Powering Europe’s energy security: the vital role of grid investment

As Europe speeds up its push for energy security, electrification is key to cutting fossil fuel dependence and CO₂ emissions in transport, heating and industry. While renewables have gained political and innovative momentum, one vital piece is often overlooked: the energy grid.

The International Energy Agency (IEA) predicts Europe’s annual grid spending will top $70bn by 2025, double that of a decade ago. Yet, grid investments still lag behind renewable deployment. Globally, $400bn goes to grids yearly versus about $1tn on generation. To secure energy security amid rising electricity demand, grid spending must rise quickly, nearing generation investment levels.

This investment gap causes inefficiencies in Europe and beyond, like long connection queues and difficulties moving cheap renewable power from production to demand centres. Without massive upgrades, Europe will not be able to deliver green, affordable energy to citizens and businesses, leaving the green industrial revolution stuck waiting for grid connection.

Why grids are central to the green energy transition

Historically, power grids were designed for one-way electricity flows – from large, fossil-fuel or nuclear-powered plants to consumers. Today, they must handle bi-directional flows, integrate intermittent sources like wind and solar, and connect decentralised producers like rooftop solar and community wind farms. Transmission networks need upgrades to accommodate expanding onshore and offshore renewables, enhance cross-border connections and implement real-time monitoring. Eurelectric, the electricity industry body, warns that more than half of Europe’s distribution grids could be older than 40 years by 2030, putting them close to the end of their lifespan. Distribution networks are also under pressure from rising demand, ageing infrastructure and the growing need for climate-resilient and smart systems.

A dual challenge: physical and digital

Modernising Europe’s grid is not just about building new lines and substations. It requires a comprehensive digital transformation to make the system more intelligent, flexible and secure.

This means deploying digital tools, automation and cybersecurity, alongside physical upgrades, to create a grid with higher capacity, faster response times and improved resilience. But this dual nature makes grid investment especially complex and capital-intensive.

Barriers to grid investment

Grid operators, including transmission system operators (TSOs) and distribution system operators (DSOs), face many challenges. Lengthy permitting processes, public opposition to new infrastructure, and the need for costlier underground or subsea cables all slow progress.

At the same time, macroeconomic pressures such as higher interest rates and construction costs make large-scale projects more difficult to finance. Traditional financing models often fall short, especially for newer, grid-related business models like energy storage or distributed generation, which carry higher risks.

Adding to the complexity is the fragmented nature of the sector: from large multinational TSOs to small municipal DSOs, each operating under different national rules. This diversity makes it hard for lenders to apply consistent financing solutions.

The EIB’s role in bridging the gap

In this challenging landscape, the European Investment Bank Group (EIB Group) play a vital role. As the Climate Bank, the EIB Group helps de-risk grid investments and crowd in private capital through blended financing solutions with EU budget guarantees and favourable lending conditions.

Within a record €100bn financing ceiling for 2025, the EIB Group is boosting support for clean energy, grid supply chains, cleantech innovation and energy efficiency. It has committed a record €11bn in new financing for energy grids in 2025, nearly tripling volumes compared to 2023.

The EIB Group offers a wide range of products, from corporate and project finance loans to participation in green (including hybrid) bonds and loans, and more recently, sustainability-linked loans. The Bank also provides advisory services to support the preparation and implementation of projects.

Earlier this year, in support of the EU’s Clean Industrial Deal and Affordable Energy Action Plan, the EIB Group launched a €1.5bn package to provide counter-guarantees through partner banks to European grid component manufacturers. This initiative supports the expansion of supply chains critical for renewable energy integration and energy security, building on the EIB’s successful programme backing European wind turbine and component manufacturers.

The package targets key bottlenecks such as transformers, cables and switchgear to help ensure resilient, future-proof electricity grids. It aims to reduce external dependencies by strengthening Europe’s supply chain for essential grid components. In doing so, it will give businesses the long-term certainty needed to scale up production and accelerate the development of grid infrastructure across Europe.

Range of EIB Group support

Recent examples of innovative operations include the EIB’s participation in green hybrid bond issuances by Redeia Corporación in Spain, and Tauron and Energa in Poland, contributing to the implementation of the investment plans of these TSO companies.

In addition, the EIB is working with banks to ease access to finance for smaller municipal authorities looking to modernise their grids and other utilities. A pilot Growth for Energy (G4E) initiative is intended to provide targeted assistance to those countries with more decentralised providers.

Examples of impact

Two recent projects highlight the EIB Group’s commitment:

• Princess Elisabeth Island: The EIB signed a deal with Elia Transmission Belgium to finance the world’s first artificial energy island off Belgium’s coast, integrating 3.5 GW of additional offshore wind capacity into Belgium’s electricity grid – enough to power more than three million households.
• Bay of Biscay Interconnection: The EIB pledged €1.6bn to help build this vital link between Spain and France. It will nearly double electricity exchange capacity, ending the Iberian Peninsula’s isolation from the EU energy market – a major step for regional integration and Europe’s strategic autonomy.

From investment to action

If Europe wants to maintain climate leadership and economic competitiveness, grid investment must be a top policy priority. This means accelerating permitting, supporting innovation and deploying more flexible financing models. Energy grids should no longer be treated as supporting infrastructure, but as essential enablers of Europe’s green transition and competitiveness.

The upcoming second phase of the EIB Group’s Climate Bank Roadmap will outline priorities for the next five years to help make the green transition a European success. Investing in energy grids will be a top priority.

This article is a contribution from a member or partner organisation of Friends of Europe. The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.