Is Europe's Grids Package funding the leap or falling short?

In this week’s Power Playbook: The proposed European Grids Package and Energy Highways Initiative are welcome policy actions, but do they address the financing question for a net zero grid adequately? I’d say not.

The European Commission’s European Grids Package is a clear signal: Europe wants smarter, more resilient, and more interconnected power networks. 

Simplifying the selection of Projects of Common Interest (PCIs) and Projects of Mutual Interest (PMIs) and expanding the scope for digitalisation and security upgrades under TEN-E rules is a significant step forward. The package aims to streamline permitting, cut red tape, and unlock the investment needed for a continent-wide energy transformation.

The initiatives have been widely accepted by key stakeholders from across the energy sector.

But here’s the hard truth: simplification alone isn’t enough. 

The Commission estimates that €1.2 trillion ($1.4 trillion) will be needed in the EU's electricity grids until 2040, including €730 billion ($849.2 billion) for distribution grids alone, and €240 billion ($279.2 billion) for hydrogen networks. 

So the question now is about financing — and whether the EU is putting enough money on the table.

Interconnection financing

Alongside the announcement of the Grids Package and Energy Highways Initiative, the Commission touted how its next financial framework would increase the Connecting Europe Facility for Energy (CEF-E) budget from €5.8 billion ($6.8 billion) to €29.9 billion ($34.8 billion).

Of course, this is much welcome, but is it enough? 

At least for interconnectors, Ember seems to think not. 

Released last week, the think tank released analysis on interconnection expansion, stating that Europe is not on track for its 2030 interconnection targets. 

By 2040, they say, an additional 55GW of cross-border electricity transmission will be required, particularly in the Nordics and Eastern Europe. That gap translates into a €30 billion ($35.1 billion) shortfall in public funding if the CEF-E and other existing streams remain the main source of finance.

Specifically, says Ember, interconnectors are capital-intensive, and grants alone will not bridge the divide. 

These types of projects are crucial for decarbonisation -  two of the eight Energy Highways are such projects - and often require financial support from EU institutions. This support typically takes the form of grants from the CEF-E, possibly complemented by long-maturity loans from the European Investment Bank (EIB) or the European Bank for Reconstruction and Development (EBRD). 

Ember lists past examples — from the Biscay Gulf interconnector between France and Spain to the Aurora Line linking Finland and Sweden — showing that grant programmes like CEF-E on average cover around 31.5% of total investment costs. 

More from the Power Playbook:
Four ways Europe’s utility giants turned profits in 2025
Enlit Europe offers snapshot of financing trends
Bringing down power prices with innovation and energy storage

Even with a €17 billion ($19.9 billion) CEF-E allocation – expected under the renewed framework – the missing €30 billion for a fully optimised grid by 2040 remains a heavy lift.

Commenting in a release was Ember’s Gianluca Geneletti, Grids & Flexibility Analyst: “Over the past three years, power grids have shifted from a technical issue to a political priority, with strengthening grid reliability central to EU security. 

“Improving interconnections not only enhances security but also provides financial benefits. The time to act is now: accelerating ongoing projects and fostering new initiatives will shape the future security and efficiency of Europe’s electricity network well into 2040.”

Securing investment flows

However, in the Commission’s package and highways proposals, the focus wasn’t solely on public financing. 

In fact, during a press briefing, Teresa Ribera, the Commission’s Executive Vice-President for Clean, Just and Competitive Transition, said as much:

“Nobody is pretending that the whole set is going to be funded through public budgets, so we need to ensure it is financially viable…”

To do so, she added, time scope needs to be accounted for, as well as “how it is appealing to come up with a proposal that ensures that private investors feel that it is a great decision to invest in our grids.”

Additionally, the Commission next year intends to put forward its Clean Energy Investment Strategy for Europe, which will outline concrete ways to remove barriers and unlock private capital for strategic energy transition investments, such as grids.

Also worth a mention here is that, just under a month ago, non-profit think tank Agora Energiewende released their own research, detailing how well-coordinated grid planning could actually save Europe on costs; €560 billion ($654.9 billion) to be exact.

What this comes down to is governance. 

According to their analysis, European countries can reduce energy system costs by over €560 billion between 2030 and 2050 by optimising infrastructure investment. 

The number increases to €750 billion ($877 billion) if the savings from avoided back-up generation are considered. 

These savings would stem from an integrated approach to energy infrastructure planning that unlocks efficiency gains, directs investments to where they are most needed and maximises the benefits of a flexible energy system. 

So said Frauke Thies, Co-Director Europe at Agora Energiewende, in a release: “Infrastructure is the backbone of Europe’s evolving energy system, and governance structures need to keep pace with the rapid transformation. 

“Well-coordinated planning is essential to ensure that investments flow where they best support the deployment of clean technologies like solar, wind and batteries – delivering secure and affordable energy.”

Said Christian Kjaer, Chief Public Affairs Officer at SuperNode Ltd & Executive Director of SupergridEurope, who put it nicely in a Linkedin post: 

“Excellent report on European grid planning from Agora Energiewende. I hope the Commission managed to read it before Dan Jørgensen publishes the Commission's measures in a European Grids Package on Wednesday. 

“The report’s recommendations on a European independent agency, to provide EU-wide scenario modelling and pan-European coordination to enhance transparency and accountability are vital for developing a cost-efficient and modern grid…”

Still at risk

The way Europe is looking to tackle the grid crunch is solid. The Grids Package and Energy Highways initiatives signal policy alignment, simplify project delivery, and come with a much-needed boost in budget.

But without strategic financial backing and coordinated governance, the continent risks falling short on the interconnections that underpin renewable integration, price efficiency, and energy security. Public funds alone will not close the gap, and private capital will only flow if the regulatory and investment environment is clear and reliable.

Now, with the Commission's initiatives, it seems like policy security is at (hopefully) on the table. It's time perhaps for the private sector to step up.

Europe’s net-zero ambitions depend not just on plans on paper, but on action, accountability, and the hard work of aligning money, policy, and infrastructure. The next steps will show whether the continent can truly fund the leap — or if it will be left falling short.

What do you think?

Reach out and let me know your thoughts so I can feature them in the Power Playbook.

Cheers,
Yusuf Latief