A challenge for power grids: the impact of batteries on Europe’s future energy market

When it comes to flexibility and energy security in the European Union, cross-border interconnections are critical components that complete the picture of the single energy market. The EU has set its sights on reaching cross-border installed electricity capacity of 15% by 2030. (In other words, each EU member country should be able to export at least 15% of its domestically-generated power to its neighbors.) Interconnections often play a crucial geopolitical role too, as a way to reaffirm a country’s willingness to cooperate and collaborate. In some cases, energy alliances even take on strategic importance, such as the recent agreement between Italy and Tunisia. 

But there are several roadblocks to realizing these initiatives: the cost of interconnections is high, often running to the billions of euros, and projects risk facing technical delays as well as opposition from local communities. These are some of the reasons that so-called "non-wires alternatives" are gaining ground. First among them are batteries, which offer greater flexibility to deal with the intermittent nature of renewable energy sources. 

The trade-off between interconnectors and batteries was the focus of a study run by myself and my colleagues Carla Mendes and Iain Staffell from Imperial College London. We modeled the 2030 European electricity system to analyze how energy will move if the planned interconnectors actually come on line. We also factored in the uptake of batteries according to forecasts from third-party sources such as BloombergNEF, which are more aggressive across the board than the estimates of transmission system operators (TSOs). 

Our model considered battery installation and operation by private ventures other than TSOs, who with few exceptions are excluded from this activity as per European regulations. The technology we looked at was lithium ion batteries, which are already seeing high growth and constantly lower costs.  

Cross-border interconnector operators make a profit when the price of electricity in the import market is higher than in the export market; this happens when interconnectors are used to their full capacity. But with greater penetration of batteries, interconnectors will less often reach full capacity and profits will decline. 

Given that the penetration of batteries in 2030 will exceed their forecasts, operators will get the expected profits only if they scrub part of the interconnectors already in the pipeline. Our study calculates precisely the share of new interconnections that operators should discontinue.  

Our research reveals that higher battery penetration (compared to the TSOs’ estimates) could sharply curtail the need for new interconnections. In particular, according to our findings, we could do without 19%-33% of the new interconnections being planned. This reduction means billions of euros less in investments and, consequently, cost savings for users. 

We’ve calculated that even in the most aggressive uptake scenario for batteries, the operators who install and manage them stand to turn a profit.  

Based on these observations, we can offer some suggestions and reflections: 

• TSOs should conduct additional in-depth assessments of their investments, to avoid the risk of committing massive resources to infrastructures that may end up being underutilized. 
• With current regulations in place, operators have an incentive to develop new connectors, but they don’t benefit from installing batteries. To ensure that business interests don’t get in the way of proper planning, we propose two possible solutions: 

• In the wake of the energy crisis and the war in Ukraine, energy security and sovereignty have moved to the top of the political agenda. Consequently, batteries as alternatives to interconnectors are high priority too. Cross-border interconnectors can be tools for diplomacy and regional solidarity, but not without trust between neighbors. Indeed, these interconnectors are susceptible to political as well as technical disruptions. Batteries instead allow for greater self-sufficiency and sovereignty, ensuring control and autonomy at a local level and allowing countries to manage own electricity resources “at home.”
• Although they are largely produced in China, batteries could paradoxically reinforce energy sovereignty for Europe and for individual countries, reducing dependency on electricity imports. Ultimately, the balance between regional and international cooperation and national self-sufficiency will be the key to Europe's energy future.