(Adds company, broker comments, shares)
MILAN, Feb 20 (Reuters) - Italian power grid company Terna pledged on Monday to spend 30 percent more on modernising its domestic network over the next five years to help boost earnings and grow dividends.
State-controlled Terna said it would invest around 4 billion euros ($4.3 billion) to 2021 to strengthen the grid to deal with more renewable power and build interconnection with other countries such as Montenegro, France and Austria.
Terna, one of Europe's biggest power grid players, makes most of its money from returns set by the regulator designed to improve its domestic transmission business.
The boom in green energy with its intermittent output and the fall in traditional more centralised thermal production has prompted Terna, like other European transmission operators, to invest more in digital technology and storage systems.
Such investments command fatter returns, fueling earnings and dividend payments.
Terna, which counts State Grid of China as one of its largest shareholders, said it was extending out to 2021 its current policy of growing dividends by an annual 3 percent.
"We see the commitment to 3 percent annual dividend growth through to 2021 as an additional positive," London broker Jefferies said.
At 1515 GMT, Terna shares were up 1 percent while the European utility index was up 0.2 percent.
But Terna is also looking at non-regulated businesses like broadband and solar power projects to top up profits as well as running transmission operations outside Italy in places such as Brazil and Uruguay.
The company, which runs around 64,000 kilometres of power lines in Italy, said it expected core earnings to reach around 1.7 billion euros in 2021 from 1.58 billion euros this year.
Non-regulated business will contribute around 350 million euros to earnings before interest, tax, deprecation and amortisation (EBITDA) over the period, it said.
$1 = 0.9418 euros Reporting by Stephen Jewkes; Editing by Mark Potter