Expansion of the energy grid

Expansion of the energy grid

Germany is in an energy trilemma: it is required to reduce emissions of climate-damaging gases like CO2 as part of its energy transformation. At the same time, the German energy supply is supposed to be kept reliable and affordable. Not an easy balance to strike, given that the conversion of power generation in Germany will invariably require an extensive restructuring and expansion of the country’s electricity grid.

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Path out of grid congestion

The goal of all efforts in the energy transformation is to reduce the emission of climate-damaging gases, such as CO2. At the same time, the German energy supply should continue to be reliable and affordable (energy “trilemma”). By optimising private electricity generations, expanding electricity storage and using Smart Grid technology, the existing electricity grid can be used more efficiently than it has to date and therefore reduce the need to expand the grid. However, given that the planned conversion of German energy generation is leading to an extensive conversion and expansion of the German electricity grid, there is no avoiding it.

Electricity highways should rectify north-south gaps

The German electricity network, designed until now for large conventional power plants or nuclear generators, must be expanded or converted in view of the energy transformation. In future, electricity grids must not only distribute increasing amounts of electricity from renewable energies, but also be able to store it. In addition, the number of prosumer customers, who accept electricity and, at the same time, feed electricity into the grid via their PV roof systems, is increasing steadily with the further expansion of photovoltaic systems. The construction of four high-electricity highways will take into account the imbalance between the high wind power supply in the north of Germany and the high need for electricity in the economically strong south. However, construction progress is behind schedule so far.

Strong need for investment

The strong need for grid expansion for rural, offshore and distribution grids will require more investments of up to €80 billion by 2030. There are already grid fees for approximately a quarter of electricity prices for end consumers. Therefore, there is increasing political pressure on the German Federal Network Agency to keep the return on equity included in the grid fees as low as possible for the approximately 1,100 grid operators.

Given the low interest on loans for financing grid expansion, the German Federal Network Agency has reduced the return on equity by around two percentage points to 5% for existing and 7% for new systems respectively for the third regulatory period beginning in 2019. Nevertheless, grid operation is still lucrative, particularly as the margins from electricity sales are still under pressure in the medium term due to the increasingly inexpensive green electricity.

Energy suppliers open up new business areas

Energy supply companies without grid operation and with cashflows secured by the EEG rely increasingly on expanding energy services (energy advice, contracting) or integrated energy (simultaneous production of electricity and heat). This means that the least profitable electricity sale can be cross-subsidised by better margins from heat generation or yields from energy services.

Storage technologies further developed

As “green electricity” is not demand-focused but is produced depending on the weather, grid-compatible excess green electricity should be stored for efficiency reasons. Therefore, the expansion and conversion of electricity storage systems must be pushed forward massively. Examples include:

  • Battery and hydroelectric storage systems
  • Storage technologies with which green electricity is converted into gas using electrolysis (“power to X”)

A corresponding number of electricity storage systems could minimise not only the need for grid expansion and make the expensive operation of conventional power plants for securing grid stability superfluous in the medium and long-term. It could also significantly increase the efficiency of existing renewable energy plants. Surplus green electricity can be stored and fed into the electricity grid at a later point when optimised for demand and the grid.