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In this week’s Power Playbook: TenneT’s major financing comes at a crucial time for Germany’s Energiewende, which only looks to get more expensive.
The news last week that TenneT has secured €9.5 billion ($11.1 billion) to accelerate grid expansion in Germany was a welcome development — and a long-awaited one. For years, the financing structure for the company’s German operations has been a point of uncertainty.
The company has an ambitious investment plan of €200 billion ($235.1 billion) for grid expansion across its operations in the Netherlands and Germany through 2034. But following the decision to separate its Dutch and German units, the question had long been whether Germany’s share would be financed either via a private investment or a potential listing.
With this transaction, TenneT and its sole shareholder, the Dutch state, have secured the equity required to support its German network buildout, bringing on board three large institutional investors: APG (Netherlands), GIC (Singapore), and Norges Bank Investment Management (Norway). This provides much-needed capital and a clear direction for the German arm of one of Europe’s largest transmission system operators.
Indeed, it’s a significant shift. Germany’s federal government had been considering a direct stake in TenneT for some time, and the Dutch government had signalled openness to the sale. This new ownership structure appears to settle that uncertainty, at least for now.
The size of the deal reflects the size of the problem. TenneT’s German operations are central to connecting wind generation from the North Sea to the industrial south, and the price tag has always been high. With the restructure now complete — a move long in the making — the company seems better positioned to move forward with the scale of investment required.
However, this financing is only part of the story. It’s an important signal of intent, but also a reminder of how long it has taken to reach this point.
For much of the past decade, grid financing in Germany has lagged behind its energy ambitions, even as the country scaled up renewables and committed to phasing out coal and nuclear. TenneT’s financing closes a major gap, but it doesn’t fix the underlying challenges.
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A trillion-euro bill
To put the need for this kind of capital into context, the German Association of Chambers of Commerce and Industry (DIHK) last month released a study into the impact of the country’s energy transition on energy system costs. Unsurprisingly, the energy transition has proven expensive.
The study estimates that the total cost of Germany’s energy transition as a whole could reach as much as €5.4 trillion ($6.3 trillion) by 2045. It’s no surprise that grid infrastructure will require a substantial portion of that sum — €1.2 trillion ($1.4 trillion) to be exact, including investments and operating costs.
To add to this, the German government released a “reality check” monitoring report designed to lower costs and improve the competitiveness of the country’s struggling industry.
According to reportage by Clean Energy Wire, the report says that, for the energy system to meet the needs of intermittent renewables, more investments are needed in transmission and distribution grids, which were found to be slow.
Investment is also needed in storage, backup capacities, and interconnectors, as well as more measures to incentivise flexible electricity demand. The report suggests that the better coordinated these systems are, the lower the costs can fall.
Germany at a crossroads
Back in March, I wrote in the Power Playbook about Germany’s €500 billion ($586.7 billion) infrastructure fund — in part an attempt to reassert control over the narrative and re-establish the country as a leader in the energy transition.
The fund was presented as a bold move that would make this an interesting year for the country. However, I also questioned whether it would be enough by itself, since different German bodies and lobby groups called for more flexibility and a double down on efficiency, rather than simply funnelling euros into new projects.
Seven months later, the story hasn’t changed — only now, the stakes are higher.
“The German energy transition is at a crossroads,” says Germany’s Federal Ministry for Economic Affairs and Energy (BMWE) in 10 key measures for the monitoring report.
“The successes so far in expanding renewable energies are unmistakable and a major achievement for Germany, but the next steps will be much more difficult,” they say.
Additionally, says the BMWE, “…since electricity is always needed…renewable energies alone are not sufficient – the result is high investments in the entire electricity system, especially in infrastructure, storage, grid expansion and backup capacities that are necessary for a reliable electricity supply.
“Added to this are enormous costs for grid bottlenecks (curtailment, redispatch) that arise when the grids cannot absorb and transport the generated electricity.”
To be clear though: there is still real progress.
TenneT’s €9.5 billion is one of the largest single financing efforts we’ve seen in this space and shows that, given the international investors heeding their call, Germany is still an attractive market.
But what do you think?
Reach out and let me know your thoughts so that I can feature them in the Power Playbook.
And finally, a quick programming note: Smart Energy International is merging into Enlit World. It’s a change in name and platform — but not in purpose.
The Power Playbook will continue to appear each week, offering the same perspective on the forces shaping the global energy transition. New home. Same voice.
Until next time,
Yusuf Latief,
Content Producer
Smart Energy International
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