What's New

Grid upgrades, expansions, and resilience will need trillions of U.S. dollars of investments to catch up with the rising share of renewable energy generation. Governments, especially in Europe, have started to realize that the net-zero ambitions and the cleaner electricity grids will cost much more than initially planned.

This decade, renewables generation has been breaking records in Europe every year, solar power surpassed the share of coal generation, and natural gas-fired electricity generation fell for the fifth year running in 2024.

Renewables enthusiasts are cheering the record-breaking solar and wind capacity additions, the demise of coal, and the falling gas power generation.

The Necessary Link

But policymakers have started to realize that record renewable energy capacity alone wouldn’t help on the road to net zero or whatever percentage of emissions reductions they have pledged. That’s because there is an indispensable link between power generation and demand – grids. This necessary link didn’t receive as much attention as the headline-grabbing facts that solar now generates more electricity than coal in the EU, or that coal ended in 2024 its run in Britain’s power system after 142 years.

It took the worst blackout in Europe in modern times for everyone to start paying attention to the need for massive investments in expansion and upgrades of the electricity systems.

Sure, some investment has been going to boost grid resilience and to upgrade lines, but the money isn’t anywhere close to the trillions of U.S. dollars needed to ensure the transmission and distribution of electricity generation to the demand centers.

The Energy Transition Gathers Pace

The EU’s electricity transition maintained momentum from earlier this decade in 2024. Last year, solar overtook coal for the first time ever, and gas declined for the fifth year in a row, clean energy think tank Ember said.

As fossil fuels begin to lose their grip on EU electricity, the surge in solar and wind cannot be sustained without grid infrastructure, Ember noted.

Solar power, for example, continues to be the fastest growing power source in the EU, but more storage and demand flexibility is needed to sustain growth and for consumers to reap the full benefits of abundant solar—by seeing their bills go down.

The Price Tag of Grid Resilience

The European Commission has estimated that $2.28 trillion (2 trillion euros) to $2.62 trillion (2.3 trillion euros) is required to meet grid needs until 2050, a review of the EU’s electricity grids by the European Court of Auditors showed earlier this year.

“Success hinges on overcoming key challenges, including coordinating grid planning across the EU, streamlining permitting processes and tackling equipment and labour shortages,” the European Court of Auditors (ECA) said in the report.

“A large part of the EU electricity grid dates from the last century: almost half of distribution lines are over 40 years old,” said Keit Pentus-Rosimannus, the ECA Member responsible for this review.

“To ensure the EU’s competitiveness and autonomy, we need modern infrastructure that can support our industry and keep prices affordable.”

This decade alone, the EU needs a cumulative $666 billion (584 billion euros) in grid investments, the Commission estimated in its ‘Grids, the missing link - An EU Action Plan for Grids’.

In a new EU guidance on ensuring electricity grids are fit for the future, the Commission said last week that by 2040, the EU will need investments of $832 billion (730 billion euros) in distribution and $544 billion (477 billion euros) in transmission grid developments. That’s a total of nearly $1.4 trillion—in grid investment only.

“Electricity grids are the necessary link between generation and demand,” the Commission said. In Europe, grids were mostly built decades ago and are in dire need of modernization and refurbishment, “but also in urgent need of expansion to capture the current complexities of the energy transition, both at transmission and distribution levels.”

The underfunded grid resilience is not a European problem, it’s a global issue, which the International Energy Agency (IEA) acknowledged – once again – in a report on global energy investments last week.

“In a worrying sign for electricity security, investment in grids, now at $400 billion per year, is failing to keep pace with spending on generation and electrification,” the IEA said.

Investment in grids is struggling to keep pace with the rise in power demand and renewables deployment, as $400 billion investment in grids worldwide is less than half compared with around $1 trillion on generation assets.

“Maintaining electricity security would require investment in grids to rise towards parity with generation spending by the early 2030s. However, this is being held back by lengthy permitting procedures and tight supply chains for transformers and cables,” the agency noted.

Upgraded and expanded grids will help the expansion of solar and wind capacity as projects may not have to wait for up to a decade, queued to connect to the power system.

However, the price of boosting renewable energy turns out to be much higher than originally anticipated—grids require trillions of dollars of additional investments, while governments have to continue subsidizing solar and wind power amid soaring costs for developers.

By Tsvetana Paraskova for Oilprice.com