Europe’s industrialists want deep reform of power market to tackle €800b grid spending gap

The European Union is facing a grid investment gap of €800 billion until 2030, finds a report commissioned by industry lobby group ERT, who call for another power market revamp to help address the issue.

Regarding Europe’s grids, renewables developers complain about being unable to connect their solar panels and wind turbines, while many Europeans struggle with the cost of the existing grids. For example, grid fees make up more than 20% of power bills in Germany. 

These fees are due to ramp up in the face of additional investments. The European Commission estimates that €584 billion of additional infrastructure investments are needed by 2030. 

Meanwhile, the European Round Table for Industry (ERT) commissioned a report from consultancy BCG that foresees a €800 billion gap until 2030 and a €2.5 trillion gap until 2050.

Annual investments into grid infrastructure in recent years range from €22 billion to €32 billion – a trend that will see grids fall 60% short of what’s needed by 2050, the industrialists warn in their report.

However, beefing up Europe’s electricity networks is necessary if the continent wants to continue its push for decarbonisation.

More grid capacity is needed to cater to electric vehicles, industrial processes, and heating and cooling, which will be increasingly electrified, and the system needs more resilience to handle the variability of solar and wind.

The report finds that “Spending on grid investments must more than double on an annual basis compared to historical trends if the EU is to reach its climate targets”. That means sums between €70 and €84 billion every year.

According to BCG modelling, 60% of that sum will be spent on distribution grids, 25% on transmission grids, and the rest for cross-border connections and storage.

What should be done?

Europe’s industrialists broadly offer solutions in three categories: accelerated permitting, an energy market design overhaul, and boosting the European single market – fundamental tenets of the ERT.

On permitting, local actors like municipalities should be taken out of the equation.

“Permitting will never go fast if the decisions are being pushed down to the local level,” explains Patrick Pouyanné, CEO of energy major TotalEnergies, as quoted by the report.

The industry group also mentions the new grid buzzword in Brussels: “anticipatory investments.” According to the group, “knowledge of future centres of generation and demand” means that power lines can be built already, even if they are not immediately needed.

Regarding power, the ERT stresses that the transformation of generation – from high marginal cost fossil fuels to fixed-cost-dominated renewables – necessitates a deep overhaul of the power market’s design.

This was last proposed in 2022 when European Commission President Ursula von der Leyen launched an overhaul that saw minor adjustments to its working and a more long-term focus.

However, industrialists say the EU needs to go further. “The current market design leads to low capture rates [revenues] for renewable generation, which disincentivises new build,” the report stresses. 

Making renewable investments more attractive

Governments are called to back electricity offtake schemes to get more mid-sized companies, less familiar with dedicated power purchasing, into the long-term power market.

The lobby group says the EU’s favoured mechanism, the “contracts for difference,” should be reigned in, though.

These contracts—which always pay the same amount regardless of real-world power prices—increase market volatility, they argue.

That would result in “extended periods of zero and sub-zero prices,” meaning that the governments “backing the contracts would need to pay the full strike price or more.” 

Governments should create a government-backed insurance policy to de-risk investments, which would help power suppliers remain in business when energy markets are extremely volatile, as was the case in 2022.

Beyond asking governments to assume power market risks, the ERT is adding to calls for greater integration of the European grid. 

“Connecting Europe’s electricity systems will allow the EU to boost its security of electricity supply and to integrate more renewables into energy markets,” the report says, adding that the expert group in charge last met four years ago.

With industrial competitiveness concerns high on the Brussels agenda following the high-profile Antwerp declaration in February, expect these proposals to be read with interest within the Berlaymont.

[Edited by Donagh Cagney/Alice Taylor]

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