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

A report commissioned by the industry lobby group ERT reveals that the European Union is facing a grid investment gap of €800 billion until 2030, prompting calls for further reform of the power market to address the issue.

Renewables developers in Europe are frustrated by the inability to connect their solar panels and wind turbines, while many consumers grapple with the costs associated with existing grids. Grid fees, for instance, constitute over 20% of power bills in Germany and are expected to rise with additional investments. The European Commission estimates that €584 billion of additional infrastructure investments will be required by 2030.

According to a report by consultancy BCG commissioned by the European Round Table for Industry (ERT), the investment gap is projected to reach €800 billion by 2030 and €2.5 trillion by 2050. Despite annual investments ranging from €22 billion to €32 billion in recent years, the industrialists warn that grids will fall 60% short of what’s needed by 2050.

Expanding Europe’s electricity networks is crucial for continuing the push for decarbonization. More grid capacity is essential to accommodate electric vehicles, industrial processes, and electrified heating and cooling, as well as to enhance resilience to handle the variability of solar and wind power.

The report emphasizes that spending on grid investments must more than double annually compared to historical trends to meet the EU’s climate targets, amounting to between €70 and €84 billion each year. BCG modeling suggests that 60% of this sum will be allocated to distribution grids, 25% to transmission grids, and the remainder to cross-border connections and storage.

ERT proposes solutions in three key areas: streamlining permitting processes, overhauling energy market design, and bolstering the European single market. Permitting processes should exclude local actors like municipalities to expedite decision-making. Anticipatory investments, based on knowledge of future generation and demand centers, should be encouraged to build power lines in advance.

Regarding power market design, the transformation from fossil fuels to renewables necessitates a comprehensive overhaul to incentivize renewable investments. Governments are urged to support electricity offtake schemes to attract mid-sized companies into the long-term power market. However, ERT recommends reining in contracts for difference and proposes government-backed insurance policies to de-risk investments.

Finally, greater integration of the European grid is advocated to enhance security of electricity supply and facilitate the integration of renewables into energy markets. The report underscores the need for increased collaboration among EU member states in this regard. Given the importance of industrial competitiveness, these proposals are expected to receive attention within the EU’s policymaking circles.