A pathway to green growth? Macroeconomic impacts of power grid infrastructure investments in Germany

As part of the sustainable energy transition in Germany, substantial investments in power grid infrastructure are planned. They are intended to provide flexibility to an electricity system increasingly relying on variable renewable energy sources, and on European interconnection. While much research has been done on the benefits of renewables, the economic impact of the necessary grid investments so far remains widely unclear. This paper presents a macroeconomic assessment of the planned investments in power grid infrastructure in Germany. By performing a static input-output analysis, the investigation reveals how multiplier effects of the grid investments impact macroeconomic outcomes - in terms of output, value added, employment and fiscal income. Net multiplier effects on outputs are found to be positive, ranging between euro47.3 bn and euro55.8 bn, while other effects turn out to be negative. A net decrease in value added of between euro10.1 bn and euro12.7 bn, in fiscal income between euro962 million and euro1354 million, and reductions in employment of between 130,170 and 158,940 jobs are found to be attributable to the grid investments. Hence, from a national perspective, the planned investments are found to have mixed macroeconomic effects and are not necessarily 100% 'no-regret'. Flexibility investments for the energy transition provided by power grids should therefore be realized with caution, and at least cost, if negative effects on national value added, tax revenues and employment are to be minimized. For policy guidance, more research is needed on the relative merits of the flexibility options available for accomodating high shares of renewables, and on the overall economic net benefits of sustainable energy transitions.

Automated summary

This paper evaluates the macroeconomic impact of planned investments in power grid infrastructure in Germany, revealing that while net multiplier effects on outputs are positive, other effects are negative, including a decrease in value added, fiscal income, and employment. Further research is needed to determine the relative merits of flexibility options for accommodating renewables and the overall economic net benefits of sustainable energy transitions.