When the power grid overtakes the energy transition

From July 1, 2026, large parts of the Utrecht region will be temporarily closed to new or upgraded electricity connections. According to NOS, this measure is expected to affect around 800,000 people in and around Utrecht. As a result, grid congestion has suddenly become tangible. According to Netbeheer Nederland, nearly 15,000 projects and companies are currently waiting for a connection, while housing development, decarbonization efforts, and economic activity are being delayed due to a lack of available grid capacity.

The Netherlands is not an isolated case - rather, it offers a glimpse of what is unfolding across Europe. In 2025, the International Energy Agency (IEA) explicitly described the Dutch situation as a “striking example” of how grid congestion can slow down the energy transition.

At its core, the issue is that Europe is rapidly building a new energy system on infrastructure designed for a different era. Where electricity once flowed in one direction - from centralized generation to end users -the system today is far more dynamic. Rooftop solar, offshore wind and the electrification of homes, transport and industry are creating new, often mismatched peaks in supply and demand. At the same time, new grid infrastructure typically takes five to fifteen years to build, while renewable projects can be developed much faster. The result is a structural imbalance between generation, demand and transmission capacity.

Geography further complicates the picture. Renewable energy is often generated offshore or in sparsely populated areas, while demand is concentrated in urban and industrial centers. This puts additional strain on existing grids and leads to persistent bottlenecks, which are difficult to resolve quickly due to lengthy permitting processes and the complexity of grid expansion.

Addressing these constraints requires a significant investment effort. The European Court of Auditors estimates that around €2 trillion is needed by 2050 to expand and modernize electricity networks. Although annual investment levels have increased to more than €70 billion, they still lag behind the growth in electricity demand.

The scale of this challenge poses a fundamental issue for both energy companies and governments. Many European grid operators are (partly) state-owned and face limited scope to raise new equity, while the required investments place direct pressure on their balance sheets and credit profiles. Although there is ample capital available among institutional investors in Europe, this capital does not automatically find its way into electricity networks. Energy companies need to invest without overburdening their balance sheets, while investors seek stable cash flows and an appropriate risk-return profile.

This is where credit and structured financing play an important role. By using tailored debt structures that align with the long-term and regulated nature of grid infrastructure, capital can be deployed earlier and at greater scale.

The Credit team of Investment Management within PGGM plays an active role in this by providing debt financing with a clear sustainability focus. Where public capital markets, such as bonds, do not always offer sufficient flexibility, the team can also invest through private credit markets, where more customized solutions are possible. In doing so, it regularly works alongside banks and other institutional investors.

A recent example is a €30 million investment by PGGM’s Global Credit mandate as part of a broader financing for RWE, one of Europe’s largest energy companies. This financing enables RWE to fund its share of investments in the European transmission grid. RWE does this through its stake in Amprion, which plays a central role in the German electricity system and is responsible for transporting electricity over long distances, including from offshore wind regions to industrial and urban demand centers. PGGM’s financing therefore supports the expansion of the high-voltage grid, new offshore connections, and the strengthening of existing infrastructure.

What distinguishes this type of financing is that it is structured around the underlying grid investments and the gradual build-up of cash flows, rather than relying on fixed, upfront repayment obligations. This allows capital to be deployed earlier without putting undue pressure on the borrowers’ credit profiles, while offering investors a return that is higher than that of regular bonds, with limited incremental risk.

For PGGM’s IM Credit team, this is exactly the role it wants to play: contributing credit solutions that accelerate the energy transition while delivering an appropriate long-term return for Pensioenfonds Zorg en Welzijn and its participants. Doing so requires a combination of credit expertise and the ability to execute suitable structures across both public and private debt markets.

The situation in Utrecht marks a new phase in the energy transition. For years, the focus has been on generating renewable energy. Increasingly, however, the challenge is shifting toward transporting it. Expanding electricity grids is no longer a supporting condition - it is a critical success factor for further decarbonization. Achieving this will require technical innovation, faster execution, and, crucially, sufficient long-term capital to make the necessary investments possible.