For Europe, this is a pivotal moment in the fight against climate change. With extreme weather events becoming more frequent as temperatures continue to rise, the need to act is undeniable. Last year was the hottest on record, and the first in which global warming exceeded (temporarily) the 1.5°C threshold established by the Paris climate agreement.
In response, the EU has set ambitious renewable-energy targets to wean itself from fossil fuels. Since electrification is needed to drive the shift from coal, oil and gas, it is a key pillar of the energy transition. But while there has been considerable progress in scaling up renewable energy as a share of the EU’s energy mix, which accounted for nearly half of all power generation last year, electricity demand is also rising rapidly.
Electric-vehicle (EV) adoption and the electrification of heating and cooling systems in buildings mean that more electricity is required. Moreover, data centers in Europe now consume about 3 percent of electricity supplies, and that figure is projected to almost double by 2030, owing to rising data processing and storage demands. In Ireland alone, data centers consumed 21 percent of the country’s total metered electricity in 2023, surpassing urban households (18 percent). This surge in usage has placed immense pressure on Ireland’s grid, foreshadowing similar energy challenges across Europe.
Meeting the EU’s ambitious clean-energy goals requires modernizing the continent’s aging electricity grid, which is ill-equipped to handle the rapid growth in demand. The bloc’s power grid is the world’s oldest, at 45 to 50 years, on average. Grid congestion — when an overload prevents electricity from reaching the consumer — already results in renewable energy being wasted, and thousands of gigawatts of renewable projects remain stuck in connection queues. Without significant upgrades, Europe’s climate ambitions would remain far out of reach.
Although the EU has implemented an Action Plan for Grids, this is only a first step. The bloc currently invests 33 billion euros (US$37.4 billion) annually in electricity distribution networks, but experts estimate that modernizing and expanding the grid would require at least 584 billion euros by 2030. Europe must therefore double its annual investment to 67 billion euros, starting this year. Additional funds are essential to ensure that renewable energy can be transmitted to where it is needed most, and to prevent the bottlenecks that are holding up electrification projects.
Fortunately, Europe can take inspiration from its peers. In December, the UK unveiled a Clean Power Action Plan that aims to achieve 100 percent clean power by 2030, by unlocking ￡40 billion (US$53.2 billion) in annual investment. As part of this effort, the UK’s National Grid pledged ￡35 billion for electricity transmission, including ￡15 billion to increase grid capacity. Similarly, last year, the US launched the Federal-State Modern Grid Deployment Initiative, which focuses on advanced transmission technologies to expand grid capacity.
As these initiatives demonstrate, the problem is one of policy, not technology. Europe’s grid permitting and planning processes are notoriously slow. Transmission deployment can take up to 10 years, even though construction itself takes just one or two. Moreover with recent estimates indicating that Europe would need to double its current interconnection capacity over the next 10 to 15 years to meet its climate and energy targets, accelerating permitting has become an energy security issue. To address it, policymakers should streamline permitting processes and adopt a coordinated approach to grid planning across the entire EU. Legislated targets are critical to providing visibility for investors and avoiding supply-chain bottlenecks.
Another key area for improvement is grid optimization and allocation. EU policymakers should give top priority to grid connection requests from the most mature projects, and offer clear guidance and timelines for system operators. Requiring financial commitments to reserve allocated grid capacity would prevent speculation and ensure timely deployment. Following the UK’s example, the European Commission should replace the outdated “first come, first serve” grid allocation model with balanced allocation of capacity.
Beyond policy changes and increased financing, Europe must embrace innovation. Traditional solutions, such as dynamic line ratings (usage optimization technologies) and building new transmission lines, are no longer sufficient. The future lies in “smart” grid technologies, such as artificial intelligence (AI) applications that can help address congestion, and in long-duration energy storage (batteries) that can overcome the intermittency of renewables.
AI could also enhance existing grid infrastructure, alleviating the need for time-consuming construction in some cases. However, unlocking the technology’s potential would still require substantial investment in research and development, as well as incentives for start-ups in the sector.
Without a major upgrade to its grid, Europe risks squandering its renewable-energy potential and undermining its climate goals. The time for half-measures has passed. The EU’s Clean Industrial Deal and its Affordable Energy Action Plan both highlighted the need for major investments in the grid. To transform its energy infrastructure, Europe must double its financing, streamline its permitting processes and embrace innovation.
Emily Nixon is manager of finance, as well as environmental, social and governance, at noa, Europe’s largest world venture capital fund.
Copyright: Project Syndicate
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