development and permitting times. The Commission has to guide Member States on how they move away from the “first come, first served” approach and make sure the necessary energy grid capacity is being reserved for all the technologies we will need to decarbonize electricity.
World record in lengthy permitting?
Lengthy permitting and permitting problems have been the case on the now infamous SunZia HVDC line between the US states of New Mexico and Arizona. The project finally started construction in 2023, 17 years after the project started, having struggled to obtain right-of-way permits along its 885 km planned route. SunZia is expected to be in operation in 2026, making the whole process a lengthy 20 years from start to finish.
The European Investment Bank enters the chat
With growing volumes, private banks are reaching their limit of how exposed they can be to individual manufacturers, and the EIB’s identification of financing tools is therefore crucial in the coming years. It is a big wish among many that the EIB investigates the deployment of counter-guarantees for infrastructure projects if grid investments are to move forward without more delay and cause more backlog in the coming years.
What does the EIB do?
The European Investment Bank (EIB) is the lending arm of the European Union and is owned by the Member States of the European Union. The EIB plays a significant role in supporting energy infrastructure, transportation networks, or other investments that will improve employment and trade between European economies.
Its primary role is to fund projects that achieve the aims of the European Union. The EIB makes loans above 25 million EUR directly and opens credit lines for financial institutions that can lends funds to creditors when the amount is below 25 million Euros
It’s also a big step in the right direction that the Commission wants to focus more on supply chain standardization for energy grids. The grid equipment supply chain which produces things such as substations, transformers, cables, and switch gears needs massive expansion. The planned alignment on product specifications by the end of 2024 must be done in very close cooperation with the grid technology manufacturers and relevant stakeholders. And TSOs should receive clear incentives to procure standardized equipment.
The impact of lacking expansion is already showing
The rapid development of generation capacity within renewables is outpacing investment in the necessary transmission and distribution grid upgrades, potentially impacting the long-term expansion of renewables. In The Netherlands for example, the Dutch TSO operator TenneT has already announced structural congestion on its 150kv grid in one Dutch region from 2021 to 2029. In this congestion area, the total contracted transmission capacity is approximately 5,600 MW, and the total available transmission capacity amounts to approximately 3350 MW. Not surprisingly, the congestion is caused by the rapid growth of solar and wind production in the energy grid of the national and regional operators.
The Action Plan means to tackle these kinds of problems, for example by the reinforcement of long-term network planning and the establishment of harmonized definitions for available grid hosting capacity.
The Mandating ENTSO-E to identify what’s needed for onshore and offshore energy grids including storage, optimization, and hydrogen infrastructure – we like that. The build-out of the grid needs proper top-down planning and better coordination between stakeholders and between policy-makers and regulators at EU and national levels.
Final thoughts
Though not perfect, The Action Plan is a substantial step in the right direction for the EU to resolve issues related to the grid. We applaud the sought-after increase in grid investments and the more favorable legislation, which hopefully translates to concrete and useful national initiatives.
However, if you were hoping that 2024 would be the year of the grid, then we have to disappoint you. Implementation beginning 16 months from now remains a significant challenge since it only pushes plans forward. However, in the great scheme of things, while not flawless, the Action Plan is a significant stride toward a more resilient and expansive grid.
