& INFRASTRUCTURE GAPS
Europe’s decarboni ation strategy is fundamentally dependent on the moderni ation and e pansion of its electricity grids. As
renewable generation accelerates and electrification deepens across transport, buildings, and industry, the grid becomes the central
enabling infrastructure. Unlike conventional centralized fossil-based systems, renewable energy sources such as wind and solar
are geographically dispersed and variable. This structural shift demands stronger transmission corridors, digitalized distribution
systems, and enhanced cross-border interconnections. Without these upgrades, the energy transition risks becoming constrained
by physical network limitations rather than technology availability. Grid reinforcement is therefore not a supporting activity but the
bac bone of Europe’s climate pathway. The European Commission has estimated that more than EUR 1 trillion will be required by 2040 to modernize and expand electricity
networks across the European Union. This figure reflects the need to accommodate higher renewable penetration, deploy smart
grid technologies, strengthen interconnectors, and enable electrification of end-use sectors. Electrification is expected to
significantly increase electricity demand over the coming decades, particularly as heat pumps, electric vehicles, and industrial
electrification scale. Aging infrastructure compounds the urgency, as a substantial portion of Europe’s distribution assets were
built several decades ago.
Modern systems must also integrate storage and demand-response capabilities to maintain stability. The scale of required capital underlines the structural nature of the challenge. According to International Energy Agency (IEA), annual investment in EU grid infrastructure exceeded USD 70 billion in 2025, more
than double the levels seen roughly a decade earlier. This increase demonstrates strong policy recognition of infrastructure gaps
and the prioritization of network resilience. However, the pace of renewable deployment is advancing even faster, widening the
mismatch between generation growth and network readiness. Large-scale solar and wind additions require parallel upgrades in
substations, transformers, and high-voltage lines. In several regions, renewable capacity is being installed ahead of transmission
reinforcement, creating congestion risks. As a result, current investment trajectories, though rising, remain insufficient relative to
long-term decarbonization targets. Grid congestion has already translated into measurable curtailment of renewable electricity. In 2024, approximately 11% of variable
renewable output in Ireland was curtailed due to insufficient transmission capacity and system constraints. Curtailment occurs
when available clean electricity cannot be delivered to consumers because of network bottlenecks or stability limitations. This
represents not only lost zero-carbon energy but also reduced revenue certainty for renewable project developers.
Persistent
curtailment can undermine investor confidence and raise financing costs for future projects. Over time, these inefficiencies increase
the total system cost of the transition. Renewable energy deployment in Europe is increasingly constrained by grid access bottlenecks, with projects facing long
connection queues due to limited transformer capacity, slow substation expansion, and delayed transmission upgrades. These
infrastructure gaps extend project timelines, weaken investment returns, and risk diverting capital to faster-moving markets. Addressing this core issue through accelerated grid expansion, improved interconnections, and streamlined permitting is essential
to align network readiness with renewable growth and sustain decarbonization progress. Supply chain concentration represents a structural vulnerability within the Europe Energy Transition, Efficiency, and Decarbonization
Market. The rapid expansion of renewable energy systems, battery storage, electric vehicles, and hydrogen technologies depends
heavily on secure access to critical minerals and advanced components. However, Europe remains significantly dependent on
imported lithium, cobalt, graphite, rare earth elements, and processed battery materials. This reliance exposes the transition
pathway to geopolitical tensions, trade policy shifts, logistical disruptions, and commodity price volatility. As electrification
accelerates across transport, buildings, and industry, the scale of material demand is rising faster than domestic supply capacity.
Consequently, material security has become inseparable from energy security within the European policy framework. A major dimension of this challenge stems from the concentration of processing and manufacturing capacity outside Europe. According to the U.S. Energy Information Administration (EIA), China imported nearly 12 million short tons of raw and processed
battery minerals in 2023, representing approximately 44% of global interregional trade, and exported close to 11 million short tons
of battery materials, packs, and components, accounting for about 58% of interregional trade in the same year. In upstream
production, China produced roughly 18% (33,000 short tons) of global mined lithium in 2023, while Chinese companies control
around 25% of global lithium mining capacity. The EIA further notes that China accounted for about 79% (1.27 million short tons)
of global natural graphite production in 2024, and Chinese firms own approximately 80% of cobalt production in Congo-Kinshasa,
the country responsible for more than half of global cobalt output. Additionally, China represented 46% of global raw battery mineral
import trade in 2023, with Australia directing most of its lithium exports to China for processing. These dependencies directly influence pro ect economics and investment
