Microgrids are the next big step for Europe’s energy policy

Europe stands at a pivotal moment – one that could prove decisive for its sustainability, urbanisation and competitiveness agenda.

Rune Kock, CEO of Nrep, Urban Partners’ real estate strategy

The EU’s progress in scaling up and deploying renewable energy is undeniable. But now, we face a critical juncture. Continuing to expand renewable energy without considering how, when and where it is used risks stalling progress. The solution? An ambitious and scalable strategy for microgrids.

This isn’t just about sustainability – it’s about economic strength. Europe’s competitiveness is eroding and one of the most important factors is energy cost. Yet, EU industries, from carmakers to brewers and chemical manufacturers, are burdened by electricity and gas prices several times higher than those in the US and China.

And it’s not just traditional industries. According to the International Energy Agency, data centres, the backbone of AI and digital infrastructure, are expected to double their electricity consumption by 2030, reaching 945 terawatt hours. That’s more than Japan’s entire electricity use.

If Europe wants to meaningfully compete in AI and digital innovation, it must rethink its energy strategy. We must harness renewable energy systems in ways that are both intelligent and cost-effective by reimagining our energy systems as interconnected, modular units capable of operating within the larger grid or independently when needed.

Microgrids are a significant technological development. The individual components are all well known, tried and tested. These include solar panels, heat recovery systems, battery storage and heat pumps.

For example, there is great potential in optimising the use of excess solar power that might be sold to the grid, stored in the ground or in a battery or used to pre-heat or cool a building. This optimises the energy flow in real time and unlocks substantial savings as well as new revenue opportunities.

The technology is mature and applicable. Looking at examples from across our own portfolio, Ripple Residence, a multi-story residential development in Copenhagen, is implementing integrated energy systems by enabling energy storage for heating as well as cooling. This shows that it is possible to integrate microgrids to newly constructed buildings today.

However, before the full benefits can be unlocked, there are a number of barriers to overcome. An integrated energy system is subject to a set of challenges including a complex regulatory landscape, production and supply chain issues and grid connection delays.

At the heart of these issues are battery energy storage systems (BESS), which are critical to transforming intermittent energy sources, such as wind and solar, into a stabilised and efficient flow of energy.

There are a number of hurdles before BESS can be rolled out, including regulatory issues, a lack of transparency and long lead times to obtain grid connection. Taken together, this has made the market difficult to scale but a lot of effort is going into overcoming these challenges.

Governments are looking to tweak the regulatory environment to support BESS development. For example, the UK Government has moved to abolish double taxation – which occurs when operators are taxed both when the energy is taken from the grid and when excess energy is fed back – with the EU set to follow suit with the forthcoming Energy Taxation Directive. Similarly, the Danish government recently removed a price limit for excess heat. Even though obstacles remain, progress across the European continent as a whole provides a more positive picture, which is encouraging.

Energy production and the expansion of energy grids also require vast investment, in the magnitude of trillions of Euros. There are ample investment opportunities in this space, and at the same time it mitigates risk for real estate assets.

Aggregation of smaller decentralised energy systems has huge benefits from a societal perspective, allowing individual systems to react to market signals and thus alleviate grid congestion, as well as balance supply and demand at various times of the day or during seasonal fluctuations.

Renewable microgrids offer resilience, enhance competitiveness and are critical to keeping the green transition on track. There is no doubt that microgrids are part of the future urban transformation. Those investing in and implementing these systems will be best positioned to thrive in the future energy landscape.

Rune Kock is CEO of Nrep, Urban Partners’ real estate strategy