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Grid Investments – The enablers of the EU Green Deal

Grid Investments – The enablers of the EU Green Deal

On the 3rd of September 2020, T&D Europe hosted two webinars on the important issue of grid investments. Here is our summary take on two interesting and lively debates.

Electricity and electricity networks are the backbone of Europe’s energy system and play acritical role in supporting the transition to a climate-neutral Europe by 2050. While Europe is home to a world-class electricity network, it is clear that future networks will be different. Due to the energy transition, increased consumer focus and participation and further electrification it is crucial that networks receive sufficient investments. In its long-term decarbonisation strategy, the European Commission published 8 scenarios for achieving net-zero greenhouse gas emissions by 2050. These include average annual investments in the power grid of €80 billion to €110 billion between 2031 and 2050, compared to a baseline for the 2021-2-3- period of €59.2 billion. (European Commission (2018), In-depth analysis in support of the Commission communication COM(2018) 773, p. 202). The question is if and how these investments become a reality.

The good news is that investments are happening and planned, according Benoit Esnault (Head of Department, Interconnections and European Networks Department, Commission de Régulation d’Energie), Andreas Luxa (Vice-President T&D Europe) and Veli-Pekka Saajo (Chairman Distribution System Working Group at the Council of European Energy Regulators, CEER). In France for example RTE has increased its IT investments from €100 million per year in the period 2000-2010 to €175 million per year in the period 2010-2020. Looking ahead the trajectories are expected to be between €250 million and €370 million per year. In Germany annual investments amount to €1.3 billion to €1.5 billion. A study by Agora EnergieWende estimates that this amount needs to double to prepare the networks for the widespread electrification of transport. Finland has also been implementing an ambitious network investment plan. Furthermore. infrastructure investors are also very much interested in opportunities created by the energy transition and the EU Green Deal, assured Lawrence Slade (CEO Global Infrastructure Investors Association, GIIA), whose members have global investments of US$ 800 billion, including in energy infrastructure.

Investments are expected to receive a further boost from a number of developments. As part of the implementation of the Clean Energy Package, European distribution system operators are working on distribution system investment plans. CEER is preparing a workshop on this and published a relating paper on it. The National Energy and Climate Plans (NECPs) of Member States also provide the outline of planned investments in the electricity network. The NECP can be a basis, but require further and more detailed analysis so that they can become an investment plan, according to Juan Rios (Director General Global Planification and Regulation of Distribution Grids at Iberdrola), who added that Iberdrola had conducted an in-depth study for this purpose. Catarina Sikow-Magny (Director Internal Energy Market, DG Energy, European Commission) pointed out that the recovery and resilience plans, which Member States have to submit as part of their application for COVID-19 funding, are also an opportunity for grid investments. She also mentioned that the European Commission will be presenting an off-shore strategy with the ambition to increase the production of renewable energy twenty-fold compared to today. As such this is not business as usual but a real step change. The Commission is also planning a revision of the TEN-E regulation, which is expected in December 2020, in which it will look at the possibility to connect the trans-European networks with citizens.

While financing is not an issue and investments are happening, two further crucial elements of future-proof electricity networks are technology and innovation. Technology is crucial, according to the panellists. Based on their day-to-day experience, Juan Rios (Iberdrola) and Davide Della Giustina (Head of Network Operations at Unareti) said that we have a stable supply of reliable network technologies and grid solutions and that there is no risk of ending up with stranded assets. Daniel Fraile (Head of Market Intelligence at WindEurope) pointed out that grid optimisation technologies are commercially available and can help to increase grid capacity and defer investments. Yann Fromont (President T&D Europe) said that T&D Europe had proposed as Smart Grid Indicator, which is now part of the EU Electricity Directive (Article 59), and regulators need to propose the rules by December 2020. Implementing this grid smartness monitoring tool will be an opportunity to make the grid future proof, flexible, and affordable for all citizens.

Alongside the available technologies innovation is as important. Anne-Véronique Faure (Head of DSO and smart Grids Demonstrator at ENEDIS) gave an interesting insight in how ENEDIS is unlocking flexibility as a way to make grid developments more efficient. She pointed out that apart from learning how to utilise flexibility, ENEDIS also had to re-design the conventional investment procedures to be able to include the value of flexibility. She and Guido Bortoni (Adviser to the Deputy Director General for Energy in the European Commission) agreed that the use of flexibility is an addition to conventional investments. Mr Bortoni stressed that it important that innovations such as the one developed by ENEDIS should be taken up by other operators. He wondered if it would require regulatory innovation to enable and encourage operators to consider how to use flexibility. Veli-Pekka Saajo (Chairman of the Distribution System Working Group at the Council of European Energy Regulators, CEER) observed that regulators may also need to adapt so that they can respond faster. ACER and CEER are discussing what they can do to facilitate such a sharing of best practices. Benoit Esnault (CRE) invited operators to elaborate on new business models to feed the reflection on future regulatory developments.

The panellists in both sessions all underlined the importance of a stable and predictable policy and regulatory framework to unlock the necessary investments. Europe is home to a world-class electricity network, which is an excellent starting point. Also with the Clean Energy Package the EU has recently updated its energy policy framework to enable the future-proofing of the network. But as Juan Rios mentioned, future grids are different from the grids we have known before. They will continue to be composed of hardware, but complemented with digital assets, which are needed to provide users and consumers with a network that responds to their needs. Daniel Fraile (WindEurope) was missing a sense of urgency when he noted that everybody agrees that technology is available and that investments are needed, but we are not deploying them fast enough. Andreas Luxa (T&D Europe) echoed this by wondering who could be the drivers for mobilising the necessary investments in a timely fashion. For investors the EU Green Deal is a fantastic opportunity, but they need predictable, long-term regulation as well as certainty about the pace of the energy transition, said Lawrence Slade (GIIA).

A number of speakers said that the current framework contained incentives, while other pointed to specific regulatory hurdles. The Clean Energy Package opens the door to moving away from an investment approval regime that is exclusively based on capital expenditure (CAPEX). There is, however, still work to be done to work out the detailed rules of the game for operators. Guido Bortoni cautioned against seeing a TOTEX (total expenditure) approach as a no-regret choice for regulators to decouple the classic CAPEX-based regulation and consequently foster the uptake of flexibility markets. Introduction of TOTEX, as experience has shown, could result in a very burdensome task for regulators which could be justified only if benefits to the system of having it in place outpaces that burden. Juan Rios said that in Spain Iberdrola is limited by permitting issues as well as investment caps. These hurdles need to be removed if the DSO is to fully take up its role, for example to unlock flexibility.

Benoit Esnault (CRE) reminded the panel that the role of the regulator is to critically review the proposed investments. Its role is to ensure that money is invested effectively and efficiently on behalf of society. Guido Bortoni (European Commission) added that regulation and regulators should not take care of any risk, instead they should be aligning incentives between network or market operators and the interests of the system as a whole. Veli-Pekka Saajo (CEER) joined in by pointing out that regulators take a whole-system approach, something that is becoming increasingly important as part of the EU debate on sector integration. Lawrence Slade (GIIA) agreed that the objectives of climate-neutrality and net-zero emissions apply to society as a whole and therefore investment decisions need to take into account all abatement options in society.

The role and involvement of citizens and consumers should not be forgotten. The question from Lawrence Slade if we have brought consumers along is an important. Catarina Sikow-Magny’s announcement that the European Commission will be looking at how to connect TEN-E with citizens may be part of the answer. Benoit Esnault underlined efforts for rolling out smart meters, making consumers an active element of the energy value chains.

In summary, participants agreed on the importance of investments in the electricity network and it is clear that investments are taking place. Neither money nor technology are hurdles for a successful future-proofing of Europe’s electricity network. Innovation in grid planning and operation are taking place by finding ways of unlocking flexibility, which can help to make grid developments more efficient. However, flexibility is not a replacement of conventional grid investments, but rather an additional option. While Europe has a world-class grid and regulatory framework, there are still important issues that need to be resolved. This cannot be done in silos, instead it will require the ongoing collaboration between and co-creation by policy-makers, regulators, network operators, network users, technology providers, local and regional authorities and citizens and consumers.

T&D Europe would like to thank the key note speakers Anne-Véronique Faure and Benoit Esnault and panellists Catarina Sikow-Magny, Guido Bortoni, Daniel Fraile, Davide Della Giustina, Yann Fromont, Andreas Luxa, Juan Rios, Veli-Pekka Saajo and Lawrence Slade for their contribution to two excellent debates. T&D Europe will continue to contribute to and facilitate dialogue on future-proofing Europe’s electricity networks.

You can find the recordings of the webinars here:

Part 1 - https://www.enlit.world/europe/on-demand-europe/grids-hub-series-season-2-episode-1-green-investments-for-the-grids-part-1

Part 2 - https://www.enlit.world/europe/on-demand-europe/grids-hub-series-season-2-episode-1-green-investments-for-the-grids-part-2