Connecting the dots: Distribution grid investment to power the energy transition

Jointly undertaken with

A â‚Ź400 billion investment challenge 5. Investments rely heavily on enabling regulatory requirements frameworks 4. This investment increase should not translate into a major additional cost to the KWh 3. Societal benefits with regards to sustainability, competitiveness and the economy significantly outweigh the economic impact on distribution tariffs

2. This is a considerable investment, 50-70% higher than today

1. DSO investment needs: â‚Ź375-425bn

.

Massive energy system changes needed by 2030

+40-50m heat pumps

50-70m electric vehicles

+335 TWh (add. demand) industrial and P2X

Electrification

Emission-free generation

Energy efficiency & conservation

+470 GW centralised renewables

+40 GW self-consumption

~70% renewable capacity connected to distribution grids

>50% EV charging in off-peak hours

Foster the roll-out of smart meters

g

Total electricity demand will rise by +1.8% per year by 2030 DSO grids will need reinforcements and additional transformation capacity in substations to effectively accommodate for the anticipated rise in demand and ensure quality of supply

Final electricity demand per country (TWh; 2030)

Final electricity demand (TWh; 2005-2030) 4,500

Average

CAGR* 2017-2030

EU27+UK

~3,530

Germany 4,000

France

+1.8% 3,500

3,000

0 2005

725-768

2010

2015

2020

2025

2030

479

1.8% 3.1% 0.8%

Italy

310

0.7%

Spain

294

1.8%

Poland

174

1.3%

Sweden

150

1.6%

Denmark

71

6.1%

Portugal

55

1.2%

Hungary

52

2.1%

Ireland

38

3.0%

CAGR (2017-30; %) Source: Eurelectric; DSOs and associations; iea; Monitor Deloitte * Compound annual growth rate

All sectors will contribute to electricity demand growth

Source: Eurelectric; DSOs and associations; iea; Monitor Deloitte * Compound annual growth rate

70% of new 510 GW RES capacity will be connected at distribution level RES capacity additions (GW; 2017-2030) EU27+UK

~510

Germany

98

~70%

~40

~940

~93%

9.0

179

Spain

65

~25%

2.3

119

France

65

~85%

~1

111

~83%

~0

95

Italy

42

Denmark

15

~37%

0.2

22

Poland

15

~67%

6.6

24

Portugal

14

~56%

1.9

27

Sweden

12

~30%

n.a.

38

Ireland

10

~43%

0.2

13

~90%

n.a.

7

Hungary

6

New RES connected to DSO grids (%; 2017-2030)

Source: Eurelectric; DSOs and associations; Monitor Deloitte

Self-consumption capacity additions (GW; 2030)

Cumulative RES capacity (GW; 2030)

Distribution grids are ageing Average age of low-voltage lines in 2020 (in %)

• Investment needs due to modernisation by 2030 may grow

35-40% 30-35%

25-35%

• If assets are not replaced after their useful life, 40-55% of our low-voltage lines could be >40 years old by 2030 • Modernisation needs vary depending on expansion timings at national level

< 20 years

20-40 years

>40 years

The replacement equipment must be planned to ensure compatibility with new digital assets and avoid obsolescence

Source: Eurelectric; DSOs and associations; Monitor Deloitte

Distribution grid investments should focus on 8 key drivers Electrification of buildings & industry

Modernisation

Electrification of mobility

Digitalisation & automation

Smart meters

Renewable generation

Resilience

Storage & others

Key investment drivers: modernisation, renewables and electrification

Source: DSOs and national associations; Monitor Deloitte

Modernisation is the first area of investment in most of countries (nominal â&#x201A;Źbn; 2020-30)

90-105

15-16

Modernisation

Automat. of substations/ transformer stations

Replacement and modernisation of grid assets (e.g. lines, transformation centers), to maintain high levels of robustness

Automation of substations at distribution level, including remote control of substations

30-35

145-170

Smart meters

Total 2020-30

13-15

Monitoring

Grid monitoring to improve efficiency and security of supply Data management (storage, processing, cybersecurity, etc.)

Smart meters (1st and 2nd generation) to enable customersâ&#x20AC;&#x2122; monitoring and increase observability of LV grid

Modernising and replacing aging assets, especially in low voltage, has no downside Investments in digitalisation will help integrate a high volume of DER resources, and enable customer participation

Electrification and decarbonisation will trigger new grid build out Investments in distribution grids due to electrification and renewables by country (nominal â&#x201A;Źbn; 2020-30)

Final electricity demand (CAGR; 2017-2030))

Electric Vehicles (BEV and PHEV) (million; 2030)

1.8%

50-70

+360

3.2%

10-24.3

+91

0.8%

6.0

+55

10

0.7%

6.0

+35

Poland

9

1.3%

1.5

+10

Spain

9

1.8%

4.0

+16

Sweden

6

1.6%

1.0

+3

Ireland

3

3.0%

0.9

+4

Denmark

2

6.1%

1.5

+6

Hungary

1

2.1%

0.2

+6

Portugal

1

1.2%

0.6

+8

180-210

EU27+UK Germany

69-71

France

25

Italy

Examples

1.

Electrification in commercial and residential sectors (+ 400 000 new customers /year in France) , is mainly driven by heat pumps ( : 600 000 domestic heat Source: DSOs andex national associations; Monitor Deloitte pumps in Ireland) and renovations

2.

Renewable capacity will increase by x6 in Hungary by 2030; strong development needs for rural grids in Germany to integrate renewable generation

3.

RES connected to distribution grid (GW; 2017-2030)

The grid has the capacity to integrate the majority of the charging needs by 2030 coming from strong penetration of electric vehicles

Investment needs to increase by 50-70% to €34-39bn/year EU27+UK annual investments in power distribution grids and key drivers (nominal €bn; 2015-2030)

34-39

23

21

22

22

+11-16 €bn (+50-70%) 26 25

2015-19

Energy Transition

8-11

Digitalisation & Others)

3-5

2020-30 2015

2016

2017

2018

2019 Avg. annual investments 2020-2030

Source: Eurelectric; Eurostat; iea; DSOs and national associations; Monitor Deloitte

~23

34-39

Grid investments have major societal benefits SUSTAINABILITY

ECONOMY

€17-22bn annual CO2 savings €40-140bn annual savings in health

€ 30-35 bn of annual revenues for EU companies (e.g. manufacturers & service providers)

440-620k quality jobs per year related to DSO grids

58,000 premature deaths avoided

460 Mtoe less of final energy

€30-35bn annual sales in

consumption by 2030, achieving 32.5% of efficiency target

equipment (~90%

of total investment)

€34-39bn

of annual DSO investments in power grids

CUSTOMER EMPOWERMENT

COMPETITIVENESS

~40 GW self-consumption capacity added

Territorial cohesion and promotion of local economies

50-70m EVs with smart charging

€28-37bn average electricity cost

New services: storage, electric heating, smart appliances, aggregators

reduction (thanks to 50-65% lower RES than fossil generation cost)

+€175bn annual savings in fuel imports

~0.2-0.3% of current EU GDP in annual investments in power distribution grids

Investments will marginally impact electricity costs

Impact of DSO investment on electricity cost per electricity unit (€nominal/MWh; EU27+UK)

~1.5%

30

This investment will ultimately help lower the total energy bill

• DSO investment will result in an increased cost of electricity (CAGR~1.5%), but EU inflation rates will also be rising by 2% • Investment in distribution grids has no downside, bringing long and short term benefits:

20

− Long term reductions of incremental investment needs and tariff impact, especially with the efficiency of grid modernisation and digitalisation, − Enable RES deployment and electrification that will ultimately reduce the total energy bill

10

− Enable flexibility measures that increase costeffectiveness and may also help reduce tariff impact 0

2019

Source: Eurelectric; DSOs and associations; Monitor Deloitte

2030

Grid investments growth is limited compared to other decarbonisation needs

Annual investment in DSO grids (nominal â&#x201A;Źbn)

Investments for EU decarbonisation according to EC existing targets, excluding transport (nominal â&#x201A;Źbn)

~385

% Growth

~50-70%

~100% ~34-39

~22-23

2011-2019

~191

2020-2030

2011-2020

2021-2030

Annual investments in DSO grids will grow ~60% by 2030, less than the expected investment growth ~100% for decarbonisation

Source: European Commission; Eurelectric; Eurostat; European Central Bank; DSOs and associations; Monitor Deloitte

Regulatory actions to boost investments EU level

Challenges

Plan & execute investments

Improve security of supply & automation

Enable the energy transition

Policy issues

Regulatory actions

Planning

Low long-term visibility and lack of planning

Facilitate flexible national planning frameworks aligned with the energy transition and remove regulated investment limits

Funding

Barriers for DSOs to apply for EU funds

Facilitate access of DSOs to EU funds and prioritise investments in DSO grids in EU post-COVID recovery plans

Execution

Bureaucratic delays in permits & environmental authorisations

Simplify and accelerate authorisation and permit processes, facilitating proper involvement of local communities

DSO role

Little clarity on principles of enhanced role of DSOs

Facilitate a EU general framework for cybersecurity and data management. Speed-up CEP implementation, including DSO/TSO roles and responsibilities

Remuneration

Historic costs and low exposure to disruptions are intrinsic features of current remuneration models

Enable cost-reflective remuneration and incentive models to enable grid transformation and the energy transition

Flexibility

Lack of comprehensive regulation on flexibility

Develop roles, smart infrastructure, economic signals and information exchange procedures

Tariffs

Electricity tariffs should be more cost-reflective

Enable tariff structures that optimise long-term power investments and facilitate economic sustainability

Source: Eurelectric; DSOs and national associations; Monitor Deloitte

National level

Policy level

An increased GHG reduction target would result in a marginal impact on grid investments (~8%) Impact on EU27+UK due to increasing the ambition towards 2030 46%

Electrification of buildings & industry Electrification of mobility Emission-free generation Modernisation, digitalisation and automation Smart meters Resilience

GHG reduction Up to additional 150 TWh Up to additional 10 mn electric vehicles +110-120 GW

Investment drivers not affected by an increase in emissions reduction targets

Storage and others

EU27+UK power grid investments 2020-2030 (â&#x201A;Ź nominal billion)

50-55%

500

+8,0%

400 300 200 100 0

Current scenario (-46%)

New ambition (-50-55%)

50-55% GHG reduction ambition would require an additional 25-30 bnâ&#x201A;Ź of investment (+8% relative to current ambition) which is primarily driven by the increase of renewables

Source: European Commission; Eurelectric; DSOs and associations; Monitor Deloitte

Peak demand will grow at different pace Countries should deploy flexibility through load, generation, or storage related measures depending on technical (e.g. ramp response), economical, and regulatory conditions (e.g. saving potential, conducive framework)

Peak demand (GW; 2017-2030)

2017

2017-2030 increase

79

Germany

44 ~100

France

57

Italy

41

Spain

~100 5 62

8 49

123

Peak demand (CAGR; 2017-2030)

Electricity demand (CAGR; 2017-2030)

3.5%

3.2%

~0%

0.8%

0.6%

0.7%

1.4%

1.8%

Poland

24

4 28

1.2%

1.3%

Sweden

26

2 28

0.6%

1.6%

5.8%

6.1%

Denmark

6 7 13

Hungary 6.6

2.8 9.4

2.7%

2.1%

Portugal 8.5

0.5 9

0.4%

1.2%

1.9%

3.0%

Ireland 4.9

1.5 6.4