The path to cheap power will be very expensive

Reuters

4 hours ago

LONDON, June 9 - Europe's ambition to develop cheap, clean energy has recently received a harsh reality check, as power failures and a string of cancelled renewables projects made it clear that the road to inexpensive power will carry a very high price tag.
European investments in renewable energy have risen sharply over the past decade as governments have begun implementing policies to reduce greenhouse gas emissions – an effort that sped up after Russia's invasion of Ukraine created an energy price shock.
The share of renewables in the EU's power sector rose to 47% in 2024 from 34% in 2019, with a record 168 gigawatts (GW) of solar and 44 GW of wind power capacities installed between 2022 and 2024 alone, according to EU data. In Britain, renewable generation exceeded 50% for the first time in 2024, data showed.
But investment in grid infrastructure, including pylons, cables, transformers and battery storage technology, has barely kept up with the rapid change in the power generation mix. Between 40% and 55% of low-voltage lines will exceed the age of 40 by 2030, while their length increased only by 0.8% between 2021 and 2022, according to a European Commission report.
The Commission last week issued guidance for developing electricity networks in which it estimated the bloc will require 730 billion euro of investments in power distribution and another 477 billion euro in transmission grid developments by 2040.
The underinvestment in grid infrastructure has created strain in many systems, a risk that was laid bare on April 28, with the catastrophic blackout in the Iberian Peninsula.
Regulators are still investigating exactly what triggered the collapse of the power systems in Spain and Portugal. But what is known for sure is that the outage was preceded by the disconnection of two solar farms in southern Spain.
The Spanish system is heavily reliant on renewables, but the issue was not the energy source itself. Rather, the problem was that the grid system had not been updated to account for the fact that solar-powered plants, unlike those using fossil fuels, do not generate inertia – the kinetic energy created by the rotation of spinning generators – which can help stabilize a grid in the event of power disturbances.
To overcome this challenge, operators would need to invest in technologies such as synchronous condensers or batteries that kick in within milliseconds in the event of an outage to offer backup.
The Iberian debacle puts a spotlight on the fact that more investment is needed in the mundane, but vital, elements of grid infrastructure.
Another reality check for Europe has been the realization that offshore wind – once heralded as a potential renewables game changer – simply has lousy economics today.
Danish offshore wind giant Orsted on May 7 cancelled a major project off the eastern coast of Britain, Hornsey 4, dealing a blow to the country's ambitions to develop 50 GW of clean power capacity by 2050. The recent rise in material costs forced the cancellation, according to Orsted, which had already sunk 5.5 billion Danish crowns ($840.5 million) into the project.
And then on May 16, the Dutch government postponed tenders for two offshore wind farms with a total capacity of 2 GW due to a lack of interest from potential bidders. Several companies said they saw no viable business case for the projects, which offered developers no government subsidies.
These two cases suggest that capital-intensive projects like offshore wind simply won't make economic sense without more ambitious government policy initiatives.
The challenge is not unique to Europe.
While worldwide investment in clean technology has risen, the headline figures mask a less rosy picture.
The International Energy Agency (IEA) said in a report published on June 5 that global investment in power grids reached a record $390 billion in 2024 and is set to surpass $400 billion in 2025, 20% higher than a decade ago.
But spending on power grid upgrades has not kept up. In 2016, about 60 cents were invested in grids for every dollar spent on new generation capacity. That ratio has dropped to less than 40 cents as the costs of renewables has declined, according to the IEA.
This imbalance is unsustainable as ageing Western power systems – especially those in Europe – will increasingly experience problems unless trillions are spent in grid upgrades.
The investment shortfall partly reflects a fundamental time horizon mismatch.
Governments face public pressure every time energy bills – or taxes – rise, so they will struggle to convey to voters the long-term benefits of spending billions in tax dollars to support building modern, low-carbon power systems.
But energy companies and utilities seeking to invest in renewables and grids will need long-term policy certainty, and given the challenging economics for many renewables projects, they will often also require generous subsidies.
To be sure, the long-term costs of inaction to mitigate climate change will be far higher, and the EU is already spending over 100 billion euros annually on fossil fuels subsidies. But long-term thinking is not an easy sell for politicians in a time of growing populism, nationalism and polarization.
Ultimately, if European governments want their populations to have cheap, green energy, they will need to accept the reality that getting there will be more expensive and more government-driven than previously advertised.
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