Electricity Grid Expansion: Mobilise Capital, Lower Grid Fees

Executive Summary

Germany’s energy transition depends on massive electricity grid expansion. Electricity transmission and distribution networks require investments worth several hundred billion euros to support the shift to clean energy. A significant share of this will need to come as fresh equity capital. Yet under current financial and regulatory conditions, grid operators cannot mobilise the required funds — jeopardising the success of the energy transition itself.

Private capital must be activated, supported by state participation. The authors propose a dual approach: moderately raising regulatory returns to attract private investors, while ensuring affordable grid financing through government involvement. For smaller distribution grid operators with limited capital market access, a government-coordinated fund system would lower barriers to private equity participation.

State investment can directly ease costs for consumers. By investing equity into transmission and distribution operators, the government can leverage its lower borrowing costs. The dividends generated would then be used to subsidise grid fees, cutting costs for households and businesses while guaranteeing the long-term expansion of infrastructure. This model combines market incentives with public support to secure financing at scale.

Policy recommendations

1. Increase regulatory returns on equity to attract more private capital into grid infrastructure.

2. Establish a government-coordinated fund system to channel private capital into smaller distribution operators.

3. Provide government equity participation in transmission and distribution operators to strengthen capital bases.

4. Use dividend flows from state equity stakes to directly subsidise grid fees and relieve consumers.

5. Secure long-term financing conditions that balance investor incentives, consumer affordability, and energy transition targets.