Europe’s Grid Reckoning

Europe’s energy transition has acquired a curious asymmetry. Renewable power generation is being deployed at record speed, but the grids needed to move electricity across regions and borders are not keeping pace. In 2024, the EU added roughly 72 GW of new capacity, most of it solar, bringing renewables to around 47% of total electricity production. Meanwhile, grid congestion costs are soaring. The European Commission estimates these could exceed €20bn by 2030. This creates a growing paradox: an energy system rich in capacity but poor in connectivity.

Attempting to mend this weakness, the European Commission unveiled its long-anticipated Grids Package last week. It is the most significant overhaul of trans-European energy infrastructure rules since 2013, when the original TEN-E regulation was adopted. The proposal, spanning fast permitting, more centralised planning and sturdier cost-sharing arrangements, is sensible and overdue. It promises to shave years off project timelines, align cross-border plans with the EU’s climate targets, and allocate costs and benefits more fairly among Member States.

Yet for all its ambition, the package is vague on the question that will ultimately determine its success: money. Europe faces an enormous grid investment challenge; and its transmission and distribution grid operators (TSOs/DSOs) are struggling to finance the required ramp-up.

1. A trillion-euro investment challenge

The scale is daunting. According to the Commission, Europe will need at least €1.6tn in grid investments by 2040: roughly €1.4tn for electricity transmission, including cross-border projects, and distribution, and another €240bn for hydrogen networks. Electricity distribution grids alone account for around €730bn, reflecting the fact that most new generation, storage and demands assets will connect at low and medium voltage.

Currently planned investments fall far short. The same analysis finds an investment gap of approximately €190bn for electricity transmission and €400bn for distribution grids by 2040 compared to planned projects (see figure 1). For cross-border electricity, about half of the needed capacity by 2030 – around 41 GW – remains unaddressed. ENTSO-E, the association of Europe’s TSOs, estimates a further need for 108 GW of additional capacity by 2040.

The payoff from closing these gaps is equally clear. Each euro invested in electricity grids saves two euros in system costs by 2040, says ENTSO-E. Deeper energy integration is therefore not only a climate imperative, but a competitiveness one.

The Grids Package aims to leverage these benefits through three main channels.

2. Speeding up the slowest link

The first pillar is permitting. The Commission proposes that Project of Common Interest (PCIs) and Projects of Mutual Interest (PMIs)^[1] receive the status of highest national significance, granting them priority and shorter approval timelines. It further suggests streamlined permitting authorities, digital procedures, and tacit approval when authorities miss deadlines. These measures build on emergency rules introduced during the recent energy crisis, which demonstrated that faster permitting is possible without weakening environmental safeguards.

These measures all together matter. According to the Commission, permitting accounts for most of total lead time for transmission projects, which can take four to ten years to deliver. Even modest reductions could unlock billions in earlier system benefits. Faster permitting also reduces risk premia, lowering the cost of capital for grid operators – a point often overlooked in political debates focused narrowly on headline investment figures.

3. Central planning

The second pillar is planning. The proposal for a revised TEN-E regulation shifts the balance away from a largely bottom-up approach led by TSOs towards a more centralised model. A more prominent role falls to the European Commission: it would be empowered to develop a cross-sectoral “central scenario” for electricity, hydrogen and gas, forming the basis for infrastructure planning. It would also gain the power to launch gap-filling calls where national plans fail to address identified bottlenecks.

The package also broadens the planning lens to non-wire alternatives, digital solutions and internal reinforcements – recognising that the cheapest grid is often the one not built.

The case for this shift is strong. Agora Energiewende, a think tank, shows that more integrated European energy infrastructure planning could reduce energy system costs by over €560bn between 2030 and 2050 (see figure 2). The Commission itself estimates savings of €2.3 for every Euro invested in the optimised grid. In a public consultation, 44% of respondents said that current Ten-Year Network Development Plans (TYNDP) done by ENTSO-E/G fall short in addressing identified infrastructure gaps, while 61% supported stronger alignment between national transmission development plans.

4. Sharing costs, at last

The third pillar tackles cross-border cost allocation. Under the current framework, projects delivering benefits across multiple Member States are frequently financed solely by the country hosting the physical asset. In electricity, this has resulted in precisely zero cases of formal cross-border cost sharing by non-hosting countries.

The revised rules aim to change this. Costs would be allocated in proportion to benefits, with a 10% benefit threshold triggering mandatory participation. Project bundling is encouraged, and 25% of congestion income to be earmarked for investments in Union-listed projects. In theory, this should reduce free-riding and improve incentives for new projects, though it may also complicate negotiations among Member States.

Offshore infrastructure as well as security and resilience provisions round out the package. Recent sabotage incidents and cyber threats have forced policymakers to take grid protection more seriously. New requirements on risk assessment, ownership transparency and trusted suppliers reflect the growing securitisation of energy infrastructure.

5. A package in search of a budget

Despite its ambition, the package remains evasive on financing. The Commission repeatedly points to the Connecting Europe Facility (CEF), its main funding instrument for cross-border infrastructures. But even assuming an unprecedented increase to €30bn in the next Multiannual Financial Framework 2028-2034 (€17bn of which would go to electricity grids, assuming constant proportions) around €30bn would still missing to close the cross-border expansion gap, according to energy think tank Ember (see figure 3).

This comes on top of mounting national financing pressures for both TSOs and DSOs. BCG, a consultancy, estimate that European TSOs face an external funding need of around €250bn by 2030. Our own analysis shows that German DSOs alone face an equity gap of €70bn over the next decade. Without additional public support grid operators will struggle to raise the required capital.

The Commission rightly stresses the need to attract new private capital. Yet the Grids Package neither adds new financing support nor outlines how existing de-risking instruments, such as InvestEU, could be better deployed for energy grid expansion. That is not to say that there is no funding beyond the CEF. In fact, the European Investment Bank has committed a record €11bn to new energy grid financing in 2025, mostly loans, nearly tripling the level in 2023. But more is needed still – Europe needs more grants for cross-border projects as well as loans, guarantees and equity to bolster TSO/DSO balance sheets, especially in Member States where National Promotional Banks lack capacity.

6. A necessary, but incomplete reform

We think the Grids Package is a serious and thoughtful reform. It aims to correct shortcomings in Europe’s infrastructure governance and align grid development more closely with climate and competitiveness objectives. In particular, the push for more central planning is right, but greater centralisation also brings risks, as Bruegel points out. To secure buy-in from Member States, such planning needs to be as transparent as possible.

It also needs to come with an integrated financing strategy that matches the proposal’s ambition to plan European energy infrastructures as a continent-wide public good. That is where we see the biggest weakness. Available financing for cross-border projects, though rising, remains too low. Expanding cost allocation is the right step and overdue, but the proposed changes are likely insufficient to address economic concerns by some Member States.

Initial reactions confirm this. During this week’s Energy Council Meeting, France, Italy, Poland and Sweden expressed reservations about a more central planning approach, citing concerns over subsidiarity, higher grid fees, and the risk of overbuilding infrastructure. In France’s case, this also reflects fears that cheap Iberian renewables could undercut the competitiveness of its domestic nuclear supply.

Europe’s grid policy must therefore move beyond rules to resources. Without a comprehensive European financing strategy – one that matches the scale and systemic nature of the challenge – the Grids Package risks becoming a triumph of ambition over delivery. Europe will know exactly which grids it needs. It may still struggle to build them.