When the Lights Go Off: Ensuring Grid Stability Amid Renewable Growth

In April 2025, Spain experienced a significant blackout, drawing attention to the challenges of the rapid penetration of renewable energy and its integration into existing power grids.  Surprinsingly, with nearly 70% of the energy generated from renewables at the time, Spain was considered one of the best grids in Europe. The blackout highlighted critical questions about grid stability and the adequacy of current systems.

As global power generation capacity is expected to more than double by 2030, an impressive growth primarily fueled by the rapid rise of PV and other renewable energy, the industry must overcome several challenges, including supply chain issues, financing, and regulatory considerations.

More specifically, to focus on the topics discussed at the Infraday 2025, the industry must address the challenges of storing, transporting this intermittent source of energy, ensure the stability of the grid, among other grid integration considerations.

Antonio de Juan Fernandez, Head of Spain and Portugal - AFRY Management Consulting; Luis Alvargonzalez, Country Manager of Spain - Zelestra; Yves-Eric Francois, Chief Financial Officer - Neoen; and Aaron Zubaty, Founder and Chief Executive Officer - Eolian, discussed potential solutions in a panel discussion moderated by Natixis CIB’s Aitor Alava, Head of Infrastructure & Energy Finance Latin America and Oscar Garcia, Head of Infrastructure & Energy Finance Spain & Portugal.

Together, they explored three key strategies: diversifying the energy mix, investing in transmission infrastructure, and enhancing energy storage capabilities.

The panel began by exploring the reasons behind the blackout, first considering the option of rebalancing the energy mix by incorporating more base-load sources, such as thermal and nuclear energy. Their stable generation profiles could enhance stability and inertia in the grid, helping to manage frequency fluctuations.

While a more diversified power matrix provides some relief, panelists agreed that "inertia was the solution designed a century ago, but there are now new technologies available to tackle" the challenges of today's energy systems.

In this instance, inertia proved ineffective in southern Spain, where there is a high concentration of solar power, primarily due to substantial energy losses during transmission. "The fundamental issue is definitely one of grid integration and ancillary services".

Considering these necessary improvements in transmission capabilities and attached ancillary services to manage the frequency, panelists discussed where these investments should be directed, who should bear the investment effort, and what frameworks regulators should establish to engage the private sector.

The panel emphasized that this issue is not one of capacity, as existing grids are largely underutilized, designed primarily to accommodate peak demand during contingency situations. “The pain point is flexibility and stability of the system rather than capacity.” Therefore, authorities and the market should adopt an approach that maximizes the value of existing infrastructure without requiring additional construction.

Capital expenditure should be rationalized and directed particularly toward insulation systems and ancillary services, including interconnections with other markets, to expand access to demand during peak production periods. Achieving these interconnections, in addition to technical and environmental challenges, is largely influenced by geopolitical factors. Indeed, the original purpose of facilitating price convergence has occasionally become a barrier, with lower-cost regions resisting such developments (e.g., Nordics vs. Germany, France vs. Spain).

Furthermore, increasing grid decentralization was identified as crucial for enhancing resilience, underscoring the role of regulators.

Ultimately, the panel highlighted the significant gap resulting from the lack of energy storage capacity and the critical need to encourage investment in batteries, “which can react in micro seconds to a change in frequency, much faster than inertia”. “In April, certain points in the grid were blocked due to a lack of responsiveness.”.

The combination of advanced technologies, including local response from battery systems enhanced by artificial intelligence, can provide rapid responses to fluctuations in supply and demand. Could the high cost of battery affect the profitability ? Not necessarily, as it enables to use the grid more efficiently.

The large-scale deployment of batteries, particularly Battery Energy Storage Systems (BESS), which facilitate local and proximate installations near production sites, must overcome several challenges. Among these is the need to enhance the recycling of rare minerals essential for their production (lithium extraction significantly impacts water resources in typically arid extraction areas) and to extend their lifespan (about 15 years, compared to 50 years for Pumped Hydro Storage (PHS) or Compressed Air Energy Storage (CAES) systems).

Furthermore, the financing models must be adapted to align with revenue models shaped by regulation, market structure, and policy support. This may include opting for equity in markets such as Germany and Texas, where projects primarily depend on merchant revenues, and utilizing non-recourse debt financing in markets like Italy and California, where long-term contracted revenues provide predictable returns.

For the private sector to invest in these technologies, a supportive market structure with appropriate regulations, incentives, and pricing mechanisms must be established. In some power markets, such as Spain, the role of batteries remains undefined and may face resistance from authorities due to a lack of oversight. “The power market has evolved so rapidly that regulators often lag behind. If the framework is in place and remuneration is reasonable, investments will follow.”

A key bottleneck related to the grid in the energy transition of our power systems is, as noted in the previous panel, primarily due to years of underinvestment in many countries, which has hindered the maintaining of a necessary minimum "grid-to-clean" investment ratio aligned with the rapid pace of renewable energy deployment.

Europe’s electricity grids are currently blocking hundreds of GWs of renewable capacity due to insufficient grid capacity and slow connection processes. This backlog not only stalls multi-billion-euro investments but also undermines energy security and decarbonization efforts

How can grids evolve from firm, centralized structures to agile, digitalized and flexible systems? Can Transmission System Operators (TSOs) and Distribution System Operators (DSOs) meet the massive investment demands estimated at €60 to €100 billion annually in Europe? How can we re-evaluate regulatory frameworks to create an environment able to attract more private capital into this asset class on one side, and to incentivize efficiency and innovation on the other side?

In a one-on-one discussion with Stéphane Dubos, Co-Head of Low Carbon Energies at Natixis CIB, Fabien Roques, Executive Vice-President at Compass Lexecon, identified key bottlenecks and priorities from the perspective of grid infrastructure operators.

Starting from the observation of a stark contrast between the U.S. and Europe, Fabien Roques highlighted that there are “points on innovation and points on anticipation.” Investment plans over the 2025-2040 period in major European countries are significant both for renewing and upgrading existing infrastructure, as well as for new onshore and offshore assets, and additional interconnectors.

To achieve this, digital and innovative technologies must be deployed, and regulatory and market designs must incentivize investments in the system. “Many innovative grid enhancing technologies are commercially mature and just need a supportive regulatory framework.”

He specifically noted that permitting delays pose significant challenges, as does the lack of planning mechanisms to anticipate the future needs of the grids, particularly in view of very different lead times between power generation on one side (1-5 years) and networks on the other side (5-10 years), calling for a more holistic and anticipatory approach.

In light of this, Fabien Roques commented on the European Grids package currently being prepared in Brussels and expected in December 2025, building up on the “EU Action Plan for Grids” of November 2023, to support the grid’s build-up and attract more private third-party investment, notably through tailored regulatory frameworks, as well as dedicated grants, loans and public guarantee schemes.

Panelists discussed political reluctance, particularly due to concerns that substantial investments in the grid could ultimately significantly increase costs for end-users.

Fabien Roques affirmed that several “grid enhancing technologies” (such as advanced conductors, grid inertia measurement…) could help significantly reduce by up to 35% the cost of conventional grid expansion at TSO level by 2040, by reinforcing existing infrastructure and allowing a faster deployment of grid capacity at system level.

He echoed previous panelists regarding the reluctance to invest in interconnectors due to the lack of predictable revenues and urged regulators to address the specific issues faced by offshore assets across different jurisdictions. The merchant component raises liquidity and “non-bankability” issues, notably as this risk is difficult to anticipate for banks and investors.

Fabien Roques highlighted recent developments towards new financing structures mutualizing risks through Special Purpose Vehicles (SPVs), which could benefit from State guarantees, as an effective solution, allowing for the pooling of various interconnector projects to enhance their bankability and limit cannibalization risk impact among themselves. The regional cooperation in the North Seas Sea Basin, via the OTC, is a first example of regionalization of assets financing.

Commenting on the current RAB-based regulation that supports most grid operators, which is sometimes criticized for being inadequate in the context of the energy transition - especially for being overly focused on cost reductions, Fabien Roques agreed that the current framework is not sufficiently incentivizing anticipatory investments and does not allow enough room for innovation, particularly given the CAPEX bias that can be associated with current regulatory frameworks.

In particular, the change of risk exposure of grid operators is not accounted for. Instead, he proposes to implement output based regulatory frameworks that would better support the scaling up of innovative technologies with dedicated incentives, that would limit the current capex bias (vs. opex) by better recognizing opex solutions, and that would include forward-looking budgeting in order to limit uncertainties.

TSOs are implementing various levers to finance the ambitious investment levels set out in their development plans, both public and private. Fabien Roques views the ongoing trend of private investors forming partnerships with grid operators - such as Apollo and RWE in Germany, and Tennet with a consortium of GIC/APG/Norges - as a promising and required approach, as recent EU publications all explicitly recognise the need to mobilise private capital to meet investment needs.