A study quantifies the economic value of energy networks for the first time - Restraint in network expansion causes additional costs of up to 4.2 billion euros per year in the long term

A reliable infrastructure is the backbone of a successful energy transition. More and more green energy generated locally is being used, for example, to charge electric vehicles or for heat pumps. To achieve this, Germany's electricity distribution networks will have to be continuously expanded in the coming decades. A study by RWTH Aachen University quantifies the economic value of electricity distribution networks for the first time and at the same time warns against underinvestment in the networks. The study was presented to an interested specialist audience at the end of October.

Dr. Thomas König, COO - Networks

Right at the beginning of the 90-minute online event, which was attended by around 130 representatives from German Parliament, from ministries, regulatory authorities, associations, and companies, E.ON's COO Networks Dr. Thomas König underlined the importance of efficient electricity networks.

König explained how E.ON is enabling the climate-friendly transformation of the energy supply. The group plans to invest around 6.6 billion euro in its network over the next three years, with an additional 500 million euro planned for Germany alone this year. 

The energy system is changing massively

The ever increasing demands on the energy infrastructure were also underlined by the authors of the study, which was commissioned by the new E.ON: Prof Dr.-Ing. Albert Moser, head of the Institute for Power Systems and Networks, Digitalisation and Energy Economics (IAEW) of the RWTH Aachen University and Dr. Christoph Gatzen, Associate Director of the renowned consulting firm Frontier Economics. According to the experts, the way in which energy is generated and used has changed massively in recent years. Keywords: decentralised generation and sector coupling. 

Against this background, the scientists concluded in their study that the investment required in the German electricity networks by 2050 would be around 111 billion euros. And, according to Moser and Gatzen, there must be a continuous and sufficient flow of money. Otherwise the economy would be severely burdened. According to their calculations, the additional costs resulting from insufficient grid expansion would initially amount to 100 to 300 million euros annually. Between 2030 and 2050 these additional burdens for consumers will rise to around 4.2 billion euros per year. Networks that are too weakly developed therefore lead to disproportionately high follow-up costs. The researchers speak of an asymmetric risk. It is important to find the right balance between too much network expansion and a lack of investment in energy infrastructure.

Thomas König, representing the around 900 network operators in Germany, made the dilemma clear: There is an irresponsible discrepancy between regulatory requirements and the increasingly demanding supply task. The current legal framework is hardly able to meet the changed demands that the energy transition places on distribution network operators. Incentive regulation dates back to a time when the sole aim was to reduce monopoly returns and increase efficiency while maintaining a constant supply task. The regulatory authority now had to weigh up between short-term savings and long-term follow-up costs for an infrastructure that no longer met the requirements of the energy transition.

Deciding in favour of investment in case of doubt

During the intensive discussion, König showed the audience some solutions: Even small changes in regulation are enough to secure the financing of energy infrastructure required for the energy  transition. In particular, a minimally invasive adjustment in the calculation of the return on equity would be necessary. Consideration would also have to be given to whether the general productivity factor (Xgen - this value reflects, roughly simplified, the difference between the technical productivity of the network industry and the economy as a whole) was still up-to-date. It was doubtful whether network operators would still be able to achieve above-average efficiency levels after more than a decade of incentive regulation. In case of doubt, a decision should be made for investment and the Xgen should be set at zero.

Thomas König pointed out that without appropriate and above all continuous investment in Germany's networks there would be no successful energy transition and no successful climate protection. Well developed and available energy networks were essential for the long-term competitiveness of Germany as a business location. His appeal: The legislator must now set the course for growth and digitisation.

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