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 are expected to offer 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, our research 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 of 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.