Expanding and improving Europe's energy networks will be vital for the transition to a low-carbon economy. The International Energy Agency has estimated the investment needs in Europe's distribution grid at €520 billion by 2035, almost three-quarters of the total transmission and distribution grid investments.
Those investments do not just consist of traditional "copper & iron", but increasingly of information and communication technologies, as part of the smart grids approach. They will benefit the entire electricity value chain, from producers and suppliers to system operators and, ultimately, customers.
Distribution system operators (DSOs) are responsible for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity. They will bear the main investment burden and most of the risks of introducing new technologies on a large scale. Yet their investments are currently being hampered by sub-optimal rates of return and regulatory instability. Return on investment for many European DSOs is lower than their cost of capital. Efficient national regulation that focuses on longer-term grid requirements and provides a fair rate of return should thus be encouraged.