The welfare implications of transmission grid infrastructure investment in Germany

This paper contains a macroeconomic assessment of flexibility provision to integrate large shares of variable renewable energy sources into a power system. In particular, macroeconomic implications of investments in power transmission and distribution grid infrastructure in Germany are assessed.

Modifications and restructuring of the German power system are aiming at sustainability, security of supply and economic efficiency and are largely motivated by an increasing awareness of environmental impacts of the conventional power system. This paper focuses on an investigation of economic effects of grid infrastructure investment on growth rates and employment. It is argued that positive multiplier effects on economic growth might be induced by investing in grid infrastructure as a flexibility option. However, those effects might be dampened due to potential opportunity cost and considerable risk, inter alia arising from increased depreciation rates of existing infrastructure assets and uncertainties concerning future power system design and hence return on investment. The paper further argues that due to substantial economic inefficiencies arising from extensive need for regulation of the transmission and distribution system, investments in competing flexibility options might outperform grid infrastructure investments concerning its economic efficiency.

By: Lena Schreiner