Amendment of the German Incentive Regulation: Implications on Investment Decisions of Distribution Network Operator

Abstract:
Network operators have different technological alternatives to implement grid expansion in the course of the increasing integration of renewable energies into distribution networks. The choice between conventional or operational expansion measures depends, in particular, on the regulatory framework. In Germany, the incentive regulation was amended in 2016 to improve investment conditions and cost-efficiency. In order to answer which strategy is economically optimal, a method is developed that simulates the network planning process with special consideration of competition within the regulatory framework. In fact, the exemplary investigations show that network operators should prefer efficient operational measures under competitive pressure to sole conventional grid reinforcement. In addition, the amendment can lead to improved returns and changes in investment behaviour of network operators.