When Markets Are No Longer Enough

Electricity grids are the backbone of the energy transition. As Europe accelerates decarbonization, Transmission System Operators (TSOs) find themselves at the center of a momentous change that requires new technologies, governance models and more open engagement with regulators. The study “How do electricity TSOs embrace innovation to future-proof their role in the energy transition?” by Andrea Biancardi of the SDA Bocconi School of Management and Iain Staffell of the Centre for Environmental Policy at Imperial College London, explains how these players are addressing the challenge.

Published in the journal Energy Strategy Reviews, the paper provides an in-depth analysis of the innovation strategies of 11 European TSOs, aiming to understand how these organizations are rethinking their role in the era of energy transition.

Innovation Models

The study shows that more than half of operators adopt a centralized innovation model, with dedicated units or R&D departments defining priorities and lines of action. However, there is a growing trend toward hybrid or decentralized models, in which business units actively participate in project selection, helping to bridge the gap between strategy and operational needs. According to the authors, this evolution represents one of the best practices emerging, as it makes innovation "more real," anchored to the concrete challenges coming from daily grid management.

The priority areas for investment reflect the growing technical and digital complexity of the electricity system. "System Operation" — optimizing system functioning — is the most cited concept among the TSOs interviewed, followed by "Digitalization." Big data and artificial intelligence (including generative AI) are emerging strongly, considered as cornerstones for predictive analytics, preventive maintenance and real-time management of energy flows. Digital twins, robotics, quantum computing and cybersecurity follow, while in the field of grid technology, Dynamic Line Rating (DLR) — which allows transmission capacity to be modulated according to weather conditions — and storage systems stand out.

Collaboration Strategies

To foster innovation, European TSOs are increasingly leveraging collaborations with startups, universities and other operators. Among the most notable examples are Equigy, an EU blockchain crowd-balancing platform, and the Centers of Excellence promoted by various operators: Terna's Mobility Lab, Elia's CoE for AI and Extended Reality, the National Grid AI CoE in the United Kingdom, and the partnership between RTE and the SuperGrid Institute in France. Alongside these tools, open innovation programs, incubators, accelerators and corporate venture capital funds are also emerging.

Challenges and Obstacles

However, critical issues remain. Regulatory constraints favor traditional CAPEX investments (in physical infrastructure) over more flexible and digital OPEX solutions, such as demand response or Non-Wire Alternatives (NWAs). In the United States, the latter are more easily adopted and allow for improved grid efficiency without building new power lines, but in Europe they are struggling to take off due to a lack of incentives and a dearth of specialized regulation.

Next to regulatory hurdles, the paper highlights cultural and organizational challenges. Nine out of eleven TSOs cite the difficulty of integrating new digital technologies, exacerbated by the lack of specialized skills. The shortage of personnel skilled in digital and data analysis represents one of the main bottlenecks for the modernization of the sector.

Future-Proofing Managers

The study also proposes an agenda to future-proof TSOs. The recommendations include decentralizing innovation strategies, creating permanent laboratories and incubators, and increasing senior management commitment to the support of experimentation. Furthermore, updating the European regulatory framework is crucial, as it is still modeled on a centralized industrial context which is incompatible with today's digital and distributed networks.

"To address the challenges of decarbonization, digitalization and energy security," the authors conclude, "TSOs must integrate innovation into their core strategy, adopt more agile models and collaborate with regulators and industry partners. Only in this way can they ensure efficiency, resilience and sustainability in the long term."