German energy agency says higher tariffs needed for grid upgrade

Tue Dec 11, 2012 7:06am EST

* Network must be expanded for green power

* Lawmakers urged to facilitate higher return on investment

By Vera Eckert

FRANKFURT, Dec 11 (Reuters) - Germany's energy agency has called on the government to allow power grid companies to raise tariffs to provide a greater incentive for the billions of euros of infrastructure investment needed to support the shift to renewable energy.

The Fukushima nuclear disaster in Japan last year prompted Germany to switch off large parts of its nuclear generation capacity and speed moves towards greater reliance on green energy, with 35 percent of the country's power to be derived from renewables by 2020.

However, Germany's power sector is still led predominantly by conventional producers, such as E.ON and RWE , with a highly fragmented distribution structure.

A study by Deutsche Energie Agentur (Dena) released on Tuesday suggested that up to 42.5 billion euros ($55 billion) of investment is required on distribution infrastructure until 2030.

"The expansion of renewable energy must be urgently aligned with the expansion of infrastructure," the energy agency said.

However, Dena's managing director, Stephan Kohler, said that current profit margins are not a sufficiently attractive incentive for operators to install and maintain new equipment and for investors to provide the finance.

Kohler called on policymakers to allow operators to raise their tariffs to guarantee a better return on capital expenditure. "The legal framework must be adjusted to facilitate the necessary investment in the distribution grids of the future," he said.

INNOVATION COSTS

The distribution grids that take power from high voltage networks served by big power stations and transport it to consumers must be adapted to cope with an increasing number of wind and solar power installations.

The changes are required to send locally produced electricity in the other direction, such as from solar panels on homeowners' roofs, Dena said.

These integration tasks require more capacity and improved technology, such as state-of-the-art converters and cables to allow surplus power to be shipped for consumption, the agency said.

The new hardware also needs accompanying installation, servicing and monitoring, w hich requires changed job roles.

Dena is 50 percent funded by German government ministries while the other half is provided by banks and insurers, including Deutsche Bank and Allianz.

A study published last month by the VKU utility association envisaged 30 billion euros of spending is required over the next two decades.

In a separate development, the government is expected to give legal approval by the end of the year for the construction of new high-voltage grids needed to help to transmit electricity from offshore wind power over the long distances to major consumption centres in the south of the country. ($1 = 0.7736 euros) (Reporting by Vera Eckert; Editing by David Goodman)

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