In many countries in Europe and around the world, power grids are an obstacle to the unbridled expansion of renewables. Designed to accommodate large fossil fuel power plants, our grids are not yet equipped to handle decentralized and intermittent generation – and changing that is a Herculean task for the energy industry, governments and grid operators.
At the Forum Solar PLUS, we spoke to Thomas Dederichs, Head of Strategy and Energy Policy at Amprion GmbH, about the challenges in this process, who bears what costs, and how the burden on consumers can be reduced.
At Amprion, we have already accelerated many grid expansion projects in the last two years. Nevertheless, transmission system operators (TSOs) are facing a daunting task. According to the latest grid development plan, a total of 330 billion euros need to be invested by 2045 to upgrade the transmission systems. Unlike other TSOs, Amprion is largely in private hands, with no state ownership. Over the past few years, we have also realized that it is not easy to raise capital at this large scale. This is why we are in an ongoing dialogue with the German Federal Network Agency Bundesnetzagentur about what an appropriate interest rate might be. The energy transition is mainly financed with debt. The regulation defines a regulatory equity ratio of 40 percent, with the remainder financed by debt. In the future, many grid operators will further reduce their equity capital in relation to debt. With a sound equity base and equity yield rate, it will become easier and cheaper for grid operators to finance debt. This, in turn, will benefit grid customers. So we quickly need an appropriate regulatory framework.
When it comes to raising debt capital, we have established ourselves as frequent issuer of green bonds in the international capital markets in recent years. However, a prerequisite for us to continue on this successful path, including for the issuance of bonds, is an adequate equity yield rate. This is why we are in an ongoing dialogue with the German Federal Network Agency Bundesnetzagentur about what an appropriate interest rate might be.
The current incentive regulation aims to address the following questions: How can I save costs? How can I increase efficiency in a system that has reached steady state? But our system has not yet reached steady state, we are in the midst of a transformation and a strong growth phase!
It has already improved a lot. This year, we participated in an activity initiated by the German Renewable Energy Federation (BEE) that focused on the shared use of grid connections. As a grid operator, we want to support this because we see renewables playing a central role in tomorrow’s system operation. Marketing system services is also becoming more important. The next tenders will be interesting for us, especially in terms of providing reactive power and power system inertia. It will open up more opportunities for cooperation between renewable plant operators and TSOs. It is important to note that at the beginning of the energy transition, we carefully introduced renewables into a system that was dominated by stable sources of energy. Today, however, renewables account for the majority of power generation, providing 50 to 65 percent, and projected 80 percent by 2030. With such shares, they must do more to help stabilize the system.
At the moment, I have a young, motivated team that is hungry for change and deeply involved in these processes. Many of our employees are intrinsically motivated, believe in the energy transition, and are looking for the best way forward. TSOs play a special role because we are fully responsible for system stability. When the lights flicker, everyone turns to us. So we must be the ones to address uncomfortable topics, for example, excess generation from PV systems. It is pleasing to see dynamic developments, but when they reach the limits, we keep a close eye and make adjustments – whether in controllability, digitalization, or the smart meter rollout.
The majority of the increasing grid charges are not primarily due to curtailment. A distinction must be made between feed-in management and redispatch. When we detect a grid congestion, we adjust the roadmap. In other words, we scale down the capacity of power plants north of the grid congestion while increasing capacity south of the grid congestion in order to eliminate it and prevent damage to the power lines. In 2022, this process cost nearly 4 billion euros in Germany, and a year later, it was 3 billion euros. This decline was caused by price effects in the market and by all the measures taken to upgrade the existing power grid, such as higher utilization, high-temperature conductors and overhead line monitoring, which uses wind to cool the power lines. This technology allows grids to handle more capacity when the wind is strong than at times when there is little wind, which correlates well with the required transmission capacity.
Only the grid expansion will reduce costs in the long term. Redispatch costs will continue to be charged until the grid expansion is completed. We are currently in a transition period where the costs of transformation are also added to our bills. If you want to buy your own private home or want to move to a bigger apartment but still live in your old place, you will have to temporarily pay for both. At the moment, the same principle applies to the energy system. We are still paying for the old system that was designed for fossil fuel power plants while building a new system with a longer transmission length between green power plants and consumers. This is associated with a lot of costs and investments.
We plan to invest 27.5 billion euros in our grid by 2028, which will affect grid charges. Even if redispatch costs are reduced, investments in grid expansion will increase. As long as transformation costs and investments have an impact on grid charges, we need to find solutions for reducing the burden on grid costumers. Two years ago, there was a billion-euro subsidy from the federal budget that significantly stabilized grid charges. It may also be worth discussing a reduction in the electricity tax.
For hydrogen, the government has decided to create amortization accounts (editor’s note: An amortization account bridges the difference between the necessary grid charges and the grid charges set by the Bundesnetzagentur through annual compensation). This could also be an option for the transformation of our grids, especially when considering their long-term refinancing and the construction of infrastructure. After all, we are on track to nearly double the capacity of the electricity system. We are coming from a world where we use 500 to 600 terawatt-hours of electricity per year and want to move to a world where we expect to transfer 1000 to 1100 terawatt-hours per year using the same systems. It might also be worth having a political discussion about who is going to bear what costs and when.
At the moment, congestion management accounts for about one third of the costs. As part of congestion management, we are required to maintain reserves for grid stability, for example. So our reserve power plants with a capacity of almost 10 gigawatts are also financed through grid charges. There are various types of reserves, from security reserves, grid reserves and capacity reserves to special, grid-related technical equipment. Redispatch, feed-in management, and reserve costs thus make up a large part of the transformation costs within grid charges.
Around half of the costs are investments in the future – the actual grid costs. Last year, the transmission system charges increased more than ever before. However, when you consider that a third of these charges is not actually grid related, but are rather, in a wider sense, the transformation costs for grid expansion, you need to figure out how to make it financially tenable. Because we do want people to electrify their surroundings and power their vehicles and heat pumps with electricity. Industry is to be electrified, which is difficult to do when electricity prices are so high, including due to grid charges, that the electrification of companies is too expensive.
As a grid operator, we want to intervene as little as possible. Ideally, these power plants are so well integrated into the market that they respond to market signals. Directly marketed power plants already have a financial incentive to shut off when prices fall well below zero. But not all of them do, in which case they may incur a financial disadvantage. We are interested in learning why. As balancing group managers, we must all ensure that the system is balanced and that the power plants behave in a financially rational way.
And then there is another large portion of smaller installations that are not directly marketed. We grid operators are responsible for marketing these installations, which means that a standard rooftop PV system receives its money from the grid operator, typically from the distribution system operator (DSO). We do see a risk here, as the portion of non-controllable systems is growing each year. These systems are so small that they do not necessarily have a smart meter, which means it is technically not possible to send a price signal or a signal to turn off. For this reason, the German Federal Ministry for Economic Affairs and Climate Action is lowering the limit for the controllability of systems in the Energy Industry Act to 7 kW to ensure that these systems also respond to price signals. We believe it is necessary to lower the limit to 2 kW. The aim is to build a digital infrastructure that will allow standard rooftop systems to be controlled, at least in critical situations.
We TSOs have always had a deep insight into our systems. We measure usage, voltage and current in real time at almost all of our transformer stations, so the status monitoring in our transmission system is actually very robust. For DSOs, this was not always financially feasible and also very complicated in terms of regulations – think smart meter. But if you want to use flexible consumption as efficiently as possible, you need sensors. To this end, DSOs are now increasingly turning to metering technology and intelligent transformers.