Why the distribution grid must a critical enabler of Europe’s energy transition

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To achieve a future where our energy system is no longer reliant on fossil fuels, we must develop a stable and robust network that can consistently deliver clean energy to everyone, everywhere. The backbone of this system today is the electricity grid. The key function of the power grid is to connect the dots,” namely to integrate renewable energy sources, facilitate new consumers connection demands, and maintain a reliable flow of electricity. 

This grid is made up of a complex network of transmission and distribution lines, transformers, and substations that allows the free flow of electrons from power providers to final consumers.

While transmission lines get the power from large production plants towards consumption, distribution grids bring the generated electricity into European homes and businesses.

Historically, distribution grids played a less dynamic role in the traditional electricity system, where power was primarily generated through big, centralised, fossil-fuel-run power plants connected at transmission level.   However, today's energy landscape is changing. Energy flows are now bi-directional, with generation and consumption happening at all levels. This is a trend that is expected to continue growing in the future. As more than 70% of new distributed assets – including electric vehicles, small scale renewable projects and heat pumps, will connect at distribution level, the distribution grid is gaining increasing attention.

Before deep diving in our changing electricity network, let’s take a moment to learn how the distribution grid works.

What are Electricity Distribution Grids?

 

Electricity distribution grids deliver power directly to our homes, offices, businesses, factories or other places that use electricity. These grids connect consumers to the transmission grid, which serves major users, such as large power plants and wholesale markets, forming a strong network. They are complex systems composed of many different physical components, including substations, transformers, electric overhead and underground lines, smart meters, as well as digital control and management systems.

Distribution grids are owned, developed, maintained and operated by Distribution System Operators (DSOs). As a natural monopoly, DSOs are subject to the regulatory oversight of national regulatory authority (NRAs). The latter is in charge of approving DSOs’ investment plans and protect customers’ rights. With the energy shifts introduced by the energy transition, DSOs now bear greater responsibility and are taking on a more critical role in delivering clean electrification.

How does the distribution grid differ from the transmission grid?

 

Delving further into the distribution grid, it's important to understand how exactly it differs from the transmission grid. The power grid is traditionally divided into three different components:

 

 

Power generation is where electricity is produced at a generation facility. This could be a gas-powered power plant, a wind farm, a solar facility, a hydroelectric dam, or a nuclear power plant.

Power transmission lines carry electricity over long distances at high and ultra-high voltage levels, typically over 220 kilovolts (kV), to minimise energy losses. They connect to power generation plants through transmission substations, where 'step-up' transformers are used to convert power from energy generation plants to very high voltage electricity. For power to reach the final user, however, voltage levels need to be lowered. Step-down transformers turn the high-voltage power flows into medium to lower voltage which are finally delivered to households and businesses through distribution grid cables. This process is known as the power distribution phase.

In other words, the distribution grid serves as the intermediary between transmission lines and final customers. One of its primary functions is to manage the flow of electricity from the transmission grid to meet the varying demands of consumers, this is known as the load. This load can fluctuate throughout the day and across different seasons, influenced by factors such as weather conditions, times of day, and economic activities.

Why is the distribution grid becoming increasingly important in the energy transition?

 

Our latest Grids for Speed report sheds light on the growing importance of the distribution grid in driving the transition to green energy. Europe is witnessing significant societal shifts that are rapidly reshaping the priorities of its electricity grid. 

The projections are staggering: by 2050, it's estimated that more than 70% of new renewable generation and electricity storage will be integrated at the distribution level station. Electricity will make up around 60% of Europe’s final energy consumption compared to a stagnating rate of 23% today. This marks a seismic shift in our energy landscape, with renewable energy capacity set to skyrocket almost six times over from 2020 to 2050. 

Yet, with this surge in weather-dependent renewable generation comes unprecedented variability on the distribution grid. Coupled with the rising electrification of heating, transportation and industry, the power grid is set to experience extraordinary strains.

Adding to the challenge are the alarming spikes in cyber threats and extreme weather events. Shockingly, our research uncovered a sixfold increase in cyber-attacks and a shocking thirteenfold rise in damage from extreme weather events. These issues are expected to only get worse with time. The grid must be able to control and balance the load effectively.

In light of these challenges, the urgent need to modernise the distribution grid becomes abundantly clear. It's not just about meeting the surging demand and being able to balance the load with the available generation capacity, it's also about adapting to a rapidly evolving energy landscape that must reach net zero emissions by mid-century. The distribution grid is emerging as a true linchpin in this transition. Recognising this, it’s imperative to explore the key enablers that will accelerate its readiness in Europe’s growing electrification.

 

Which enablers can get our power infrastructure up to speed with the  transition?

 

  • Grid investments

 

According to Grids for Speed, EU countries and Norway will need to invest an average of €67 billion annually from 2025 to 2050 to revamp their grid infrastructure. While this might sound like a substantially high figure, it's put into perspective when compared to the €451 billion spent by the EU on fossil fuel imports in 2023.

To better understand this investment figure, it’s crucial to break down its different components. The new responsibilities of the grid comes with varied investment needs, divided into several cost categories that paint a clearer picture of what is required to stabilise, reinforce, and modernise the grid.

As electrification in Europe increases, demand-driven reinforcement to accommodate growth in power demand and connection requests becomes essential. Significant investment will also be necessary to renew and replace ageing assets and to roll out smart meters. Additionally, grid reinforcement will be needed to allow excess generation to be distributed where it’s more needed. Ensuring targeted resilience through upgrades like underground cables and new feeder links is also critical. Lastly, Europe must secure adequate funding for system digitalisation and substation automation, among other digital solutions. These categories highlight the importance of timely and appropriate investment to bring our grids up to speed.

 

But why do we need such investment? The reality is that our distribution grid infrastructure is ageing. Neglecting to replace outdated distribution power lines in a timely manner could have severe consequences. By 2030, Europe could find itself grappling with 40% to 55% of its low voltage lines exceeding 40 years in service. With electricity projected to comprise 60% of all energy demand by 2050, it's clear that a significant overhaul of the distribution grid is imperative. 

As it stands, the distribution grid is only growing incrementally. Despite an 11% reduction in grid outages from 2018 to 2021, the grid is not keeping up with the rapid growth in connection demands. The increase in distribution grid length was a mere 4% compared to a much higher 22% rise in grid connections between 2019 and 2022. These figures highlight the urgent need for accelerated growth, which can only be achieved through a forward-looking investment framework to strategically upsize distribution networks.

Anticipatory investment is key for meeting the EU's decarbonisation goals by 2030. To accommodate the rapid increase in electricity consumption and the growth of renewable energy sources, the distribution grid must be significantly expanded. Without proactive measures, not only will decarbonisation targets be jeopardised, but economic growth and network development will also suffer. Anticipatory investment involves taking a forward-thinking approach to ensure the distribution grid is ready for future demands. It requires looking beyond immediate needs and anticipating future generation and demand.

We urge national European regulatory bodies to revise the Governance Regulation to better align long-term scenarios with NECPs and NDPs. , engage with DSOs to obtain their energy transition plans, and ensure that Transition System Operators (TSOs) plans align with anticipatory investment forecasts. The costs of anticipatory investment for DSOs should be financed through tariffs like other investments. We also call for more incentives for DSOs to utilise public funds specifically for anticipatory funding. Additionally, prioritising risk assessment, particularly for inadequate grid development risk mitigation, is essential. Without sufficient support from national regulators, the electrification transition is less likely to succeed, leading to numerous potential setbacks.

Eurelectric’s Connecting the Dots study shows that Europe is currently investing €33 billion per year in power distribution infrastructure. However, this figure is nowhere near the estimated €67 billion amount needed, as detailed in our Grids for Speed report. Without boosting this investment, the EU will not meet its decarbonisation and net zero agenda. 

Neglecting the urgent need for investment in grid enhancement will have dire consequences. Delays not only slow down the energy transition but also jeopardize energy security and the societal gains from decarbonisation.

If we fail to incorporate more investment funds, 74% of essential decarbonisation technologies won’t come to fruition. This means missing connections for 190 million heat pumps, 120 million EV chargers, 1,220 GW of distributed renewables, and 240 TWh of industrial electrification, according to our Grids for Speed study. Even more alarming, inaction could result in an additional 1800 – 2060 Mt CO2eq emissions by 2050, causing us to miss the net-zero target by 37%.

 

  • Grid supply chain expansion 

 

An often-overlooked aspect of getting the distribution grid up to speed is its supply chain. From materials and manufacturing to permitting and talent, every step must scale up to facilitate the green transition. With the distribution grid's growing significance, it's crucial to ensure that every link in the supply chain is optimised and ready for the challenge.

This entails ramping up the production of critical grid materials like copper, aluminium, and steel. Conductors and transformers are particularly vital components of the distribution grid, but their production takes a very long time and risks creating supply shortages.

Conductors, the materials used to transmit electrical energy, currently span 10 million kilometres (km). By 2050, this figure needs to surge to 16.8 million km, with copper, aluminium, or steel being the primary metals utilised.

Transformers are indispensable for managing voltage levels as electricity travels from power plants to consumers. Presently, we have 4.5 million transformers in operation, a number that must double to 9 million by 2050 – shows our study. Copper and steel reign as the primary materials here as well. Additionally, other elements of the grid, such as switchgears, reclosers, sectionalisers, and switches, will also require significant scaling up to meet the demands of the future. 

While scaling the supply chain of grid components, we should also make sure there are enough expert hands to handle them. It is imperative we upskill and expand the current workforce in Europe.

Currently, we're facing a shortage of workers equipped with the correct skill, experience and training needed to convert the grids for speed investment into tangible infrastructure.  This scarcity is particularly evident in electrical manufacturing skills, as highlighted by recent labour shortage surveys, with a shortage of electrical mechanics and fitters observed in 15 EU countries. Compounding this challenge is the ageing demographic of the workforce, with 36% of workers in the energy sector aged over 50 years old. It's clear that both policymakers and industry together must address this supply chain bottleneck today in order to support the transition tomorrow.

  • Digitalisation

 

The distribution grid is a remarkable engineering achievement, comprised of numerous high-tech digital components and services. As the power system evolves, incorporating cutting-edge technologies such as small-scale renewables, electric vehicles, and heat pumps, will require a much more digitalised infrastructure. In fact, addressing investment and supply chain challenges is closely linked with the process of digitalisation. This digital transformation is a global mega trend that is revolutionising processes, products, services, and experiences across all industries, including the electricity sector.

Digitalising the distribution grid can significantly enhance its efficiency right now – shows Eurelectric’s 'Wired for Tomorrow' study.

In this study, we explored how advancements in digital technology can propel the grid forward. We assessed the digital maturity of over 30 European DSOs serving more than 2 million customers across Europe. Our findings revealed digitalisation can significantly benefit construction, operation and maintenance of Europe’s power infrastructure, upgrade outdated technology systems, and better leverage the increasing number of data points within the grid system.

Moreover, the study underscored the critical role of digitalisation in supporting DSOs activities, especially regarding optimising current grid capacity and leveraging flexibility. With higher digitalisation, DSOs can harness more granular data from smart metres, smart heating systems, and smart chargers to better manage the grid and optimise capacity.

Smart meters heavily rely on digitalisation, proving immensely beneficial in enhancing flexibility and demand operations. In this way, electricity customers can adjust their consumption based on the grid status and price signals, lowering their energy use at times of peak demand or in more congested hours through demand-side response programmes.

This digital transformation is not just about adding new technologies; it's about revolutionising the way DSOs operate, making the grid more efficient, resilient, and capable of meeting future demands. As we embrace these innovations, we pave the way for a smarter, more sustainable energy future. 

How to get the grid up to speed with the energy transition?

 

The pressing need for digitalisation, alongside the demand for increased investment and enhanced supply chain scaling, necessitates swifter processes underpinned by more forward-looking regulatory frameworks.

National authorities can play a key role in this regard by enabling DSOs to invest today in getting the power infrastructure ready for a decarbonised power system tomorrow. To this end, it crucial NRAs implement anticipatory investments, as detailed in the EU electricity market reform, eliminate investment caps, expedite grid permitting and procurement procedures, and de-risk investments to attract private funding. Additionally, unlocking public financing through the EU budget will significantly bolster these efforts.

Streamlining these regulatory processes will have profound positive impacts on the development of our distribution grid. Ultimately, these measures will help propel our distribution grid towards a more efficient, resilient, and future-ready state. Embracing these regulatory improvements is crucial for meeting the evolving demands of our energy systems and achieving our long-term sustainability goals. 

How will society benefit from a future-proof power infrastructure?

 

Achieving the ambitious EU Net Zero 2050 and REPowerEU goals hinges on perfecting the distribution grid of the future. Not only is this crucial for our environmental targets, but it also promises meaningful societal benefits - reducing household energy and utility bills, creating new jobs, enhancing reliability, and advancing decarbonisation. Let's explore these benefits in a little more detail:

 

Energy & utility bills and affordability

First, efficiency gains from direct electrification can considerably reduce household energy consumption. Moreover, electricity distribution prices are expected to remain stable through 2050, as increased investment in the grid will be offset by higher electricity consumption and longer timeframes for the amortisation of the investment. In a Net-Zero scenario, European household energy and utility bills could be cut in half by 2050.

 

Job creation

 

One of the most notable benefits is perhaps the creation of both direct and indirect jobs through improvements to the distribution grid. The current EU workforce in this sector, which is currently grappling with challenges related to age, diversity, and skill shortages, could grow from around 835,000 jobs today to over two million by 2050.

 

Reliability and resilience

 

An obvious advantage of futureproofing the grid infrastructure is ensuring a reliable and resilient energy transition. In a decarbonised electric society, having a stable and dependable power supply source is crucial, and consumers already place high value on this today.

 

Decarbonisation

 

The final principal benefit that grid investment acceleration can bring is the role it's sure to play in decarbonising society. Without increased investment, 74% of connections needed for key decarbonisation technologies - such as heat pumps, electric vehicles, renewables, and low-carbon industries - would not materialise.

 

Security of supply

 

Enabling the electrification of Europe’s society means drastically reducing fossil fuel imports. This would not only bring great energy savings to the tune of €307 billion per year, but also contribute to our energy security by cutting risky reliance on foreign suppliers.

 

The distribution grid should be a central player

 

The distribution grid serves as the backbone of the modern-day electricity system. Often overshadowed by its transmission counterpart, it remains a vital yet sometimes overlooked component of the engineering marvel that is the electricity grid. This is why,

It merits greater attention in energy policy discussions to evolve in tandem to all other societal mega shifts, such as decarbonisation, electrification and digitalisation.

The reliability, resilience and stability of the electricity grid in the future, hinge upon securing appropriate investments, optimising the supply chain, and advancing digital technologies through effective regulation.

Get these essentials right for a grid up to speed!