Investment in Power Grid Expansion: A Cost of EUR650 Billion for Germany's Energy Transition
Germany's ambitious climate goals necessitate substantial financial investment in the expansion and modernization of its power grid. A recent study conducted by the Institute for Macroeconomics and Business Cycle Research, funded by the Hans Böckler Foundation, highlights that the total expenditure required for this energy transition could reach approximately EUR651 billion by the year 2045.
To achieve these aims, annual investments are expected to exceed EUR34 billion, more than doubling the current annual expenditure of EUR15 billion recorded in 2023. This increase is largely attributed to the growing reliance on renewable energy sources, which must be efficiently transported from northern Germany to industrial hubs situated in the south.
The study outlines that the financial requirements are divided between two critical components of the electricity infrastructure: the high-voltage transmission network and the local distribution network. The transmission network, managed by four private operators, spans around 38,000 kilometers and is responsible for transporting electricity at high voltages across the country. Depending on various scenarios concerning levels of electrification and hydrogen utilization, the gross electricity consumption is projected to rise from 525 terawatt-hours in 2023 to between 1,080 and 1,300 terawatt-hours by 2045, leading to an estimated investment of EUR328 billion for this segment alone.
On the other hand, the distribution network, which facilitates the delivery of electricity to households and businesses, represents a significant portion of the overall investment. According to the Federal Association of Energy and Water Management, the existing distribution network measures approximately 1.9 million kilometers in length, necessitating a further investment of EUR323 billion for the 865 energy suppliers operating in Germany.
However, the projected costs could escalate even further due to various risk factors, including rising raw material prices, shortages of essential components like transformers and cables, and potential delays in the permitting process. These financial burdens are likely to be passed on to consumers, who are already facing high electricity prices. Currently, households pay an average network charge of EUR0.1153 per kilowatt-hour, which constitutes nearly one-quarter of the total electricity price.
The study also emphasizes the importance of affordable electricity rates for consumers and the competitiveness of Germany's energy-intensive industries, which are already grappling with elevated energy costs. The necessity for rapid expansion of the power grid and the potential capping of network fees are crucial for both consumer relief and the viability of numerous industrial jobs.
In addition to the findings of this study, another report released in April 2024 by the energy consultancy ef.Ruhr suggests that total costs associated with the energy transition could be as high as EUR732 billion. This estimate breaks down into EUR301 billion for the transmission network and EUR431 billion for the distribution network.
As Germany continues to navigate the complexities of its energy transition, the focus remains on ensuring that the necessary infrastructure can support both the current and future demands for electricity while maintaining competitive energy prices for consumers and businesses alike.
