The current transition of European power grids is arguably bigger than the much debated shift within the automotive industry. So, are grids the next big investment opportunity in Europe? 

Power grids had initially been built for the uni-directional flow of electricity from a handful of power stations to a few large industrial, and many small household, consumers. Rooftop photovoltaics (PVs) are increasingly turning these households into “prosumers” (both users and producers). With the e-mobility revolution, millions of bi-directional household prosumers will be added to the grids. Plus thousands of fast charging stations will strain power grids with short-term peak loads.

On the supply side we are facing similar burdens. Take the shift in energy production within Germany, where nuclear power plants are being switched off and there is a rapid move towards renewable energy sources. This requires an upgrade and expansion of the existing grid infrastructure to accommodate the increasing demand for electricity, the integration of renewable energy sources, real-time load monitoring and quick demand response programmes. The pressing need is shown by German grid operator 50Hertz’s announcement in March 2023 to invest €8.7bn ($9.3bn) into its network over the next five years.

Despite being highly investment-intensive, power grids are unlikely to be a big FDI story. After all, most of them are either directly state-owned, such as Réseau de Transport d'Électricité owned by the French state, or Energinet, the grid operator owned by the Danish government. Alternatively they are partly stock listed, like Terna on the Italian Stock Exchange or Red Eléctrica de España with a free-float of 80% on the Bolsa de Madrid. 

Grids are still incredibly important. Given the lessons drawn from Russia’s invasion of Ukraine and its energy dislocations, grids will probably increasingly be seen also as an area of national security.

One major hunting ground for FDI deals, both M&A as well as greenfield, will be the whole technology ecosystem needed to upgrade networks into smart grids and electric vehicle (EV) charging infrastructure. We are seeing the first moves in this sphere already. French utility Engie has acquired Microgrid Solutions, a majority stake in Green Charge and a stake in Electro Power Systems. 

Meanwhile, Swiss-Swedish electrification specialist ABB has bought controlling stakes within US-based InCharge, China’s Chargedot and India’s Numocity. In the process ABB has bought a global EV charging presence, and following this, started to build greenfield structures, such as an EV charger plant in San Giovanni Valdarno, Italy.

Investment promotion agencies and governments ought to take note of this evolving frontier of FDI. Energy, power transmission and distribution equipment and the wider field of cleantech require close attention to achieve ambitious net-zero targets.

Martin Kaspar is head of business development at a German Mittelstand company in the automotive industry.

E-mail: martin.georg.kaspar@googlemail.com

This article first appeared in the April/May 2023 print edition of fDi Intelligence.