Why the Net Zero Transition Hinges on Smarter, Faster Electricity Investment

Europe’s race to net zero is under serious threat—not because of a lack of ambition or renewable potential, but because the electricity grid isn’t ready. Frontier brought together energy leaders in Brussels last month to discuss a fundamental, if often overlooked, reality: without a step-change in grid investment, the whole system risks seizing up.

A Clear Economic Case

Power consumption is expected to surge (and indeed is already doing so in some parts of Europe). Eurelectric expects electricity demand to rise by around between 2024 and 30% 2030, driven by electric vehicles, heat pumps, and industrial electrification. Meanwhile, according to the European Commission, wind and solar generating capacity is set to more than double from 2023 levels, reaching approximately 1,000 GW by 2030. The result? An increasingly volatile power supply meeting rapidly evolving, and often localised, demand.

This is a recipe for congestion on networks built for a different era. Data centres, electrified heating, and EV chargers are piling pressure onto grids already struggling to connect new renewable generation. It’s not just a technical headache. Without investment in both transmission and distribution networks, the energy transition will stall.

The Cost of Standing Still

Participants in our workshop were clear: doing nothing isn’t cheaper. Britain spends over €1 billion a year on congestion-related costs. Germany spends nearly twice that. According to the EU’s Joint Research Centre, Redispatch volumes in the EU could rise from 50 TWh in 2023 to 374 TWh by 2030, potentially costing an additional €100 billion.

And these are just the financial costs. The climate case is even stronger: without a fit-for-purpose grid, renewables will be stranded, fossil fuel reliance will persist, and energy security goals will remain out of reach. In Ireland, for example, data centres already represent 20% of demand—placing real limits on other new connections.

Flexibility Helps, But It’s Not Enough

Yes, more efficient use of existing networks is critical. EVs and heat pumps can offer flexibility. Market signals and tariff design can nudge consumption to less congested times. Regulation requires DSOs to consider flexibility first.

But there are hard limits. Even the best-utilised UK distribution networks rarely exceed 40-50% utilisation. We cannot finesse our way out of this. The risks are asymmetric: overinvestment is suboptimal; underinvestment is catastrophic (see figure below – which illustrates the point based on Frontier analysis looking at Austria).

What Needs to Change

If the problem is clear, the regulatory response is not yet where it needs to be. The workshop discussion pointed to five areas requiring a deliberate shift:

1. Recognise Asymmetric Risk

Regulators need to treat underinvestment as the bigger danger. This means adopting a more explicitly pro-investment stance—recognising that the cost of delay far outweighs the cost of some surplus capacity.

2. Embrace Anticipatory Investment

Europe needs to build ahead of confirmed demand. This is already happening in offshore wind in Denmark and the Netherlands. The UK and Dutch approaches to scenario-based regulation—where investment proceeds once agreed thresholds are triggered—offer a model. The Commission is due to publish its guidance on this later this year.

3. Improve System Planning

Anticipatory investment requires integrated system planning. That means real coordination between transmission and distribution, across energy vectors, and between member states. We’re making progress—but the current pace is too slow.

4. Fix Regulatory Incentives

Total Expenditure (TOTEX) frameworks in tariff and revenue regulation, such as the UK’s RIIO, can help balance capex and opex. But they must be calibrated to support long-term quality and innovation, not just short-term cost control. Outcome-based metrics—connection times, renewables integration, reliability—should be front and centre.

5. Accelerate Innovation and Deployment

Dynamic line ratings, smart grids, batteries, and demand-side response are not futuristic extras. They are essential tools that need regulatory space to scale. Digitalisation offers new and cost efficient solutions, but requires new ways of technical and regulatory thinking. Finland and Italy are showing what’s possible through innovation funding and regulatory sandboxes.

Where Will the Money Come From?

This is not an abstract question. Most network companies cannot fund the required investment levels from retained earnings. Debt will help, but many will need substantial equity injections.

That’s a particular challenge for publicly owned operators, who often face political and fiscal constraints. They’ll need clear equity strategies, backed by proactive shareholder involvement. Otherwise, they risk being unable to match the required pace of change.

The Commission has launched an Investors' Dialogue and is exploring guarantees and blended finance. But clarity is needed: what problems are we solving, and who’s responsible for solving them?

Can We Actually Build It?

The grid supply chain is already a bottleneck. Lead times are long. Skilled labour is tight. If Europe is serious about expanding grid infrastructure, it needs an industrial strategy to match.

The Commission’s Action Plan on Affordable Energy and the EIB’s upcoming grids manufacturing package are steps in the right direction. But future EU budget cycles, including the 2028-34 MFF, will be crucial in providing the scale of support needed.

Conclusion: Time to Back the Grid

Grid investment is no longer just a technical necessity. It’s a strategic enabler. Without it, Europe’s decarbonisation, energy security and industrial strategies fall flat.

The task now is to align regulation, financing, and planning behind a single imperative: build the grid we need, before the window closes.