In particular, national systems must be ready to connect energy from wind and solar power to the main grid and be integrated across Europe to improve cross-border energy flow.
The structures for funding these changes must be radically updated so that money is available at all stages of the process.
The body that will shoulder the bulk of the work is the newly operational European Network of Transmission System Operators for Electricity (ENTSO-E).
It will be ENTSO-E’s task to help update the grid by developing pan-European network plans and codes, and to deliver a ‘ten-year network development plan’ that reflects Europe’s objectives, such as the development of wind and other renewable sources.
ENTSO-E published a pilot ten-year plan at the end of June; the first official plan will appear in 2012 and be updated every two years.
The pilot states that to modernise the EU network, 35,000 kilometres of new transmission lines will have to be built and 7,000 kilometres of existing line upgraded.
Setting out various scenarios for achieving these goals, the plan indicates that permitting and authorisation processes are the biggest obstacles to building new transmission facilities, while simplified regulatory approval for new lines is also required.
For Justin Wilkes, policy director of trade body the European Wind Energy Association (EWEA), the draft plan marks "a useful step" towards a European electricity grid that interconnects national electricity systems, benefits consumers and enables the integration of large amounts of wind energy.
In particular, Wilkes says the pilot plan acknowledges that the 2020 targets mean large grid investments must be made at a quicker pace.
Building a European vision
However, he points out that the draft only reflects the current plans of the transmission system operators (TSOs) and not the renewable targets of the EU.
This means the report currently envisages that just 25.5% of EU electricity demand will come from renewables in 2020 – considerably less than the 34% forecast by the European Commission to meet its overall 20% energy target.
Wilkes says ENTSO-E has promised that when member states’ National Renewable Energy Action Plans are taken into account, it will "result in a more realistic plan and a genuinely European vision for grid infrastructure".
Paul Wilczek, regulatory affairs advisor on grids and internal market for EWEA, believes that an "ambitious" ten-year plan by ENTSO-E, in conjunction with the EU roadmap, due to be published next year, setting out steps towards complete decarbonisation of its energy by 2050, will solve many of the problems of creating a fit-for-purpose grid.
For Wilczek this means producing a plan that tackles the most important challenges, including major investment in a new offshore grid, major grid reinforcement on land and, eventually, a long-distance overlay grid for wind and other renewables woven into the existing AC network.
And he adds that because of the numerous challenges in developing transmission infrastructure and integrating electricity markets, not to mention the fact that transmission infrastructure requires several years, if not decades, to be built, a long-term vision on grid connection and transmission assets is urgently needed from ENTSO-E to guide current and future investments.
Common connection codes
A further challenge for the EU electricity grid network is a lack of homogeneity across the 27 member states. ENTSO-E secretary general Konstantin Staschus says harmonisation across the EU will be achieved through network codes.
In Europe, each country currently sets out its own connection specifications for power producers but ENTSO-E, in conjunction with the commission, member states, the European Agency for the Cooperation of Energy Regulators (ACER), and through public consultation, will agree pan-EU codes.
"This is particularly urgent for interfacing the rapidly growing number of offshore and onshore wind parks, so that they contribute to secure system operations rather than increasing operational risks," Staschus says.
He explains that unlike in the past, when only TSOs had to abide by network codes, the new codes will be binding for all market participants – a key development for operational security and market integration.
The codes will not come into effect until ACER begins operating but according to Staschus, when they do, they will bring numerous advantages for the European wind industry.
"With regards to wind generation in particular, common standards will facilitate adoption of best practices across Europe and thus the achievement of policy goals with respect to security and quality of supply, economic efficiency and environmental objectives," he says.
He adds that manufacturers and developers of wind turbine generators should also benefit by being able to standardise designs, protection and controls, while wind developers and network operators should benefit from the lower cost of interfacing standardised turbines.
More effective financing
The notion of reducing costs, especially in these economically strained times, is likely to be welcomed. Indeed, the cost of upgrading the EU grid will run to billions of euros, most of which will have to be financed by national TSOs.
The pilot ten-year plan pinpoints seven main geographical investment clusters in Europe, which together carry a price tag in the range of €23 to €28 billion over the next four years alone (see map).
But exactly how such substantial sums of money will materialise remains unclear and is likely to remain so for some time.
The commission is expected to tackle the issue in its new energy infrastructure package, due for release in November 2011.
The package will address energy infrastructure development over the next decade, preparations for a blueprint for an offshore grid in the North Sea and smart grids.
It will also review the guidelines for trans-European networks in energy (TEN-E), the funding framework created by the EU to ensure interconnectivity in the internal energy market, in favour of a more effective financing instrument.
Wilczek wants to see a revised TEN-E instrument that goes beyond the present model’s support solely for project feasibility studies. He wants the tool to offer financial support throughout the entire investment cycle to encourage investment in cross-border infrastructure – something he says will be key to achieving a genuinely pan-European grid.
"As long as national regulatory frameworks do not recognise the benefits of developing a truly European grid network, a long-term commitment to infrastructure financing is needed from the EU," he says.
Complex cross-border projects
Marlene Holzner, spokeswoman for EU Energy Commissioner Günther Oettinger, agrees that new financing solutions are needed for the investment of more than €200 billion that the EC estimates is needed over the coming decade to update the existing grid and address missing links such as offshore electricity grids in the northern seas.
"Much more work will be necessary for better cost-allocation in the case of complex cross-border projects," Holzner adds, suggesting the latter could be addressed through binding regulatory measures in the commission’s infrastructure package.
However, Holzner says "money only comes last" in the package: "The commission first wants to define which infrastructures are of wider European benefit and how we can make sure they built in time for the EU to meet its energy goals".
She adds that EU financial support will be necessary only for certain types of projects, and that it could take various forms, including subsidies, but also risk guarantees or equity.
In short, ENTSO-E, ACER and the commission are clear about what is needed to make the EU grid fit to cope with the challenges of tomorrow. But how this work is to be financed is a question to which nobody yet has a concrete answer.