Financing Germany’s distribution grid build-out

Germany’s distribution system operators (DSO) must invest heavily in their energy infrastructure: Until 2045, they need a total of 647 billion Euro to expand and modernise electricity and district heating networks as well as to maintain and gradually decommission gas distribution networks. Most of this investment will be financed through debt and retained earnings. However, DSOs need 68 billion Euro of new equity by 2035, as lenders only provide debt financing for grid investments if DSOs have a sufficient equity base. This paper shows that an equity gap of roughly 13 billion Euro, concentrated among municipal DSOs, remains even after DSOs use all available levers – higher debt leverage, greater earnings retention, and fresh equity from financially stronger shareholders. To close this gap, the authors propose equity-like instruments: subordinated shareholder loans from municipalities, mezzanine capital from public promotional banks, and state-backed project financing solutions. 

This paper summarises the results of the study “Eigenkapital für die Energiewende” by Agora Energiewende, Climate Neutrality Foundation, and Dezernat Zukunft on DSO financing needs and solutions in Germany.