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The latest base case estimate puts the cost of upgrading Germany’s grid by 2030 at EUR 52bn, up from an estimated EUR 33bn in 2017, much of it related to connecting and managing extra supplies of wind- and solar-driven electricity and longer distances between generation and consumption.

Germany’s main transmission system operators – TenneT Germany, 50Hertz, Amprion and TransnetBW – will shoulder much of the bigger-than-expected investment in new long-distance high-voltage cables and other infrastructure.

“Reassuringly for creditors and investors, Germany’s regulatory framework allows grid operators to eventually claw back investment through higher tariffs, despite rules designed to simulate competition and motivate operators to focus on cost efficiency,” says Sebastian Zank, analyst at Scope. The sector’s credit outlook remains stable.

German industry and consumers, on the other hand, face a sustained increase in grid charges. Germany already has among the highest end consumer power prices in the EU, a trend which could encourage industrial relocation to neighboring countries, Zank says.

“More encouragingly, the grid operators’ funding needs may lead to a surge in issuance of ‘green’ securities – from public and hybrid bonds to private debt - significantly widening options for investors looking for ‘sustainable’ investments,” says Zank. TenneT is using a full range of green instruments such as green bonds, green Schuldschein and green US-PPs as well as a green hybrid bond, summing up to EUR 6bn. EnBW – the parent of TransnetBW – has issued a EUR 500m green bond in relation to investments in wind, solar and e-mobility.

“The driving force behind this transformation in Germany’s energy infrastructure is less the government’s desire to catch up with missed targets for reducing CO2 emissions and more the unintended consequences of the ambitious push into renewables and phase-out of nuclear and coal,” says Zank.

Germany is edging closer to the national target of 65% renewable energy by 2030. Renewables accounted for an average of 40% of Germany’s electricity needs in 2018 – “an impressive but unrepresentative figure,” says Zank.

Daily intermittency of solar and wind is such that they contributed as little as 15% and as much as 70% of Germany’s electricity needs according to data from January 2019. Adding more renewable energy capacity helps only at the margin given the constraints of cloudy, windless days and sunless hours. Consequently, large contributions from thermal generation capacities and even large imports from neighbouring markets are required, which could be “clean” hydro power from Scandinavia or Austria, but could also be “dirty” power from French/Swiss/Czech nuclear or Polish coal power plants.

Such variability strains the overall network, hence the EUR 52bn estimated investment needed by 2030 to ensure grid stability and integration of onshore renewables, according to the base scenario of the recently published draft Grid Development Plan (‘Netzentwicklungsplan’ 2019) – an increase of more than 50% from the 2017 plan. And this number does not yet include the required investments for the integration of off-shore wind and storage solutions.