Ensuring the right infrastructure is in place is essential for safeguarding the European Union’s competitiveness and driving sustainable growth. As the EU pushes forward with ambitious goals to modernise transport, energy, digital, and defence infrastructure and systems, the challenge of securing the required finance grows ever more urgent. Despite existing funding support and a commitment to carry forward lessons and support from the InvestEU mechanism, gaps exist that public budgets at both EU and member state level cannot fill. This reality underscores an urgent need for innovative collaboration between governments and private capital to build resilient, future-proof infrastructure, driving competitiveness and growth for the benefit of Europeans.
A changing landscape
In recent years the EU Commission has sought to position infrastructure as an essential pillar for advancing economic competitiveness, energy security, and net-zero goals. Instruments like the Recovery and Resilience Facility (RRF) – which has provided member states with €723 billion in grants and loans to support post-pandemic economic recovery while aligning investments with the European Green Deal’s sustainability targets – has been successful in driving higher private sector allocations to European infrastructure. Access to this financial support is coming to an end however, with the RRF set to close next year.
In parallel, demand for large-scale infrastructure investment, with support from EU institutions, continues to grow rapidly across EU countries. Last year the Commission’s Connecting Europe Facility (CEF) attracted over €9.5 billion in project requests for transport projects, far exceeding the €2.5 billion budget available.
This funding imbalance is a clear indicator that access to finance at the EU level is insufficient to meet the ambitious infrastructure agenda alone, and complete resilience-building measures in areas such as transport and energy. It is therefore essential that more is done to make projects bankable, including through an enabling permitting and regulatory environment, to crowd in private capital to meet demand from projects.
Addressing financing challenges
Member states are facing multiple financing challenges in addressing their critical infrastructure needs. These include:
- Pressure on public budgets: Fiscal constraints introduce competition for available public capital, with capital-intensive infrastructure programmes for modernisation, maintenance and build out being weighed against other spending commitments.
- Complex regulatory environments: Recognising the progress to standardise regulatory approaches across many sectors, the pace of implementation remains a key challenge that is creating unnecessary complexity which stifles investment. Creating an enabling regulatory environment means recognising how global capital assesses regulatory risk within investment decisions, and at an EU level that means providing an easier-to-navigate regulatory approach across EU member states.
- Project scale and risk: Large infrastructure projects with high capex requirements are characterised by long project timelines, complex local stakeholder environments, and inherent construction and operational risks. Greater emphasis on how projects are supported and risks are assigned can go some way to addressing barriers to investment.
These factors combine to create a financing gap that requires the leveraging of private capital, while ensuring sound governance and regulatory certainty.
The role of private infrastructure in bridging the gap
Private investment is increasingly recognised as a critical enabler for closing Europe’s infrastructure financing gap. Infrastructure assets typically offer stable, long-term returns, making them attractive for institutional investors such as pension funds, insurance companies, and sovereign wealth funds seeking inflation-hedged returns aligned with their liabilities.
Well-structured public-private collaboration on projects, concession models, and investment vehicles have all demonstrated success in mobilising private capital while delivering public value. Combined with the allocation of risks and reward, this success has contributed to the continued demand for new investment opportunities such as in energy security, decarbonisation of transport networks, and additional computation capacity in data centres, all of which is feeding European competitiveness and growth.
Enhancing private capital’s role in the EU’s approach
To harness private investment potential, we see value in EU countries and policymakers focusing on several priorities:
- Regulatory harmonisation: Simplifying and aligning permitting processes and standards across member states to help build investor confidence and project bankability.
- De-risking instruments: Public guarantees, credit enhancements, and first-loss mechanisms reduce investment risks and attract new institutional investors. In turn funding support, and wider efforts to de-risk investments and increase incentives, will increase the EU’s competitiveness in attracting capital.
- Enhanced project pipelines: A transparent and well-prepared pipeline of investible projects facilitates strategic planning for investors and governments alike, building on the success of examples like the hydrogen pipeline.
- Capacity building: Stronger relationships between EU financial institutions and investors, as well as better institutional capacity, help to crowd-in private capital.
By embedding these principles into future policy decision-making, the EU can unlock a virtuous cycle of private investment, innovation, and sustainable economic growth, whilst accelerating its relative global competitiveness.
What investors are looking for in the EU’s Grids Package
The European Commission is preparing to launch a ‘Grids Package’ before the end of 2025, building on the 2023 Action Plan for Grids. This package will lay the legislative and regulatory groundwork for grid expansion, modernisation, and digitalisation, steps that are essential for Europe to achieve its decarbonisation goals. But to fully unlock the potential of private capital in supporting expansion, modernisation and digitalisation, it must directly address the investability concerns of infrastructure investors.
The challenge
As shown in the LP survey below, appetite for core and super-core strategies and allocating additional capital to core infrastructure, including grids, is low, with more investors looking to invest less (24%) than more (5%).
Achieving a well-integrated, future-proof grid system in the EU requires record levels of investment, including billions from private investors seeking low-risk returns, such as pension funds and insurers. Current EU estimates put the need at €584 billion by 2030, with some projections suggesting more than €1 trillion by 2050. For investors this signals opportunity, but also highlights the need for:
- a stable, predictable regulatory framework that delivers certainty over regulated returns for long-term assets
- more focus on competitive pricing, risk-sharing, and remuneration for anticipatory (future-looking) infrastructure, where assets may be built ahead of immediate demand, in addition to the modernisation of existing grid infrastructure