Frankfurt, 1 April 2010

The expansion of renewable energies in the electricity sector is a major target of climate policy. The restructuring of the grid is aimed at creating a modern and more intelligent power grid which is able to integrate the new, decentralised eco-friendly installations into the existing grid efficiently. To meet these requirements, an extensive adjustment of the current grid structure is needed.  The German electricity sector thus faces an enormous infrastructure project accompanied by correspondingly high investment requirements.

Power supply in densely populated Germany has deep historic roots. The regional concentration of brown coal and hard coal in few areas already led to mainly centralised energy generation structures. Later, the trend towards centralisation was supported by the increasing use of nuclear energy and natural gas. To ensure that the centrally generated electricity can be transmitted to the many decentralised consumption locations, efficient power grids are required. They are thus regarded as vital “arteries“ of power generation.

The generation and provision of electricity in Germany and Europe are currently in a period of transition. On the one hand, national electricity markets are growing together as a result of European economic and regulatory integration. This necessarily leads to investments in electricity transmission capacities. On the other, there is a trend towards decentralising which also requires a modernisation of power grids. In the coming years, high investments on the infrastructure of the grid will be needed. According to the German Energy and Water Association (BDEW), the electricity sector will have to invest EUR 40 bn in the expansion of grids in the next ten years alone to meet the new requirements.

The most striking driver for the expansion and restructuring of our power grid is the increasing use of renewable energies such as wind, solar and modern bioenergy. For at least 20 years, the new energies have been promoted in Germany. The actual engine of the strong expansion of green electricity, Germany’s Renewable Energy Law (EEG), was not introduced until February 2000, however. In these ten years, the share of renewable energy sources in domestic power consumption rose from 6% in 2000 to as much as 16% last year; the total electricity market even grew slightly in that decade. While hydropower was the only source of renewable electricity in the past, currently wind energy comes first ahead of biomass; hydropower, in third place, currently only contributes three times the share of photovoltaics. Due not least to the boom in eco-friendly electricity, total investments of the electricity sector (that is generation and grids) reached close above EUR 9 bn in 2009, thus trebling since 2000. Moreover, investments were already 29% higher than in 1995, the peak of the last investment cycle. Almost one-third of the investment volume mentioned flowed into power grids due for modernisation. Given the BDEW forecast, this value should increase in the next ten years.

As far as the increasing investment requirements are concerned, political and technological factors play a major role: Germany intends to increase the share of renewable-based electricity to 30% by 2020. Environment Minister Norbert Röttgen has even suggested recently to switch power generation almost completely to renewables. However, the related higher demands on the grids will require considerable investment.

Large technological challenges remain: first, the integration of offshore wind systems into the supply network. The wind farms being built in the North Sea and the Baltic Sea require the expansion of the current high-voltage network so that they can be operated commercially. The BDEW estimates that the power lines have to be expanded by another 1,000 km to ensure that wind power can be transmitted from the German coast to the markets in the inland areas.

Second, the massive on-site developments of the many decentralised eco-friendly installations require a rapid expansion of networks all over Germany. This is the only way centralised systems can supply the capacities for the many new decentralised feeders.

Third, storage technologies and expansions of the current storage possibilities are required, as wind and solar energy continue to be very weather-dependent. Combined power plants which interconnect various “green” generation plants could also smooth the discontinuities of power generation. This is a major reason why the amended EEG specifically promotes this type of power plant.

Taken together, all these developments require a strong coordination of market agents. For this reason, investment is required, fourth, on smart grids. Thanks to the new grid intelligence which has to be developed further, a much more effective use of green energies will be possible in the future. For example, intelligent electricity meters are key to an optimal and demand-oriented steering of power provision, down to the level of private households. In the long term, consumers will thus be able to benefit from energy efficiency and reduce their power consumption.  Energy producers will benefit as well, especially with regard to the optimisation of power generation and the grid.

The new energy strategy of the current US government is also betting on smart grids. With a subsidy volume of USD 3.4 bn, it wants to push the new technology. In Germany, research and development in the area of smart grids are driven by the funding programme E-Energy. All these developments will bring fundamental change to the electricity markets and, above all, the grids in the coming decades. This implies substantial private-sector investment. It should be kept in mind that the revolution in the area of the grid structure has only just begun.

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