Investing in Power Grid Infrastructure as a Flexibility Option: A DSGE Assessment for Germany

Abstract

This paper provides an approach to incorporate planned investments in power grid infrastructure in Germany, which intend to provide the necessary flexibility to integrate large shares of variable renewable energy sources into the power system, into a dynamic stochastic equilibrium model. Since the investments' economic impact remains unclear, this paper sheds light on two questions: Do power grid infrastructure investments in Germany have the potential to positively impact economic performance, particularly GDP and employment? Is power grid infrastructure investment an efficient way to provide flexibility to the electricity system? We find the potential for negative effects of power grid infrastructure investments on economic outcomes, which can, however, be mitigated by an adequate design of the investments and its framework conditions.

Regional Flexibility Markets—Solutions to the European Energy Distribution Grid—A Systematic Review and Research Agenda

“…While some plants and energies will lose in profitability, others will open up. It is argued that, under the current policies, network operators lack a stable basis for planning investments [60]. This situation hampers operators' willingness to invest in grid infrastructure Legal regulations in Germany supervise, define, and limit operation and investment costs transmissions grid operators can charge via grid fees.…”