Changes from report parliamentary committee draft to plenary report

The update, modernisation and digitalisation of electricity grids in the Union will be crucial to achieve the EU’s climate and energy goals and increase our competitiveness. According to the Commission, there will be an expected increase of electricity consumption of 60% until 2030, as well as an increased need to integrate a large share of renewable electricity.

A completion of the Union’s energy market integration will save up to EUR 40 billion per year, and increasing the cross-border electricity trade by 50% could raise the GDP by 0.1 % annually.

Over 40% of the Union’s distribution grids are over 40 years old. They will face enormous challenges by the objectives we set: 130 million electric vehicles by 2035 – 85% of charging will be done residential, 10 million heat pumps by 2027.. By 2030, EUR 584 billion need to be invested in electricity grids, including EUR 375-425 billion in distribution grids.

If the Union does not face up to these changed realities, its economy will face increasing costs. In 2023 alone the costs stemming from managing electricity grids congestion in the EU summed up to EUR 4.2 billion and such costs will continue to rise. In addition, we suffer from massive costs due to curtailment. Nearly 30 TWh of generation were lost to grid curtailment in 2023 across six countries in Europe, costing close to EUR 9 billion.

It is therefore essential to technically update the grid, expand it and increase its capacity, keeping the costs in check at the same time, as both grid condition and cost have a significant impact on the Union’s competitiveness.

Regulatory Situation

While the Union’s energy system has changed, the rules and frameworks governing grids have not yet been sufficiently adapted. EU legislation must now put grids in the spotlight, which firstly requires a fast implementation of recently adopted Union law revisions, e.g. EMD and the RED III. Also the main framework governing grid development - the Trans-European Network for Energy regulation (TEN-E) - needs to undergo scrutiny. In its Communication on grids, the Commission proposes 14 non-legislative action points to address challenges arising. The Rapporteur believes that these are valuable proposals, as they tie to many adopted legislative frameworks and propose non-legislative action. However further actions will be needed.

Developing the European grid into a modern, sustainable electricity grid will also require oversight as to which grid investments have been undertaken, are ongoing and which are planned. While there is more information and structured data available at cross border level, data for national grid planning is currently not easily available and difficult to compare. ACER’s electricity grid monitoring covers 10-15% of all EU’s power grid investments. For a more strategic EU grid planning, it is critical that these data become available. It will ensure on the one hand that the grid planning keeps pace with the decarbonisation agenda, and on the other to enable stakeholders to take grid planning into account when making investment decisions.

Grid connection queues are currently handled differently in each Member State. To avoid uncertainty and market fragmentation, clearer guidance is necessary to discontinue the ‘first come first serve principle’. Instead, there should be clear priority criteria in place as to which projects can be connected. These criteria should include the quality and maturity of the project, the project promoter’s commitment, the public interest, its strategic value and its contribution to the decarbonisation agenda. To achieve the most harmonised result possible, the rapporteur proposes for the Commission to amend the EMD Regulation accordingly.

Whereas swift permitting procedures are crucial for the grid build-out, projects still face many years of permitting procedures. The RED provides for accelerated permitting for grid infrastructure, which is welcomed. The provisions should now urgently be implemented by Member States.

Financing

While global investments in power capacity have increased by 40 %, the grid investments have remained relatively stable. Estimations suggest necessary investments between EUR 1950 billion and EUR 2600 billion between 2025 and 2050.

The Connecting Europe Facility for Electricity (CEF-E) is the central tool to help finance cross border infrastructure. It is of utmost importance that, given the increasing need for further investments, the next Multiannual Financial Framework will reflect these investment needs in the CEF budget. CEF-E must be significantly increased to further connect electricity grids across borders. In addition, between 2014 and 2020, CEF-E funded around EUR 5.3 bn worth projects, of which around EUR 1.7 billion in transmission and EUR 237 million in smart distribution grids. Given the important relevance of investments on distribution level, the share of funding for these projects must be increased.

For other distribution projects, EU funds managed by the Member States, such as, the Cohesion Fund, the Regional Development Fund or others, exist. However, only very limited amounts have been allocated to grid projects, although these funds clearly provide for grid infrastructure outside TEN-E. In the field of energy, the available funds were used mostly for generation projects. The Rapporteur therefore suggests that the spending for grids should be increased, by ensuring that when money is spent in electricity generation, a proportionate amount of these funds should also be spent on grids. To ensure efficient use of these funds, streamlining is necessary.

In addition, the Rapporteur proposes the creation of a complementary funding instrument outside the MFF, based on ETS revenues.

Grid operators need to make forward-looking investments. The EMD already provides for anticipatory investments in grids and yet there are still national barriers hindering these investments. In addition, there is no common definition and understanding of how forward looking their horizon should be. Member States must remove barriers, and the Commission shall develop guidelines as to which investments are eligible as anticipatory investments. Member States shall also encourage further investments, such as private funds, EIB support or national banks. Risk mitigation tools and state guarantees may compliment those financing tool at national level.

An equal recognition of capital and operational expenditure, as foreseen in EMD, which needs to be implemented.

Cross-border capacities are vital for an integrated market. This requires well-planned, efficiently used transmission networks. 70% of capacities must be made available for cross-zonal trade and progress towards this goal is visible but limited. In many cases this objective implies re-dispatching costs. Parties benefiting from infrastructure and paying for the investments and operation are not the same. Existing mechanisms (Inter-TSO compensation (ITC), Cross-Border Cost Allocation or re-dispatching cost sharing) are either difficult to implement or financially not sufficiently equipped. The infrastructure element of the ITC fund is limited to EUR 100 Million annually. This sets wrong incentives. The Commission should therefore review the methodologies of these cost sharing schemes.

To keep grid fees bearable for customers, new grid fee models must be considered. Some Member States already introduced flexible grid fees, such as discounts, which can incentivise to shift the grid usage to outside peak hours. Flexible connection agreements for suppliers can help to shift the electricity supply to outside peak hours.