The Netherlands again improved its position in the electricity market in 2017
The average electricity price in the Central Western European (CWE) region1 rose slightly in 2017, mainly because of higher power station fuel prices (gas +22% and coal +40%) and the cold spell at the start of 2017. Especially in winter the prices in countries where TenneT operates – the Netherlands and Germany – tend to be significantly lower than in France and Belgium (see below graph of day-ahead prices).
Monthly average day-ahead-wholesale prices per hour in CWE countries in 2015, 2016 and 2017
Dutch power stations provide security of supply for other countries
This explains why the Netherlands and Germany are electricity exporters particularly in the winter months. In the colder months of the year, France and Belgium experience a sharp rise in demand for electricity, because many homes in those countries are heated by electricity and not by gas. In conjunction with uncertainty about the availability of nuclear and hydropower stations, this pushes up electricity prices in winter. As the national high-voltage grids are connected to each other, the countries with surplus production capacity can significantly support countries where a great demand exists for electricity. The flexible Dutch gas-fired power stations play a crucial role in this landscape and are deployed intensively in winter to supply electricity to other countries.
Monthly electricity production, imports and exports in the Netherlands2
Extent of interconnection plays important role in pricing
Although logical it is striking that countries on the edge of Europe – such as Spain and Portugal – and countries in Central Eastern Europe have higher prices – up to double the price – than in other European countries. This is due to factors that include a lower level of interconnection of those countries with the rest of Europe; they have fewer cross-border high-voltage connections.
Yearly average of hourly day-ahead prices and percentage hours with full price convergence (in relation to the Dutch and German bidding zone)
The Netherlands already has a relatively high degree of interconnection with surrounding countries. This is the reason for the low electricity prices in the Netherlands; particularly in summer, inexpensive green electricity from Germany can be transmitted to the Netherlands. TenneT is strengthening this position even further. The company is increasing interconnection capacity with Germany and Belgium, while between the Netherlands and Denmark a submarine electricity cable (COBRA) is scheduled to be ready in 2019.
In the spring and summer months of 2017, there was considerable price convergence in the CWE region; electricity prices were completely the same for up to 60% of the time in those months. Prices were the same for 34% of the time in the full year of 2017, similar to the figure in 2016. Prior to May 2015, when flow-based market coupling was introduced, price convergence was far lower at 19%. The gradual coming together of prices in different markets is conducive to greater prosperity in the countries involved.
Electricity production in the Netherlands: wind and solar energy big winners in 2017
Production capacity for green electricity increased in the Netherlands by 1 GW (gigawatt) to reach a total of 7.2 GW3 . Conventional capacity decreased by 0.9 GW to 21.3 GW. The growth of sustainable capacity was driven principally by onshore wind energy and solar panels. In the coming years a lot of wind energy capacity will be constructed particularly offshore. TenneT is in the process of developing offshore grid connections with a total capacity of 3.5 GW (2023). Between 2023 and 2030 there will be scope for another 7 GW in the Dutch part of the North Sea. This has also been described in the new offshore wind energy roadmap recently published by the Ministry of Economic Affairs and Climate Policy.
Operational generating capacity in the Netherlands and ‘mothballed’ (gas) capacity
Renewables are becoming increasingly competitive and offshore wind energy in particular exhibits an absolute breakthrough. This is borne out by outcomes of tenders for offshore wind farms. A good example is the recent 'zero bid' (no subsidy) for developing the Holland Coast South (‘HKZ’) wind energy area. Based on the outcomes of the most recent offshore wind energy auctions the costs for offshore wind energy are considerably lower than previously assumed in the Dutch Energy Agreement (Energie-akkoord).
Price outcomes of tenders for offshore wind farms4
The reduction of conventional capacity stems mainly from the closure of two units (550 MW each) at the coal-fired power station on Maasvlakte as arranged under the Energy Agreement. The operators agreed various decisions among themselves in the case of gas-fired power stations. Some units temporarily mothballed are now being closed definitively while some others have been de-mothballed and put back into operation. At year-end 2017, a total of 2.9 GW of gas capacity was mothballed, compared with 4.1 GW in 2016.
Electricity generation in 2017: far less coal, more gas and wind energy
The total production of electricity in the Netherlands in 2017 was comparable to 2016, but there were some shifts in the share of gas and coal. Due to the closure of the Maasvlakte coal-fired power plant in 2017, less coal based electricity was produced in the Netherlands; gas-fired power stations produced considerably more. Also wind energy showed a sharp production increase of 43%. Not because there was a corresponding 11% increase in wind energy capacity, but because there was more wind in 2017 than in 2016.
Annual electricity production in the Netherlands
Germany: wind energy jumps into second place
A striking fact in the German market is that wind energy moved up to second place in terms of electricity production. Wind energy has overtaken coal-fired and nuclear power stations. Only electricity produced by brown coal power stations in Germany still tops the amount produced by wind turbines. In total Germany now generates 38% (2016: 33%) of its electricity from renewable sources, i.e. wind energy, solar energy, hydropower and biomass.
Annual electricity production in Germany
Profitability
The position of Dutch conventional electric power stations was again better than that of their German counterparts. This was attributable to a slightly higher average market price for electricity in the Netherlands, with both countries having roughly the same gas and coal prices.
TenneT Market Review 2017: analysis of electricity market developments
The information provided above (and much more) can be found in the most recent TenneT Market Review. This report describes developments in the Western European electricity market, in particular in the Netherlands and Germany, where TenneT plays a key role in facilitating the market as a grid administrator. This publication sets out the most important developments in the European electricity markets in the past year and puts them into perspective.
You can download the TenneT Market Review 2017.
1. In the Market Review, TenneT mainly examines the situation in the countries of the Central Western European (CWE) region, i.e. Germany/Austria, the Netherlands, France and Belgium.
2. The stated production is production measured as feed-in into public grids. These figures disregard production on corporate grids and production consumed immediately downstream from the meter, for example production by solar panels. The stated production is approximately 85% of the total Dutch production (based on figures from Statistics Netherlands (CBS)).
3. Data based on National Energy Forecast (‘NEV’) 2017
4. The price differences between countries are largely explainable by major differences in the scope of the auctions. In the United Kingdom, the grid connection is included in its entirety in the tenders, which means the auction price is higher. In Germany, the offshore transformer substation must be built by the owner of the wind farm, whereas in Denmark and the Netherlands the winner of the tender is required to build only the wind turbines.
