Dena: Need to Expand and Modernise Distribution Grids – Returns on Equity Not Always Sufficient

The German distribution networks need to be extended by 135,000 to 193,000 km until 2030. In addition, some 21,000 to 25,000 km of the existing grids need to be modernised. Costs will range between EUR 27.5 and 42.5 billion, the German Energy Agency (dena) said yesterday, presenting a  study on the need for expansion and modernisation of the low-, medium- and high-voltage grids until 2030.

The need for extension and modernisation and the associated costs depended on the share of renewable energy in the German energy mix in 2030, dena pointed out.

After the nuclear accident in Fukushima, Germany shut down eight nuclear power plants and decided to phase out nuclear power by 2022, while intensifying its efforts to switch to renewable energy (German Energiewende). In particular solar power has seen strong growth rates in recent years, but also biomass and wind power. The expansion of renewable energy and the increasingly decentralised power generation has become a growing challenge not only for the transmission grids, but also for the distribution grids, to which most of the plants are connected.  The electricity that has to be purchased by the grid operator pursuant to the Renewable Energy Sources Act (EEG) often exceeds local demand.

For 2030 the EEG sets a target for the share of electricity in the energy supply of at least 35%. According to a recent statement by Federal Environment Minister Peter Altmaier, Germany will overachieve, reaching a 45% share if the federal states continue their expansion policies. Lately the head of dena, Stephan Kohler, demanded to better manage the expansion of renewable power plant capacities, in particular solar power plants. He suggested to permit new capacities only if the grids were able to accommodate the electricity input and proposed that grid operators develop a registry of free grid capacities.

I. Expansion and Modernisation Needs, in Particular in Medium- and High-Voltage Grids, and Associated Costs

The dena study worked with two different scenarios. The first scenario comprises the expansion targets according to the lead scenario B for the recently approved Electricity Grid Development Plan 2012 (NEP 2012) for transmission networks. The second scenario comprises the expansion plans of the (sixteen) federal German states, which provide for a faster growth in particular of wind power, but also of solar power.  Both scenarios require new power lines and converters on all distribution levels as well as retrofitting of existing high-voltage overhead lines.

Results of the NEP B 2012 Scenario:

  • Grid expansion until 2030: 135,000 km;
  • Grid modernisation until 2030: 25,000 km;
  • Investment needs until 2030: EUR 27.5 billion.

Results of Scenario Based on Expansion Plans of Federal States:

  • Grid expansion until 2030: 193,000 km
  • Grid modernisation until 2030: 21.000 km
  • Investment needs until 2030: 42,5 EUR billion.

The results indicated that the medium- and high-voltage grids required the highest investments, with 24% respectively 19% new power lines needed, dena said, explaining that not only was electricity fed into those grids, but energy that had not been consumed on the lower voltage levels had to be transmitted. The costs in the high-voltage grids were the highest, as the technical equipment required for transmission was more costly and existing power lines had to be retrofitted, dena added.

II. Framework Conditions

The Incentive Regulation Ordinance (Anreizregulierungsverordnung – ARegV) provides for a revenue-cap regulation of grid charges. The dena study examined the investment needs for the expansion and maintenance of the distribution grids. It came to the conclusion that with the given regulatory framework distribution grid operators with a high need for extension of their grids do not receive a sufficient return on equity, meaning that there are not sufficient incentives for grid expansion. In late October 2011, the Federal Network Agency (BNetzA) lowered the return on equity rates for the second regulation period for gas networks and for electricity networks, after much debate. It will be interesting to see if the dena study will prompt changes, possibly via the political sphere.

In March 2011 the Federal Association of the Electricity and Water Industry (BDEW) also presented a study on the need for the expansion of the German distribution networks and the costs thereof in view of the integration of the expected new PV and wind power capacity until 2020. For more information, please see the related posts below. At the time BDEW also said that in order to attract capital for the nessary investments, a regulation allowing for adequate returns was essential.

III. Possibilities to Reduce Costs Require Further Research

Dena also examined technical measures that can reduce grid expansion in the future, saying innovative equipment (e.g. cables, transformers and surge protectors) had the greatest potential but further research was necessary.

The dena study shows again that the German Energiewende towards a renewable energy supply comes at a price. According to the recently approved Electricity Grid Development Plan 2012 (NEP 2012) for transmission networks, there is also the need for reinforcement measures for existing transmission power lines with a length of approximately 2,900 km and a need for 2,800 km of new transmission power lines.

Source: dena


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