Grid investors keen on Europe as energy transition creates openings

September 23 – Investments in Europe’s power grids must accelerate to accommodate rising renewable energy capacity alongside a surge in demand from new data centres and the electrification of industry and transport.

The European Union requires 477 billion euros ($560.1 billion) of investments in transmission networks by 2040, as well as 730 billion euros in distribution networks, the European Commission (EC) said in June.

Europe’s shift towards low carbon generation accelerated when the bloc reduced its dependence on Russian gas following Russia’s invasion of Ukraine in 2022.

The EU installed 168 GW new solar and 44 GW wind between 2022 and 2024 and the proportion of renewables in the EU production mix jumped from 34% in 2019 to 46.9% in 2024.

Grid investments are lagging far behind, holding back growth. In the Netherlands, for example, over 15,000 companies are waiting for new grid connections, Elisabeth Cremona, Senior Energy analyst at research group Ember, told Reuters Events.

“Its networks and substations are fully saturated,” Cremona said.

A lack of grid investment was highlighted in the widespread blackout in Spain and Portugal in April. European grid operator association ENTSO-E is continuing to investigate the incident and has highlighted the need for enhanced voltage control management across Europe’s entire power system. One potential cause of the April blackout is that solar plants do not generate inertia, unlike thermal power plants, requiring the deployment of technologies such as synchronous condensers or batteries to provide back-up in case of an outage.

In June, the European Parliament called for changes to network planning that impact costs and incentives, as well as faster approval process for power infrastructure. By the end of 2025, the EC must set out specific measures and projects to accelerate grid expansions.

MAP: Forecast data centre demand growth in Europe

Source: Ember Purchase Licensing Rights, opens new tab

EU electricity markets have slowly deregulated since the early 2000s and private investors have become a key source of funding for grid expansions. Privately funded ventures include the 600 MW Elemed between Italy and Tunisia, approved by both nations in 2024 and the 504 MW Greenlink interconnector between UK and Ireland, completed in April 2025.

More than 44% of institutional investors regard Europe as their preferred destination for infrastructure equity investment, up from 33% percent in 2024, according to a survey conducted by IFM Investors in May 2025.

Investment opportunities include power lines and related infrastructure, international interconnectors and direct feedlines serving data centres and the nascent hydrogen economy, Luba Nikulina, Chief Strategy Officer at institutional investor and asset manager IFM Investors, told Reuters Events.

Growing demand for power infrastructure is creating significant opportunities in the UK and Germany, Alastair Bishop, Portfolio Manager at investment managers BlackRock, said.

Advantages of investing in Europe’s grids include a diverse range of regulatory frameworks and policy momentum towards net zero, Nikulina said. The EU aims to achieve net zero by 2050 and has set an intermediate target under the European Climate Law of reducing net GHG emissions by 55% by 2030, compared with 1990 levels.

These conditions result in “reliable project pipelines, historically compelling returns, and diversified opportunities,” she said.

Widespread benefits

Transmission investment reduces price volatility and boosts supply security by connecting low cost producers with high cost markets, Georg Zachmann, Senior Fellow at thinktank Bruegel, told Reuters Events.

In one example, a 2 GW line between Spain and France is currently being installed under the Bay of Biscay and is due for completion in 2028, adding to the existing 2.8 GW of transmission capacity between the countries.

Expansion of capacity between Spain and France would make the Spanish and Portuguese grids more resilient and allow the rest of Europe to benefit from their abundant renewables, Cremona said.

Knock-on benefits could include lower costs in Italy, Germany, and Poland due to less reliance on fossil fuel plants, she said.

According to ENTSO-E, every euro invested in power transmission between 2025 and 2040 would cut generation costs by more than 2 euros.

CHART: European investments in transmission, distribution grids (billions of euros)

Note: Europe includes the EU and Albania, Belarus, Bosnia and Herzegovina. Source: Bruegel, based on IEA (2024). Purchase Licensing Rights, opens new tab

The cost of inaction is high as grid operators tackle congestion challenges. Some European countries have reportedly spent billions annually on congestion management and investments in the grid vary widely. Germany spent 6 billion euros on grid projects in 2023 while Spain spent 825 million euros, Cremona noted.

In many cases, upgrading and enhancing existing transmission lines can increase capacity faster and at a fraction of the cost of building new lines.

One technology enhancement is dynamic line rating, which uses sensors to detect the safe transmission capacity and allows operators to exceed conservative thresholds, and is capable of increasing capacity by 20 to 30%, Cremona said.

Action needed

Private investors in Europe’s power networks require a “regulatory system that allows an appropriate return on capital to attract investors,” a spokesperson for E.ON, a major power supplier and grid infrastructure group, told Reuters Events.

Headquartered in Germany, E.ON is investing 35 billion euros over 2024-2028 in its European Energy Networks business, with investments funded by private capital. E.ON is active at three of Germany’s four grid levels but not transmission, which is managed by four Transmission System Operators (TSOs).

Returns on equity investment proposed in draft plans by Germany’s Federal Network Agency are too low to attract additional private investment, the spokesperson said. “While other countries like Poland and the Czech Republic already reward network investments with appropriate returns, Germany risks falling behind.”

As well as insufficient cost recovery mechanisms, transmission investors can face long waits for permitting approvals and a concentrated market for large high-voltage equipment of only three suppliers which could hold back investments in new production capacity, Zachmann said.

Permitting can take several years and greater action by European policymakers would help to accelerate approvals.

One example of success was the Baltic synchronisation project which integrated the grids of Estonia, Latvia, and Lithuania with the Continental European Network to reduce reliance on links with Russia and its ally Belarus, Cremona said.

The synchronisation project received over 1.2 billion euros of EU funding and was completed in February 2025, almost a year ahead of schedule.

The project “underlines the power of European solidarity and cooperation in building a resilient and interconnected energy future,” ENTSO-E President Zbynek Boldis said.