Electricity Grid Challenges. Why Institutional Mismatch Delays Europe's Grid Transformation

Johan Albrecht
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Johan Albrecht: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: Europe's €1.2 trillion grid investment challenge by 2040 is commonly framed as a financial challenge. This paper argues that the central obstacle is institutional: Europe's hybrid liberalization model generates a structural mismatch between energy system transformation ambitions and governance capacity. Drawing on political economy and infrastructure governance theory, this paper develops an integrated governance framework identifying four interconnected failures rooted in the institutional incompatibility between the liberalization paradigm and the coordination requirements of the energy transition. First, we face a liberalization paradox as fixed market outcomes are increasingly imposed on free market platforms, while four competing design logics — geoeconomic, capitalist, ecological, and social-integrative — operate without any hierarchical guidance. Second, permitting bottlenecks reflect not bureaucratic inefficiency but decades of accumulated democratic preferences, requiring a new theory of necessary infrastructure. Third, flexibility governance misframes behavioral adaptation as techno-economic optimization, undermining civic legitimacy at scale. Fourth, grid congestion forces grid operators or regulators into reactive industrial policy decisions without democratic mandate. These failures compound in the financing dimension: incentive misalignments, fiscal deterioration, and fragmented EU instruments produce reactive and inadequate investment. The framework demonstrates that technical and financial interventions — however substantial — cannot substitute for the institutional reconstruction that transformation requires. As European coordination emerges as a precondition for grid development, the paper raises the fundamental question of whether the era of market liberalization is giving way to a new era of system planning.

Pages: 26 pages
Date: 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:26/1142

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