Dena study: Distribution network operators need double investment by 2045

Twelve years after the publication of the first distribution grid study, the German Energy Agency (Dena) has now presented a new version, the Distribution Grid Study II, which, for the first time, includes a business analysis of transformation costs in the distribution grid. The study was conducted in collaboration with BET Consulting, the University of Wuppertal, BMU Energy Consulting, and 26 distribution grid operators. It models a representative sample distribution grid operator in a municipality with 100,000 inhabitants and concludes that annual investments must increase by 85 to 123 percent by 2045 compared to 2024.

Corinna Enders, Chair of the Management Board of Dena, emphasizes that the path to climate neutrality in the distribution grid is challenging. "It's about infrastructure as a key element for the success of the energy transition; it's about financing, refinancing, security aspects, even cybercrime, and the use of flexibility," she summarizes. Strategic decisions must be made now. A reliable regulatory framework that enables investment, as well as digitalization and cooperation at all levels, is needed. "This isn't just about electricity, but about cross-sector coordination of the energy infrastructure, including heat."

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Philipp Heilmaier, Head of the 'Future of Energy Supply' Division at the German Energy Agency, emphasized at the presentation of the study to journalists in Berlin: "The distribution network is reaching its limits." In addition, a transformation of the gas and heating networks and an expansion of hydrogen networks are necessary.

The study authors have identified the following four topics as levers for climate-neutral distribution networks: attractive investment conditions, planning security and data exchange across sectors and levels, digitalization for efficiency and flexibility, and raising awareness of transformation as a cooperative community task.

Financing as a core challenge

The study identifies financing as the most important building block for the transformation. Due to the high investment requirements, grid operators require additional sources of capital and more equity. According to the study, raising sufficient equity can be challenging for companies in times of high investment activity. Various approaches can address this. Possible options include increasing the regulated equity interest rate, establishing external companies, or examining the provision of strategic state equity. In order to ensure sufficient equity, a risk-adequate and internationally competitive interest rate is also required.

Please also read Dena’s proposal for a legal framework for PPAs.

Coordinated planning and digitalization necessary

Early, cross-sector planning between all grid levels is intended to avoid parallel infrastructures. The study recommends further developing the current electricity grid and heat planning into integrated energy master planning. Furthermore, increased digitalization of the grids should increase security of supply and optimize grid expansion. According to BET Managing Director Alexander Kox, a long-term, stable legal and regulatory framework is also important. This is the only way to ensure predictability for operators. Forward-looking planning and grid models are also more cost-effective.

Cooperation as the key to success

The study identifies increased cooperation among all stakeholders as a fourth area of action. Regional cooperation could counteract the shortage of skilled workers. It also recommends more intensive networking with universities and start-ups, as well as the formation of competence clusters.

BET manager Stefan Mischinger points to several approaches that could help in the face of the challenging situation, such as expanding the legal framework to accommodate flexibility. Another example is the consistent implementation of existing proposals for better utilization of grid connection capacities. In the case of methane, for example, this could include creating a legal framework for consistent planning for the conversion of the gas network in the distribution network to methane.

One thing is certain: the issue must be addressed quickly, especially since long approval processes, high bureaucratic hurdles and a shortage of skilled workers will have a significant slowing effect in this field.

You can find further content about the study here.