By Gianni Vittorio Armani - Head of Enel Grids and Innovability
From the perspective of a large distribution network operator such as Enel, what do you think is the most important trend in the energy transition in recent years?
There is no doubt that Distribution System Operators (DSOs) are facing simultaneously two major macro-trends. On the one hand, the energy transition is boosting renewables generation connecting to distribution grids, propelling electrification, and empowering more active consumers. On the other hand, climate change is posing new threats to infrastructure and demanding investments with ad hoc regulatory frameworks.
Renewables are now the most efficient, least costly energy source connected to the grid. In the last years, EU institutions have been working on how to incentivise large-scale renewable generation, facilitate new capacity installations, and foster technological development. Beyond these top-down incentives, customers are also actively engaging in Europe’s green transition, especially after the 2022 energy crisis.
We are witnessing a bottom-up renewables revolution where customers are at the forefront by self-producing green energy. This is introducing new challenges for power grids which have to manage intermittent and bidirectional power flows from massive, distributed generation. This is undoubtedly one of the most remarkable trends.
Today, Enel is already seeing some 50,000 new connections of producers and prosumers every month to the distribution grids managed in Italy, Spain, and South America. By the end of the year, we will reach approximately 1,5 million of prosumers connected to our grid in Italy, of which 70% will have batteries to optimise their injections and pullouts from the grid.
With distributed generation comes efficiency and electrification. Customers are not only keener to optimise their consumption, but they also work to electrify whatever end uses they can to reduce their environmental footprint. This means that distribution grids must be ready to deal with a much more distributed and complex power generation landscape.
Looking ahead to 2030, the European grids will have to integrate an additional 700-800 GW of renewable energy generation compared to 2021, and 70% of it will come from decentralised resources. At that time, by way of example, we expect around 4 million distributed generation plants connected to our grids in Italy alone. This trend underscores the imperative for distribution networks to evolve and adapt to the changing dynamics of a more decentralised and intricate power system landscape.
We have witnessed severe extreme weather events this year across all of Europe from heatwaves and wildfires to snow blizzards, from rain bombs to wind gusts. These seem to outline a new chapter for DSOs in terms of grid resiliency. How can we get the grids ready?
The short answer is that we must channel significant investments into the resilience of distribution grids, and we need to do it promptly. The energy transition calls for increased electrification as the main strategy to decarbonisation. Electric grids will therefore progressively become the sole energy vector for most uses.
According to the International Energy Agency (IEA), around $640 billion per year will be invested on average at a global level in new renewable generation until the end of this decade compared to an average of $470 billion spent on grids per year on the same perimeter.
We literally stand at a tipping point where grid investment is too low for the clean power and decarbonisation ambitions. That is why the IEA has recently called for increasing yearly investment into grids to at least $600 billion per year by 2030 in order to bridge this gap.
Focusing specifically on distribution networks within the EU, Eurelectric has highlighted the need to raise yearly investments to €65 billion by 2050. A portion of these funds should be earmarked for resiliency efforts, reinforcing, and strengthening grid infrastructures, or deploying advanced automation and remote-control capabilities.
Insufficient investment in grids right now risks delaying the necessary climate adaptation of our infrastructure, jeopardising not only renewable development but also residential and industrial electrification projects. If we don’t make the necessary investments now and our fossil fuels dependence continues, the latter would ultimately cost more than what we would have spent with timely investments.
Furthermore, we need regulators to acknowledge the crucial importance of anticipatory infrastructure planning and investments in climate resilience, as well as in other domains, to navigate this challenging energy landscape.
Speaking about regulation, what are the key dimensions that should be tackled from your point of view? Are you happy with the directions set forth in the recent EU Action plan on Grids?
In order to expedite grid development and investments, DSOs need to have all levers available to cope with the challenges just described.
A reliable and predictable regulatory environment is a necessary condition for all actors in the power system, even more so for the system operators. Across Europe, many DSOs are grappling with high interest rates and capital costs which hamper the certainty and visibility needed by companies for long-term investment commitments.
Enel welcomes the EU Action Plan focused on grids which recognises the technical and economic challenges faced by electricity operators and highlights the importance of updating remuneration schemes to recognise anticipatory investments and consider an efficient mix of operating and capital costs. We also appreciate the Plan’s reference to the current review of the Italian regulatory framework, initiated by ARERA during 2023, toward an increasingly broader approach and output based regulation (TOTEX scheme).
We also recommend prioritising measures aimed at adapting network infrastructure to climate change and at facilitating access to public funding for projects on distribution networks. Streamlining access to EU funds and grants for DSOs and reducing bureaucracy could also accelerate investments, speed up necessary network enhancements and reduce tariff impacts on customers.
The Enel Group has recently presented a new strategic plan for 2024 - 2026 which seems to acknowledge what you mentioned before about investments in power distribution grids. Can you share the main highlights?
Enel recently unveiled to the markets its upcoming three-year business plan and most of its investments will notably be focusing on distribution grids. The plan allocated a substantial €18.6 billion to distribution grids, representing 53% of the Group’s investments from 2024-2026. This is a big shift towards prioritising grid investment as the primary and most effective lever to enable the transition.
Within the 2024 - 2026 investments in Grids, 50% is directed towards enhancing “Quality, Resiliency & Digitalisation”, 32% is allocated to serving new connections requests, and 18% is dedicated to the ordinary asset management. Around 80% of this capital allocation will be reserved to our European grids, leveraging clear and remunerative regulatory frameworks. In Italy in particular, we will allocate over €12 billion, a substantial increase of 47% from the previous three-year period.
Our investments in Spain for the next three years are also set to grow by 8% from the 2021 - 2023 period. This increase reflects an escalating distributed generation trend, and a growing need to enhance quality and advance digitalisation, contributing to boost local hosting capacity.
However, the sector must address some of the regulatory limitations that currently constrain Spanish DSOs’ additional investment capabilities and profitability opportunities. Such limitations represents a collective challenge. It is not only about injecting increased investments and escalating financial commitments. It is also about addressing the technological challenges in preparing our grids for an evolving environment. We have the responsibility to steer the attention of our political leaders, regulators and communities towards future–proofing our distribution grids for our energy transition.