Why electricity networks are critical for Europe's climate neutrality

02 December 2022

The electricity grid is a complex network of high, medium, and low voltage lines, that connects the power generators to end users.

The power network is one of Europe’s critical infrastructures, providing security, stability, comfort, and progress to customers, as well as industrial competitiveness. It is considered a ubiquitous and universal good.

Yet, the role of grids is evolving as Europe accelerates its transition to a net zero emissions economy. But what makes up the electricity grid? How does it work? What are the challenges ahead, and how resilient is it to rising climate change, evolving cyber threats and increased power demand?

What makes up the grid?

The grid is the backbone of the electrical value chain. It brings to consumers the electricity generated at large centralized power plants and decentralized units via a system of substations, transformers, transmission, and distribution lines.

The electricity flows through a mesh of transmission – high voltage lines operated by transmission system operators (TSOs) – and low voltage lines operated by distribution system operators (DSOs). Medium voltage can be operated both by TSOs and DSOs. In between, the transformers at substations adjust the voltage up and down.

Electricity transmission networks

Transmission lines traditionally connect large, centralized power plants to transformers, where the voltage is reduced before being distributed to end users. Their optimal functioning and maintenance are ensured by transmission system operators. Moreover, they are responsible for assessing the electricity demand, notifying generators about short-term (i.e. day-ahead, and peak demand) and long-term power needs (i.e. standard baseload), and managing the flows on interconnectors.

The interconnectors are cross-border lines that link Europe's national power grids. This physical structure enables electricity to flow across the continent, trading it across borders and ensuring exchanges between the EU Member States. This is a key element for maintaining the security of supply, as it allows regions with plenty or excess generation to send their electricity to areas where there is a shortage.

Electricity distribution networks

Distribution networks are typically the medium and low-voltage lines, which bring electricity to end consumers. They are operated by distribution system operators or DSOs, who make sure there are no congestions on the grid, connect customers to the grid, re-establish the connection in case of cuts, and cooperate with TSOs to enable the effective participation of those connected to the grid in retail, wholesale and balancing markets.

Electricity distribution grids are considered the backbone of the energy transition. They play a key role in delivering on the EU’s climate and energy policy, and in enabling a cost-efficient transition towards a fully carbon neutral economy. The Green Deal, the Fit for 55 Package and REPowerEU are just some of the EU’s legislative proposals that highlight their critical role, in conjunction with the prominent role the electrification will play in achieving a carbon neutral, energy independent European economy.

In view of these transformations the role of distribution system operators is evolving. Eurelectric’s pre-war scenarios presented in the landmark study “Connecting the Dots”, estimated that by 2030, 40-50 million heat pumps and 50 to 70 million electric vehicles will draw power from the grid, while the industry load would increase by 335 TWh. In addition to this, 70% of the new variable renewable energy capacities would be connected at distribution grid level.

Following Russia’s invasion of Ukraine, REPowerEU has upped the targets for renewable energies, thus seeking to deploy an additional 753GW of wind and solar by 2030. Moving away from firm electricity generation capacities, like coal and gas power plants, to variable energy sources increases the complexity of grid operations and challenges operators to find solutions for maintaining stability while dealing with increased intermittency. Such solutions include: better interconnections, storage, demand- response, digitalisation and flexible generation sources.

The evolution of the electricity grid

Europe’s electricity grid transformation is in full swing. As electricity utilities and EU Member States embraced the decarbonization objectives, a tectonic shift has started.

The traditional way of generating electricity through firm capacities – power plants producing with coal, gas, nuclear or hydropower – has been gradually complemented and/or replaced by renewable energy sources – sun and wind. Since solar power and wind power are weather dependent, they are considered variable energy sources. This means that they cannot generate electricity 24/7 or easily adjust their output to the demand. But their advantage is that the electricity they produce is carbon neutral and they are considered the cheapest source of electricity in the wholesale market – since sun and wind are for free.

As Europe is moving towards and increasingly decentralized and decarbonized power sector, electricity networks need to be future-proofed. Eurelectric’s “Connecting the dots” study found that approximately one third of EU’s grids is already over 40 years old. This share is likely to surpass 50% by 2030. Investments in infrastructure modernization will be essential going forward.

The Trans-European Energy Networks – Electricity (TEN-E) Regulation aims to better interconnect the national infrastructure across Europe. The EU seeks to develop smart grids, electricity highways and cross-border carbon dioxide (CO2) networks, through initiatives like the Projects of Common Interest.

Ensuring that Europe has a future-proofed infrastructure is of utmost importance. Hence, transmission system operators, represented by ENTSO-E, coordinate an EU-wide group of experts, which explore regional particularities and devise a 10-year network development plan (TYNDP). Every two years they present a report on how the European power system might look in the next 10 to 20 years, and what are the infrastructure development needs to deliver on our objectives.

What is a smart grid?

Smart grids are defined by the EU Regulation no 347/2013 as “electricity networks that can integrate, in a cost-efficient manner the behaviour and actions of all users connected to it, including generators, consumers, and ‘prosumers’, to ensure an economically efficient and sustainable power system with low losses and high levels of quality, security of supply and safety.”

These networks are highly digitalised and responsive thanks to a suite of technologies that enable a two-way communication between utilities and consumers. They are equipped, among others, with smart metering systems and sensors, that can automatically monitor energy flows and adjust to changes in supply and demand accordingly.

But their benefits go beyond this. A non-exhaustive list of their roles and benefits includes:

enabling real-time exchanges between consumers, suppliers, and distribution operators,
contributing to an increase of overall system efficiency and maintaining the security of supply.
increasing the reliability and reducing power outages through more accurate monitoring which enables operators to better forecast flows and identify potential disruptions.
lowering prices and helping to avoid blackouts thank to smart appliances that can “talk” to the grid and shift electricity use to off-peak hours.
facilitating the integration of renewable energy sources, like wind and solar, as well as new loads from electric vehicles and heat pumps.
empowering customers to play an active role in the energy transition by opening the possibility to sell electricity produced by their solar panels or to respond to prices (eg. charge their electric vehicle when there is high amount of electricity in the system but low demand).
allowing news market actors, like aggregators, to expand the offer of services to consumers and monetize the flexibility services.
reducing the needs for investment in physical infrastructure and expansions through the development of demand-response services.

The roll-out of smart networks is one of the priorities of the Trans-European Networks for Energy (TEN-E). Those projects that have a significant impact on energy market integration can be identified as Projects of Common Interest (PCI). To qualify for funding under the Projects of Common Interest, a smart grid would require the collaboration of transmission and distribution system operators from two Member States managing lines with a voltage above 10 kV, connecting a minimum of 50 thousand users, in an area with a demand higher than 300 GWh/year, over 20% variable renewables in the mix.

Examples of smart grid projects in Europe

Some examples of smart grid projects that increase the security of network operations and management across borders or foster the integration of the national electricity markets include:

GRID - (Slovenia, Croatia)
ACON (Czechia, Slovakia)
Smart Border Initiative (France, Germany)
Danube InGrid (Hungary, Slovakia)

Another example of smart grid is the cross-border flexibility project developed by Estonia and Finland. It seeks to facilitate the integration of renewable energy sources and increase security of supply in both countries through flexibility provided by distributed generation.

In cooperation with Eurelectric, the EU’s Join Research Center (JRC) has devised an interactive map of smart grid and meter projects.

Deployment of smart meters

Smart meters are the main pillar of digitalized distribution networks. The European Commission forecasts that nearly 225 million smart meters will be installed in the EU by 2024, benefitting almost 77% of power users. A follow up assessment indicated that a 92% penetration rate could be achieved in the EU and UK By the end of the decade, with an investment of 41 bn € .

This technology can measure the electricity fed into and withdrawn from the grid and enable a bidirectional, interactive communication between utilities and market participants. For instance, those with self-generation capacities like solar panels can use the smart meter to measure their household consumption and excess power injected into the grid, and automatically communicate this data to their supplier and operator.

Thanks to their ability to provide close to real time feedback on energy consumption, they can enable energy-saving behaviours and contribute to lowering bills. Based on data coming from pilot projects, a 2019 European Commission study forecasted smart meters can enable energy savings of two to 10 percent.

Six reasons to roll out smart meters:

Enabling dynamic tariffs for households and SMEs
Optimising of the network operations
Fostering innovation and new services in retail markets
Integrating decentralised energy resources with flexible access, such as load shedding or infeed curtailment
Supporting actions tackling fuel poverty
Supporting energy efficiency

The value of the electricity grid

The distribution grid is one of the pillars of the economic, cultural and scientific progress of modern society, given that it brings electricity to all businesses and citizens who want to be connected to it without exception or discrimination. It is a critical infrastructure, which provides security, stability, comfort, progress to customers, as well as industrial competitiveness. The grid and the electricity it delivers is generally perceived as a ubiquitous and universal good. However, as any other public service of this type (internet, public lighting, water), customers only realise its necessity in its absence.

Eurelectric’s report “The value of the grid” identifies a host of services that go beyond the delivery of electricity. They include:

ensuring a secure and available supply: the grid provides customers with the ability and freedom to perform their tasks, obligations and business operations, by adapting to their changing demands throughout the day, so as to avoid power outages and provide them with a reliable and affordable supply of electricity when needed.
providing high-quality electricity supply and voltage services: DSOs enable the safe operation of home appliances and industrial facilities, by keeping frequency and magnitude within boundaries, when distortions emerge.
enabling customer participation in the electricity market: the grid enables self-generating customers to be remunerated from selling their own excess electricity to the market, or even to local markets. Customers have thus the potential to be remunerated for providing flexibility services to the system and create additional revenues for themselves.
delivering electricity in the most cost-efficient way: the continuous connection of a rising number of users generating and consuming energy facilitates a more efficient and cost effective usage of the grid overall, ultimately resulting in benefits to all grid users.
reducing investment needs through effective and efficient management: by balancing the generating and consuming power flows, inefficient investments (in expansion) are avoided and therefore reduces the overall cost.
enabling synergies and minimising environmental impacts: the grid can reduce the need for additional energy sources and/or storage systems, thus minimising the environmental impact and space utilisation.
Contributing to industrial and economic development: Grid development also drives industrial development and ensures investors predictability of the development trajectory of certain regions.

How is the grid regulated

The core tasks of DSOs are listed in the Electricity Regulation (EU) 2019/943 and in the Electricity Directive (EU) 2019/944. They include:

System operations – DSOs secure a reliable flow of electricity through their They constantly develop and maintain the operated network, ensuring a high level of system security, reliability with due regards for the environment and energy efficiency.
Information providers - For the needs of distribution system users for efficient access to, including use of the system.
Neutral market facilitators – DSOs shall provide non-discriminatory access to their networks for other system users, like power generators or service They will increasingly move beyond their traditional role of “building and connecting” towards “connecting and managing”.

In a most EU countries, DSOs also own and manage metering infrastructure, organise supplier switching or act as information hubs by storing and providing metering data.

With the Clean Energy Package, a host of new tasks have been added to reflect higher digitalisation, decentralisation and decarbonisation of the system. They are now tasked to:

Plan and connect EV charging infrastructure, but they cannot develop, manage or operate recharging points for electric vehicles unless authorised by national authorities and fulfilling certain conditions
Integrate local storage facilities
Unlock flexibilities - DSOs may procure flexibility services, including congestion management in their areas, on a market-based approach.
Manage smart metering and data.

Grid ownership and operations

In Europe, grids fully regulated entities and are considered as natural monopolies. The EU has a reliable and highly meshed power network that has been over a century in the making. These grids are designed to meet peak demand based on contracted capacity of all connections, including reliability reserves.

Similarly, in the US, the grid infrastructure, including the transmission and distribution services, are considered a ‘natural monopoly’. In most cases, state-owned energy utilities or heavily regulated utilities will be granted control over a local market, with a request to provide low-cost, reliable supply to customers.

Infrastructure investment needs and financing models

Eurelectric, together with E.DSO and Monitor Deloitte, have conducted the first ever assessment of the amount of distribution investment needed at EU level. By analyzing the empirical data from 10 European countries and extrapolating it to EU-wide development scenarios, the study found that €375-425 bn need to be invested by 2030. This would support the achievement of the Paris Agreement and the Green Deal objectives, by ensuring that grids can cope with a massive increase of grid-edge decarbonized and electrified technologies.

Since then, the receding trend of investment in distribution infrastructure has shifted. Eurelectric’s Power Barometer has shown that annual investment has raised from €28bn in 2020 to €31bn in 2021. Yet a 23% increase is needed by the end of the decade to optimally support the energy transition. In addition, the European Commission estimates that between 2030 and 2050 the annual grid investment should be around € 61 bn.

Eurelectric’s Guide on EU Financing and Funding Instruments for DSO projects presents a list of available support measures and assesses their use in recent years.

Types of network tariffs

In most EU countries, network tariffs and grid charges are regulated and monitored by National Regulatory Authorities, according to EU guidelines and national law.

Grid operators perceive connection charges, which correspond to the costs incurred by connecting the customer to the grid and network tariffs. The latter generally contribute to recovering the DSOs’ capital expenditures linked to investments in assets, and operational expenditures - like system services and maintenance.

Network costs vary significantly among the EU member states, ranging from a relatively small share of the overall costs of electricity for the consumer (Cyprus, Greece, Italy, Malta) up to a significant share of these costs (Portugal, Czech Republic, Luxembourg). This can be partially explained by the age of different networks across Europe and costs of renewal.

The network tariffs relating to the use of the grid usually consist of an energy charge, a power charge (depending on the contracted capacity of the connection) and, in some cases, a fixed charge.

Network tariffs differ can differ from country to country. They could be flat, static or dynamic, volumetric or capacity-based. Static Time-of-Use (ToU) tariffs are considered to improve cost-reflectiveness and provide better price signals than flat tariffs. An overview of various tariff designs, as well as the advantages and risks they incur, is presented in Eurelectric’s report “Powering an efficient energy transition through efficient network tariffs”.

Data protection

The access to high-quality data is key enabler of an optimal grid management, the development of new services for customers and the clean transformation of the power sector.

As the grid becomes increasingly digitalised, real-time data can automatically be collected through smart meters. But, at a sampling rate of four times per hour, 1 million smart meters could generate more than 35 billion records. This abundance of data calls for sophisticated storage, and analysis tools, as well as policies that balance the need for data sharing with the protection of consumer privacy.

Artificial Intelligence (AI) and advance sensor technology have a role to play. For instance, they could help achieve grid stability through accurate baseload management features and predictive maintenance. In addition, they can enable an effective monitoring of consumption, thus improving demand forecasting and leading to an optimal match between supply and demand.

Moreover, with access to real-time data on generation and consumption, AI-enabled demand-response services could facilitate a better match of customer usage and renewable energy output.

Consumer personal data is protected by EU rules. This EU policy also includes measures to minimize the impact that smart grids and meters may have on personal data and privacy. While robust AI regulations are being developed to safeguard consumers, avoiding bias and minimising the risks of careless data management, they should also seek to foster innovation.

Cybersecurity is also gaining in importance in an increasingly digitalised power sector. As more smart grids, and smart meters are deployed, increasing our networks’ resilience to cyber threats becomes a priority.

Is the EU power grid reliable and resilient?

DSOs are tasked with finding the most cost-effective and reliable way of delivering energy to users, while ensuring continuous service quality. This means that despite variations in weather, generation or consumption, they must maintain a good quality of the electrical power flow, while avoiding network losses.

The duration and frequency of electricity supply interruptions, as measured by SAIDI (System Average

Interruption Duration Index) and SAIFI (System Average Interruption Frequency Index), indicate the reliability of the grid. Eurelectric’s Facts and Figures 2020, shows that in the course of the decade, the reliability of the power distribution network has increased in all European countries, driving the SAIDI and SAIFI down by 31% and 25% respectively since 2015.

But, as climate change intensifies and the the number of extreme weather events increases, all assets of the power sector are being exposed. This requires increased coordination and investment to strengthen resilience. Eurelectric’s Connecting the Dots study has estimated that 33 bn € would be required in 2020-2030 to support the resilience of the distribution grid. Investment in generation and storage must also complement them.

How are extreme weather events impacting power reliability?

Climate change and extreme weather events are impacting the entire electrical value. Here are some examples extracted from Eurelectric’s study “The storm – Building electricity resilience to extreme weather”:

Extreme temperatures erode the performance of thermal power plants, possibly leading to unplanned shutdowns and curtailments and an increase in operations and maintenance expenses;
Increased water temperatures reduce the ability of nuclear generators to cool down reactors;
Altered precipitation flows and drought impact hydropower reservoirs;
During high speed winds, turbines are shutting down to prevent excessive mechanical load;
Smokes from wildfires reduce the output of solar farms.
Prolonged heatwaves impact the underground cabling
Ice sleeves can cause the collapse of conductors

A host of adaptation and mitigation measures must urgently be taken to maintain the resilience and reliability of the system.