“Inadequate electricity grids are a barrier to economic activity and energy access while also making deployment of clean energy technologies more costly and complex” IEA Executive Director Fatih Birol.
The Invisible Giant
Electricity grids represent one of the most transformative innovations in human history, yet they don’t receive sufficient attention. While obsession with semiconductor and AI industries remains, we tend to overlook the fundamental infrastructure that powers both: the electricity grid.
Behind the scenes, the innovation in electricity infrastructure ranks as one of the fastest-growing technology fields globally, expanding even up to 30% annually which is seven times faster than average technology sectors.
The energy grid ranks among the most complex systems ever built, requiring instantaneous decision-making across continental networks. The stakes couldn’t be higher. Power grid failures have direct effects on all aspects of a nation’s economy and security. The transformation from traditional power systems to intelligence is a fundamental shift in how nations project economic power.
Grid sophistication increasingly determines which nations will shape the AI-driven future versus those shaped by others’ infrastructural decisions. Poor grid placement, maintenance, or technical capabilities can bottleneck economic growth and climate action. The energy sector already deploys AI extensively across 50+ use cases, with China leading enhanced electricity grid patents. China’s ambition to become the global AI leader by 2030 reflects its strategy of combining massive infrastructure investment with artificial intelligence.
In contrast, despite the world’s largest interconnected grid and a legacy of grid innovation, Europe struggles with aging infrastructure where over 50% of which has operated for more than 20 years. This creates maintenance burdens and may result in outages, such as the recent biggest and most severe grid failure in Europe’s history where Spain and Portugal lost control for 36 hours. Ultimately, the lack of reliability slows Europe’s technological development, renewable energy deployment, and efforts to tackle high energy costs.
Decoding the Smart Grid
One of renewable energy’s most persistent challenges is intermittency. When the sun doesn’t shine and wind doesn’t blow, periods known as Germans call “Dunkelflaute”, traditional grids struggle to maintain stability. A recent UK example illustrates this challenge: between February 26th and March 8th, wind capacity dropped to just 20% of potential, forcing fossil fuels to provide 73% of electricity generation. Smart grids equipped with AI can predict these patterns and optimize alternative sources, storage systems, and demand response to maintain stability and lower energy prices.
Perhaps most significantly, smart grids promise to create a symbiotic relationship with artificial intelligence as AI has been growing to become the biggest driver in smart grid development which can be showcased in the growing proportion of patents (see figure 1).
Figure 1
AI optimizes grid performance through real-time analytics and machine-learning-based weather forecasting that enables more accurate predictions of renewable energy generation patterns. Simultaneously, renewable energy systems generate massive datasets critical for training AI models, creating a virtuous cycle where cheap energy triggers further AI advancements, which in turn strengthens capacity to optimize energy systems to become even more efficient and cost-effective (ref).
Chinese smart grid development
Over the last decade China constructed over half a million kilometres of new transmission lines, connecting regions’ reach in renewable energy sources to demand centres. This figure constitutes about 1/3 of the world’s transmission grid expansion. At the same time, the global demand for electricity in China accounted for two-thirds of global demand (ref).
What is even more interesting is that nearly all growth in electricity grid patenting since 2016 has been concentrated in smart grid technologies. With the focus on AI led smart grids, China recently, for the first time in history surpassed all other countries in the number of patents. But this shouldn’t come as a surprise as China has been investing heavily in grid innovations for many years – only now it has proved to show tangible results.
The Chinese patenting strategy, manifests in the practical examples:
- Response Times
China’s first 110-kV AI-driven power restoration system in Shenzhen achieves fault detection and recovery in three seconds compared to traditional systems requiring 6-10 hours. This autonomous grid utilizes AI algorithms to automatically detect faults, generate real-time restoration strategies, and switch to backup sources without human intervention. The system ensures minimal downtime in critical areas like Liuxiandong, a hub for next-generation information technology and AI industries.
- Digital Twin Technology
Digital twins represent a paradigm shift from reactive maintenance to predictive optimization, enabling grid operators to test scenarios and solutions in virtual environments before deploying them across physical infrastructure. In Hebei province, a wind farm’s digital twin reduced curtailment rates by 20%, directly translating to millions in recovered revenue. These virtual replicas enable comprehensive disaster simulation, allowing operators to identify vulnerabilities and optimize recovery strategies before real-world implementation.
- AI-Powered Crisis Management
Machine learning-based weather forecasting enables proactive grid positioning for renewable energy fluctuations, allowing operators to optimize system performance before weather patterns impact generation capacity. Shanghai’s AI-driven grid management demonstrated smart grids’ capacity to maintain stability during extreme conditions in the 2023 heatwave. The system implements real-time demand response, dynamically adjusting energy distribution during peak loads and reducing strain by 30%.
Europe’s infrastructure deficit
Europe’s electricity infrastructure achievements represent remarkable technical and political accomplishments. The continuous expansion and integration of Europe’s synchronous electricity grid, spanning EU internal borders and connecting with neighboring countries, stands as one of the great technical and political feats of recent decades. European innovators pioneered globally significant technologies including smart metering systems, high-voltage direct current (HVDC) transmission, interconnectors between national grids, cables connecting offshore wind farms, and solid state transformers (ref). These innovations established Europe as an early leader in grid modernization and cross-border electricity integration.
However, Europe’s legacy cannot mask an unraveling reality: infrastructure is aging while global competition intensifies. Over 50% of EU grid infrastructure has operated for more than 20 years which is approximately half its average lifespan, while only 23% of advanced economy grid infrastructure is less than 10 years old (IEA, 2023).
Despite Europe’s technical capabilities the operational and economic consequences are already visible. Renewable energy curtailment, which essentially means wastage due to inadequate grid capacity, amounts to 2% in Spain and 5% in the UK. While Europe’s transmission grid expanded by only 12% between 2012 and 2021 (IEA, 2023), electricity demand surged and renewable capacity multiplied.
Draghi’s recent competitiveness report emphasizes that Europe must “take the lead in new clean technologies and accelerate the energy transition away from fossil fuels”. The report recognizes smart grids as essential for balancing “growing power demand with variable energy sources,” but acknowledgment alone cannot bridge the investment and implementation gap that separates European aspirations from Chinese achievements.
Creative Destruction in Energy
Current AI’s race to the bottom, including in the smart grid infrastructure, suggest we’re approaching a critical inflection point. Solar PV and wind have become the cheapest renewable energy sources, while AI development creates unprecedented electricity requirements. However, grid capacity increasingly serves as the limiting factor for economic growth, creating what Schumpeter would recognize as a moment when technological potential requires institutional transformation to be realized.
China’s approach demonstrates successful creative accumulation, where the creative side remains in the hands of the same large actors through coordinated state investment and technological integration. Europe risks experiencing creative destruction from the outside and being reshaped by others’ technological advances rather than driving transformation through its own innovation and investment.
Draghi’s warning of Europe’s potential “slow agony” signifies a progressive erosion of technological sovereignty where Europe becomes dependent on others’ infrastructure decisions rather than shaping its own digital future. It manifests as energy constraints limit the AI development, creating a self-reinforcing cycle where low grid capacity restricts the data centers needed for technological leadership, while falling behind in AI reduces resources available for grid modernization. The European Commission’s Competitiveness Compass offers a groundbreaking list of necessary reforms, but it still fails to recognize the issue of whether member states will surrender enough sovereignty to enable the coordinated industrial policy that successful grid transformation demands. Success demands shifting energy infrastructure planning to the European level and creating new EU-level coordination mechanisms, but this requires member states to relinquish energy policy competences. The next step requires Europe to choose between gradual decline and radical coordination.
