As Europe’s energy landscape evolves, the transition to a sustainable electricity grid faces significant challenges, particularly in equipment and integration. The continent’s transmission and distribution operators are set to allocate between €110–130 billion annually towards grid-related capital expenditures by the late 2020s. However, execution bottlenecks are emerging as project timelines extend, risk premiums increase, and original equipment manufacturer (OEM) backlogs grow. The crux of the issue lies not in financing or generation technology but in the physical delivery of essential grid infrastructure.
The current bottleneck is predominantly at the equipment and integration layer, which includes critical components such as substations, transformers, and switchgear. These elements are crucial for the operational efficiency of renewable energy sources and interconnectors. Delays in their assembly and commissioning can lead to idle capital and diminishing returns on investments.
Over the past decade, Western Europe has seen a decline in its ability to execute labor-intensive industrial projects due to rising costs and limited skilled labor availability. Fully loaded industrial labor costs have escalated to between €65–80 per hour, while environmental regulations have lengthened project timelines. Consequently, this has resulted in a strained supply chain for grid equipment that is both capitalized yet overstretched.
Attempts to offshore production have not alleviated these issues. Heavy equipment is challenging to transport internationally due to its size and certification requirements. Shipping components from Asia introduces logistical risks that can lead to inventory backlogs and compliance complications with European standards. Often, any savings from lower labor costs are offset by delays and additional risk premiums.
This scenario has led to a shift towards near-sourcing, particularly in South-East Europe with Serbia positioned as a strategic hub. This approach balances CAPEX discipline, OPEX control, and delivery reliability, providing a more viable solution than reshoring or distant offshoring.
A significant portion of grid capital expenditure is directed towards physical infrastructure and integration, which accounts for approximately 30–40% of total project CAPEX in many transmission projects. This includes essential components such as civil works for substations and related hardware. As European transmission system operators (TSOs) seek standardized designs for modular substations—often valued between €3–6 million per unit—the capacity required for large-scale delivery remains limited within high-cost regions.
Near-sourced fabrication facilities in Serbia could address these challenges effectively. A competitive substation manufacturing hub requires an investment of around €8–15 million, with potential annual revenues ranging from €60–120 million. The labor costs are significantly lower compared to Western Europe, resulting in delivery times measured in days rather than months.
The assembly of transformers and switchgear also presents an opportunity for near-sourcing solutions. With medium- and high-voltage units priced between €0.5 million to €10 million, there is a pressing need for increased assembly capacity across various voltage classes. Establishing a Serbian assembly platform could yield annual revenues between €150–250 million, with start-up costs around €15–30 million.
The demand for energy storage solutions is rapidly increasing as battery technologies transition from pilot phases to full-scale deployment. Containerized systems—valued at around €0.5–2 million each—require close coordination during integration processes, making near-sourced manufacturing particularly advantageous due to its logistical efficiencies.
A facility capable of producing 100-150 containerized systems annually could yield revenues between €120–200 million, with initial investments of approximately €10–20 million. This segment also benefits from existing capabilities in metal fabrication and electrical assembly.
Cable accessories provide another avenue for stable revenue generation within the grid manufacturing sector. A facility dedicated to these components could generate annual revenues ranging from €40–70 million, requiring about €3–8 million in CAPEX while creating 120-250 direct jobs.
A frequently overlooked aspect is the importance of engineering, testing, and certification services within grid projects. Co-locating these services with manufacturing can enhance efficiency by reducing error rates during production processes. A Serbian engineering center could realize revenues between €15–30 million, achieving EBITDA margins exceeding 30%.
The aggregated potential of a Serbia-based grid execution platform suggests that an investment between €50–80 million could unlock revenues ranging from €400–650 million, generating approximately €70–110 million in EBITDA while creating 800-1,300 direct jobs.
This near-sourcing model offers European companies a way to mitigate risks associated with supply chain disruptions while retaining control over design and certification processes within European regulatory frameworks. By reducing operational pressures without extending supply chains or introducing compliance uncertainties, this strategy enables more stable project schedules and improved returns on invested capital.
The overarching implication is clear: Europe’s grid transition is not hindered by ambition but rather by execution challenges tied directly to where work is performed. South-East Europe provides an economically rational solution that addresses structural issues within the region’s power infrastructure development plans.
