Europe Energy Briefs | Anticipatory investments for DSOs and TSOs

With the fast evolving energy transition, increasingly there is a need for anticipatory investments by DSOs and TSOs that can address expected future developments.

Such an approach, with investments that by their nature are inherently risky, marks a shift in the traditional approach to utility investment and ultimately requires the adaptation of regulatory frameworks.

With the EU’s action plan for the grids call for the introduction of regulatory incentives through anticipatory investments, the question is how to get there both allowing utilities to obtain the necessary resources and to generate a return on them while at the same time not overburdening consumers.

This forms the focus of recent papers from the DSO Entity and ENTSO-E setting out proposed definitions, guidelines and recommendations.

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For example, the DSO Entity, building on an earlier definition by Eurelectric, defines anticipatory investments as “… those resulting from a process aimed at identifying and executing investments that proactively address expected developments, looking beyond immediate needs of generation or demand into the mid and long-term while assuming with sufficient level of certainty that new generation and/or demand will materialise, even if potential low utilisation could arise in the short term, and considering the negative impacts of delaying the decarbonisation process due to a lack of grid capacity as well as the increased costs of expanding in several stages".

Some examples of potential DSO project categories for anticipatory investments include preparing for future capacity increases, investing with higher capacity assets, adding additional assets to the grid and reinforcing the resilience of power networks.

For TSOs, examples include future-proof technical project design choices for offshore projects, planning the offshore grid for future expansions and additional connections and offshore-onshore reinforcements and expansions.

Investment decisions for net zero

The intent of both papers is to set out an approach that enables the respective parties to take the necessary investment decisions to deliver on the transition to net zero. Both the DSO Entity and ENTSO-E state that all investment possibilities should be treated similarly to avoid possible biases.

They also agree that the network development plans should be the basis for determining anticipatory investments.

ENTSO-E highlights among its principles that the long-term forecasts and scenarios used in these plans should be aligned with the long-term climate targets and that adequate planning techniques, such as scenario analyses, to assess investments with higher uncertainty should be considered.

Both organisations also indicate that regulatory frameworks should be stable and supportive of long-term investments, given that large-scale grid expansion and modernisation need to be planned over decades against uncertainties about future electricity generation and demand patterns.

However, they also need to have sufficient flexibility. The DSO Entity suggests that planning management mechanisms should be put in place for revisiting investments being developed to enable adjustment for new information.

Among other recommendations, the DSO Entity suggests that public funding could be used as a means of supporting the energy transition, while maintaining affordability for consumers. For example, it could be used to support the costs of electrification of residential customers, services and industries, to stabilise network unit costs or to synchronise the time of the investment with the time of the increase in consumption.

Stakeholder alignment

For its part, ENTSO-E indicates the need for alignment among stakeholders to identify the system needs early, for example, among the member states, the national regulatory authorities, TSOs, DSOs, generators or other infrastructure providers, to ensure the quality of information for planning.

It is essential that the authorities analysing the plans are sensitive to reality and circumstances when assessing risks, e. g. considering the risk of the grid becoming a bottleneck for the transition and considering the need to reach policy goals, states ENTSO-E in its paper.

Under the EU grid action plan, the Commission is due – perhaps later this month to meet the Q1-2025 target – to propose guidance identifying conditions under which the approval of anticipatory investments should normally be expected, taking into consideration different levels of development certainty of projects and ways to address the different levels, such as via the conditional provision of the anticipatory investments.

Concludes the DSO Entity paper: “The shift of gear necessary to achieve an accelerated transition is so significant that dedicated policy makers’ attention is required to ensure that grids are an enabler and not a bottleneck of the transition. The development of the power grids needs to happen as soon as possible to be in place and ready for the energy transition.”