Last week the EU energy regulators association (ACER) released a new report on electricity grid tariffs highlight the risk of an increase of 50% to 100% in annual network costs for consumers due to a doubling annual grid investments to €100 billion by 2050. The electricity industry does not agree with the underlying assumptions.
An unrealistic electrification scenario
Grid investment needs grow as electricity demand increases. By 2050, Eurelectric estimates power demand from transport, industry and heating will reach 4428 TWh by 2050. To meet this demand, investments in the power distribution grid should reach €67 billion per year. These scenarios align with the European Commission’s Impact Assessment on 2040 emission target which assumed a 50% electrification rate by 2040 and above 60% by 2050.
ACER, on the contrary, matched the same grid investment figures with a much more conservative demand scenario. Assuming less than 1% growth year-on-year, EU regulators expect Europe’s electricity demand to grow only by 300 TWh – the equivalent of Italy’s annual power consumption – every year from 2030 to 2050, to reach a total of 3345 TWh by 2050. Because grid investments are directly linked to the increase in power demand, assuming lower electricity demand would require lower grid investments.
If electrification scenarios are flawed, so is the prediction of higher network costs. As more businesses and households electrify, grid investments will be spread across a broader consumer base – shows Eurelectric’s Grids for Speed study – keeping network costs in check and preventing a disproportionate increase on the overall power bill.
Factoring in all components of consumers’ bills
Network costs are only one of the bill’s three main components which also include taxes and levies and energy supply costs. Currently, taxation policy in Europe still favours gas over electricity, with taxes weighing 1.4 times more in the electricity bill compared to gas. Fixing this misguided taxation policy is the low hanging fruit for EU countries to reduce the overall electricity bill.
Shifting consumption from fossil fuels to clean power also leads to lower costs in the overall energy bill as electricity is far more energy-efficient than fossil fuels. Eurelectric’s grid study estimates that households’ energy bills could halve by 2050 thanks to higher efficiency gains. Grid investments can further enable lower overall energy costs for all customers by facilitating cheaper renewable integration, alleviating congestion and limiting network loss.
ACER’s disproportionately high network tariff projections risk disincentivising consumers from electrifying at a time when clean homegrown electrification is crucially needed to ensure Europe’s energy security and continue decarbonising at an affordable cost.
Eurelectric calls on ACER to reconsider their projections along more realistic lines and to correct their recommendations so as to incentivise rather than deter incentives towards clean and renewable power.