The economic value of power distribution networks

The economic value of power distribution networks

A reliable infrastructure is the backbone of the successful energy transition and the long-term competitiveness of Germany as a business location. Time for the legislator to set the course for network expansion and digitisation?

We recently undertook a study to quantify the economic value of energy networks.

Power distribution at a crossroad

The energy transition brings substantial challenges to our electricity distribution networks. Besides the need to connect new renewable energy plants, sectors such as transport (due to increasing e-mobility) and heat (due to increasing heat pumps) are likely to demand more renewable electricity in the future. However, it is not yet clear what the future development, demand and supply will look like. Frontier, together with IAEW/RWTH Aachen have been commissioned by E.On to analyse the economic value of power distribution networks for the energy transition in Germany and to identify possible impacts of a “regulation under uncertainties”.

The risk: too little, too late

In our analysis, we calculated the economic costs of underinvestments into the power distribution networks until 2050. The result: Savings from underinvestment will not compensate for costs resulting from inadequately developed networks. This result has been undermined by the evaluation of risks resulting from an unintended too mild or too strict regulation. The cost risk arising from too strict regulation – and as a consequence underinvestments into the networks – considerably exceeds the risk of having slightly too many network investments. And it increases disproportionately over time.

Setting the course today

Like all risks, the risks revealed by our analysis also point to chances. Setting the right regulatory framework for a future development of power networks will definitely pay off already today from an economic perspective. And within the regulation under uncertainties there are possibilities to counteract the risk of a strict regulatory framework. A timely and efficient development of power distribution networks results in a high economic value – in the interest of the end consumer.