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Capacity Plan for 2003-2009: Market Consultation
FINAL REPORT
Section 2
Responses and Replies
to
Propositions and Questions
July 2003
1
Capacity Plan for 2003-2009: Market Consultation
The propositions presented and questions raised in the Consultation Document concerned the following
nine themes:
1.
Developments in transmission capacity
2.
Load developments.
3.
Developments in the area of large-scale generating capacity
4.
CHP (Combined Heat and Power) developments.
5.
Developments in the area of renewable capacity
6.
Interconnector capacity upgrades.
7.
Gas and coal price developments.
8.
Bourse and price level developments.
9.
Developments among market players
2
1.
Developments in the area of transmission capacity
3
Observations and propositions
Specific questions

1.
What is your company doing to track market trends?
2.
Do you also consider these to be the main variables?
3.
On which countries does your market exploration focus?


The projections in terms of the development of the transmission capacity
requirement have been based on an elaborate scenario analysis.
The following scenario drivers were selected alongside load and
generation:
 Expansion of renewable capacity
 Upgrading of interconnector capacity
 Gas and coal price trends
 Competitive relations
Both the Netherlands and neighbouring countries have been taken into
consideration for each of these drivers.
1.
Developments in the area of transmission capacity
4
Specific questions
o
o
o
What is your company doing to track market trends?
Do you also consider these to be the main variables?
On which countries does your market exploration focus?
Replies
Quite a few companies operate some market monitoring system, with publications, press communiqués, public
data sets, regulations and data supplied by sources and business associates being used as input for their own
analyses, often on application of models that are geared to the core business of enterprises (e.g. trade, generation).
Examples of models include the prognostication of prices, of demand and supply, of generating asset deployment
and of integral cost and load flow.
Some interviewees were shown to apply their own scenarios in determining their long-term strategy whereas
others had the opportunity (or indeed had no choice but) to rely on the analysis results of parent or sister
organisations.
“We’re keeping close tabs
on TenneT!”
“Log jams in the transmission
grid? Not our problem.”
Average daily peak-price (7-23h) 2002/ 2003
EUR/M Wh
350
APX
300
EEX
P o wernext
250
A VG year peak A P X
200
“A short-term strategy is all we
have!”
150
100
50
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
1.
Developments in the area of transmission capacity
Specific questions
o
o
o
What is your company doing to track market trends?
Do you also consider these to be the main variables?
On which countries does your market exploration focus?
Replies
The TenneT-selected scenario drivers were shown to meet with the interviewees acclaim, but then there was
politics both nationally and internationally as the crucial factor affecting all scenarios across the board. A level
playing field in many policy areas including the implementation of Kyoto, liberalisation, unbundling,
competition, subsidies, tariffs and the trade in emission rights turned out to be sorely missed.
A large proportion of the businesses was furthermore shown to regard the trade in emission rights as another
important scenario driver for the future.
Opinions differed where the upgrading of transmission capacity across the interconnectors was concerned.
German and Dutch price levels would be converging, it was argued. “Will the upgrading costs be charged on
to the users?” was one of the rejoinders, as was “Copper plate is not feasible physically”, whereas other
respondents welcomed any action whatsoever in the direction of copper plate.
“Kyoto will never
be achieved!”
5
Some interviewees advocated the combination of TSO-for-electricity and TSO-for-gas.
“The European emission rights market will realise sales ranging from 20 and 50 billion
euros by 2010!”
“The upgrading of the interconnector capacity
will supplant gas-fired units!”
“Politicians should have the creation of a
level playing field as one of their goals. ”
“The interconnector capacity can’t be high
enough!”
1.
Developments in the area of transmission capacity
6
Specific questions
o
o
o
What is your company doing to track market trends?
Do you also consider these to be the main variables?
On which countries does your market exploration focus?
Replies
Virtually all interviewees were shown to be targeting the Netherlands and neighbouring countries where market
exploration was concerned. The leading Dutch players apply a European focus and avail themselves, for example,
of opportunities opening up in the markets in the United Kingdom and former Iron Curtain countries where they
can.
“To be honest, the
Netherlands is of
minor importance
to us !”
Opinions differ where the latest trends involving potential interconnection with the United Kingdom and Norway
are concerned (also see “Upgrading of interconnector capacity”).
Some of the interviewees were furthermore shown to keep close tabs on developments regarding the liberalisation
of the gas market and the expected connection with Russian and Algerian gas pipes.
“If there are opportunities to
be seized in the Ukraine,
that’s where’s we’ll be
going!”
Source: UCTE
“Who cares about
France?”
“An Anglo-Dutch cable? Preconceived
ideas without prior analysis of facts!”
2.
Load developments
7
Observations and propositions
Specific questions

1.
Do you subscribe to our analysis of growth figures for the
neighbouring countries?
2.
Do you expect the correlation between the growth in electricity
consumption and the growth of the economy to be maintained?
3.
Are you expecting any differences in load increase between different
regions within the Netherlands itself?

The load development is linked to the development of GDP, which renders the
quality of the estimate dependent on the forecasts of the Central Dutch
Planning Office (CPB).
It is not to be expected that the trend will be bucked anywhere in any
significant way.
Historical developments of electricity intensity in the Netherlands and neighbouring
countries
Annual growth in electricity consumption (basic scenario)
Source: Brattle Group
Source: Energy Balances of OECD Countries 1998-1999 (International
Energy Agency, 2001)
2.
Load developments
8
Specific questions
o
o
o
Do you subscribe to our analysis of growth figures for the neighbouring countries?
Do you expect the correlation between the growth in electricity consumption and the growth of the
economy to be maintained ?
Are you expecting any differences in load increase between different regions within the Netherlands itself?
Replies
The majority of respondents were roughly in agreement with the growth figures, although various interviewees stated that the
growth figures for Germany had been understated and those for the Netherlands, overstated. According to some interviewees
reductions in electricity consumption would be on the up and up. One major Dutch player was banking on growth figures in
the 1-2% range both for the Netherlands and the neighbouring countries.
Doubts were voiced regarding the reduced electricity consumption growth as per the “Green Scenario”, as a drive towards
renewability will often be accompanied by increasing electrification.
“The difference between
Germany and
the Netherlands is
unrealistic!”
“Structural optimism reigns supreme
where the estimation of the savings
potential is concerned!”
Source: Finergy Report
2.
Load developments
9
Specific questions
o
o
o
Do you subscribe to our analysis of growth figures for the neighbouring countries?
Do you expect the correlation between the growth in electricity consumption and the growth of
the economy to be maintained?
Are you expecting any differences in load increase between different regions within the Netherlands itself?
Replies
According to the majority of interviewees, the correlation between the economy and electricity consumption
would be maintained in future. One of the interviewees argued that although the correlation was realistic, it
flew in the face of the Kyoto targets, while another suggested that the one-to-one link between growth in
electricity consumption and economic growth did not actually exist but rather, that electricity consumption
increased organically by a fixed percentage.
According to some interviewees the correlation was dictated by actual economic growth, in that it would
turn out smaller during an economic downturn because of the basic levels having been set by the various
industrial sectors, in addition to which efficiency enhancements would curb future growth in consumption.
“The figures are put together in
such a way as to produce
favourable effects!”
“It should be possible to switch off
domestic freezers!”
Source: Finergy Report
2.
Load developments
10
Specific questions
o
o
o
Do you subscribe to our analysis of growth figures for the neighbouring countries?
Do you expect the correlation between the growth in electricity consumption and the growth of the
economy to be maintained?
Are you expecting any differences in load increase between different regions within the
Netherlands itself?
Replies
Only some interviewees are paying attention to regional domestic load prognostications. The majority cited a
further in-depth sector analysis as a more interesting option, since the growth in load varied between sectors.
Some market players and survey agencies were actually involved in sector analysis.
The relevance in the eyes of the interviewees of the discrepancies in load increase per region largely depended
on the span of their horizon: regional, national or European.
CO2 emission per sector
“The pattern per grid level
hardly changes!”
Power companies
Industry
Transport
Households
Services
Agriculture/horticulture
Source: ECN
Source: Finergy Report
“It was claimed a decade ago
that the growth in
consumption would decline
owing to savings in specific
sectors. So much for that.”
3.
Developments in the area of large-scale generating capacity (1)
11
Observations and propositions
Specific questions

New-build and decommissioning of generation capacity are not easily to
forecast, especially in the longer term.
1.
What are the selection criteria for decisions regarding new-build/life time
extension (e.g. spark and dark spread, risk management)?

Generating capacity developments (location, capacity) may, however, be
crucial in terms of grid development and stability of the overall system.
2.
Is allowance made for Kyoto and other environmental requirements in this
respect?

The level of aggregate Dutch generating assets totalled 19,600MW as at
mid-2002 not counting the Flevo 30 and Lage Weide 5 units.
3.
When choosing your location(s), do you also make allowance for the
locations as per the SEV? [SEV = Structuurschema Elektriciteitsvoorziening – Governmental Scheme on the Structure of Electricity
Generation and Transmission]
4.
Is allowance made for the connection conditions applied by grid
companies when selecting new-build locations?
Capacity (x MW)
Age composition of national Dutch generating resources
Age brackets (L) (years)
3.
Developments in the area of large-scale generating capacity (1)
12
Specific questions
o
o
o
o
What are the selection criteria for decisions regarding new-build/life time extension (e.g. spark and dark spread, risk management)?
Is allowance made for Kyoto and other environmental requirements in this respect?
When choosing your location(s), do you also make allowance for the locations as per the SEV?
Is allowance made for the connection conditions applied by grid companies when selecting new-build locations?
Replies
Capital expenditure in new generation assets is dictated by the accompanying financials. Crucial for this purpose
is the assessment of long-term price trends. This is far from easy at the moment as the market lacks long-term
transparency due to the uncertainties prevailing at this particular juncture.
Virtually all respondents cited the political strategy and the regulations in the various European countries as the
main uncertainties of the moment. Government policy is characterised by a lack of clear-cut decisions regarding
the implementation of Kyoto agreements, decommissioning of nuclear plants, decisions regarding privatisation
and liberalisation time frames. The fact that existing regulations have not been harmonised so that no European
level playing field is available was mentioned as a further key factor, as was the fact that securing permits for
the construction of new generating capacity was experienced as terribly arduous in a number of countries.
The lack of long-term perspective is resulting in generators adopting a reserved stance where capital expenditure
in large-scale generating capacity is concerned.
“Uncertainties keep cropping up in the
triangle formed by politics, the economy
and the environment where European
electricity generation is concerned.”
“As for politics, this appears more than ever
before to be incident-driven, which is
prompting market players to hedge their bets
where long-term investments are concerned.”
3.
Developments in the area of large-scale generating capacity (1)
13
Specific questions
o
o
o
o
What are the selection criteria for decisions regarding new-build/life time extension (e.g. spark and dark spread, risk management)?
Is allowance made for Kyoto and other environmental requirements in this respect?
When choosing your location(s), do you also make allowance for the locations as per the SEV?
Is allowance made for the connection conditions applied by grid companies when selecting new-build locations?
Replies
The interviewees were unanimous in stating as their opinion that Kyoto as well as other environmental
requirements were crucial whenever investment decisions had to be made. As regards Kyoto, it was mentioned
that there was no level playing field in Europe due inter alia to:
• Differences in initial vectors,
• Differences in methods applied in achieving the goals,
• Differences in compensation per country for CO2 credits through Joint Implementation and the Clean
Development Mechanism.
“Although Kyoto and environmental
requirements are definitely factors for
consideration when making investments, they
are currently being treated as risks. This is one
of the greatest uncertainties slowing down
new-build investments.”
The implementation of Kyoto was furthermore shrouded in uncertainty where the handling by former Eastern
bloc countries of their CO2 credits was concerned (“hot air credits”).
Owing to the above differences and uncertainties, the price level of emission rights was up in the air, which was
putting off investments being made in new (coal-fired) generating capacity.
A further comment that was frequently made was that Kyoto was having a negative impact on the economic
merits of life time extension compared with replacement investment.
“Although a European framework has now
been put in place where Kyoto is concerned,
sadly it’s back to ‘every man for himself’ when
it comes to implementing measures such as
emission cap allocation.”
3.
Developments in the area of large-scale generating capacity (1)
14
Specific questions
o
o
o
o
What are the selection criteria for decisions regarding new-build/life time extension (e.g. spark and dark spread, risk management)?
Is allowance made for Kyoto and other environmental requirements in this respect?
When choosing your location(s), do you also make allowance for the locations as per the SEV?
Is allowance made for the connection conditions applied by grid companies when selecting new-build locations?
Replies
Many of the respondents were shown not to be aware of the existence of SEV locations, albeit that it was
commented that existing locations for large-scale generating capacity were highly valuable as they removed the
need for developing a new location for which steep charges would have to be incurred and lengthy permit paths
negotiated. This, it was commented, gave established players the edge over newcomers where the realisation of
new-build was concerned.
According to the interviewees, there were opportunities for newcomers where the new-build of industrial CHP
facilities where concerned as the location was not owned by established players and the permit regime governing
CHP was more relaxed than that for units whose sole product is electricity.
According to many, in fact, the milder permit regime will be the main reason for considerable new-build being
realised in the form of CHP facilities.
Most interviewees confessed to the connection tariffs charged by the grid companies not being of any
consequence when choosing a location.
“Where new-build is realised at
new locations, open up the
location means considerable
expenses.”
3.
Developments in the area of large-scale generating capacity (2)
15
Observations and propositions
Specific questions

1.
Do you know of any further new-build projects/initiatives?
2.
Do you agree with our conclusion where the phase-out of units is
concerned?
3.
Would you say there will be room in the somewhat longer term for
newly built:
 Base load coal-fired capacity, where appropriate in combination
with using biomass as additional fuel;
 Medium-load units;
 Peak-load units?
4.
What future do you see for nuclear power in the Netherlands and in a
European context?


New-build projects having been identified:
 Intergen (800 MW – 2003)
 Lyondell (68 MW – 2002)
 Delta- Sloe (800 MW – 2006)
 Unnamed (600 MW – 2006, off-shore location )
No existing facilities being scheduled to be phased out during the period
under review, with the Lage Weide 5 and Flevo 30 units to be
recommissioned.
It has been assumed for the other countries that the reserve margin will
not drop below 20%.
Development of domestic generating capacity and maximum load
Peak load
Generating capacity (maximum growth scenario)
Generating capacity (minimal growth scenario)
3.
Developments in the area of large-scale generating capacity (2)
16
Specific questions
o
o
o
o
Do you know of any further new-build projects/initiatives?
Do you agree with our conclusion where the phase-out of units is concerned?
Would you say there was room in the somewhat longer term for newly built:
•
Basic load coal-fired capacity, where appropriate in combination with using biomass as additional fuel;
•
Medium-load units;
•
Peak-load units?
What future do you see for nuclear power in the Netherlands and in a European context?
Replies
The majority of interviewees were shown to concur with the projects we had identified, although it was pointed
out that the Intergen unit is not scheduled to be taken into use until 2005 (rather than 2003).
Opinions were shown to differ where TenneT’s assumptions regarding the phasing out of units were concerned,
it being the option of life time extension in particular which turned out to elicit distictions. Although several
players felt that this option would be the first to be assessed, it would be shown to be an unattractive option for
some units due to the introduction of emission trade systems, which would necessitate substantial environmental
investments being made or steep costs incurred for securing emission rights for the older types of unit.
“The crack-down in terms of
environmental requirements may
create an incentive in favour of newbuild at the expense of life time
extension.”
“Life time extension is currently the be-all and
end-all in the industry. Today it is the
technical life of the units that is the key
factor rather than their economic life, as in
the old days.”
3.
Developments in the area of large-scale generating capacity (2)
17
Specific questions
o
o
o
o
Do you know of any further new-build projects/initiatives?
Do you agree with our conclusion where the phase-out of units is concerned?
Would you say there was room in the somewhat longer term for newly built:
•
Basic load coal-fired capacity, where appropriate in combination with using biomass as additional fuel;
•
Medium-load units;
•
Peak-load units?
What future do you see for nuclear power in the Netherlands and in a European context?
“Decisions concerning the new development of coal-fired
capacity will not be taken until such time as some of the
The political uncertainties which we referred to earlier are making it impossible to present a clear picture
of future investments in (coal-fired) plants. According to some interviewees coal-fired power generation no confusion surrounding CO2 emission trade has been
longer has a future in the Netherlands whereas other respondents did regard it as a realistic option in the removed.”
Replies
long term, especially in replacement of existing coal-fired capacity. According to many interviewees, there
were opportunities for new coal-fired capacity in other European countries such as Germany.
According to the majority of respondents, large new-build volumes would be needed by the end of the
current decade to replace existing generating capacity, although opinions were found to differ regarding the
outlines of these replacement plants (gas versus coal-fired).
“In Germany there will definitely be scope in the somewhat longer term for newly developed coal-fired
capacity as the switch to gas in that country will be a very costly affairsIn addition to this Germany
has an extensive mining industry which the German government will be unwilling to streamline.”
“The extension of coal-fired capacity in Europe
depends to a considerable degree on the
future of nuclear power. Provided a large
proportion of nuclear units are closed down,
this will push up the basic cost level of power
generation, which in turn would improve the
prospects for coal-fired capacity.”
3.
Developments in the area of large-scale generating capacity (2)
18
Specific questions
o
o
o
o
Do you know of any further new-build projects/initiatives?
Do you agree with our conclusion where the phase-out of units is concerned?
Would you say there was room in the somewhat longer term for newly built:
•
Basic load coal-fired capacity, where appropriate in combination with using biomass as additional fuel;
•
Medium-load units;
•
Peak-load units?
What future do you see for nuclear power in the Netherlands and in a European context?
Replies
According to the majority of interviewees, nuclear energy is here to stay as far as Europe is concerned. The
plans to phase out nuclear plants in countries such as Germany, Belgium and France being considerably open
to question as insufficient funds had been set aside for dismantling. In addition to this, it was argued whether
the realisation of Kyoto targets would run into difficulties once the nuclear plants has been closed down.
Furthermore a decline in public opposition to nuclear energy is being observed.
As for the Netherlands, the high population density in conjunction with the adverse political climate will
combine to confine the role of nuclear energy to keeping the Borssele nuclear plant up and running.
Several players also saw opportunities arise in some countries (e.g. Finland, France) for newly developed
nuclear plants, the passively secure, limited-scale pabble reactors being given specific mention.
In view of the uninsurable risks, however, state guarantees would have to be regarded as mandatory.
“The ‘acid test’ for how seriously Germany is
contemplating to close down its nuclear
plantswill be the decommissioning of the
Biblis plant in 2006.”
“The decommissioning of nuclear energy will
cause prices to go through the roof.”
“In so far as the German phase-out plans are
realised, this will spark major electricity supply
problems.”
4.
CHP developments (in the Netherlands)
19
Observations and propositions
Specific questions

Over half the electricity generated is accounted for by CHP capacity
(40% of aggregate capacity).
1.
Wat What are your expectations regarding developments involving
(decentralised) CHP?

The market climate does not exactly favour CHP.
2.
Will subsidy measures continue to be key to the success of this option?

No significant expansion (including for micro-CHP) expected for
period until 2010.
3.
Would you consider CHP as a major factor in achieving the Kyoto
targets?
4.
How would you rate the current status as far as the deployment of CHP
is concerned?
4.
CHP developments
Specific questions
o
o
o
o
20
What are your expectations regarding developments involving (decentralised) CHP?
Will subsidy measures continue to be key to the success of this option?
Would you consider CHP as a major factor in achieving the Kyoto targets?
How would you rate the current status as far as the deployment of CHP is concerned?
Replies
The prospects for CHP are considered to be rather small. The general expectation being that several hundreds
of megawatts in gas engines and gas turbines will be decommissioned over the coming years, especially in the
horticultural sector. Large-scale district heating units are expected to remain in operation. Investments were
reported aimed at enhancing flexibility by fitting heat buffers, for example.
The longer-term situation too was said to be uncertain, and would depend on the valuation CO2 credits derived
from CHP. Although the current MEP Scheme was described as a step in the right direction, it was as such
inadequate to safeguard the future of CHP., In addition to this the potential has dwindled as the majority of
profitable projects has already been realised.
Opinions were shown to differ where the future role of micro-CHP is concerned. However respondents were
virtually unanimous in stating as their opinion that this generation format should not be expected to make any
significant contribution before 2010.
“The small-scale CHP market is heading
for a comprehensive overhaul.”
“There is no future for CHP unless
draconian support measures are taken.”
“We would for the time being count on some
decline in the operational CHP capacity.
However, the subsidy options offered under
the MEP Scheme should permit for a degree
of expansion in the somewhat longer term.”
“The icing of profitable CHP plant has been taken off the cake, which is why future
investments will predominantly be replacement investments.”
4.
CHP developments
21
Specific questions
o
o
o
o
What are your expectations regarding developments involving (decentralised) CHP?
Will subsidy measures continue to be key to the success of this option?
Would you consider CHP as a major factor in achieving the Kyoto targets?
How would you rate the current status as far as the deployment of CHP is concerned?
“CHP is dragging along. In my view it is wrong
Replies
The general view of the respondents is that subsidy measures will continue to be key to the success of CHP in
future.
Quite a few interviewees felt that too many subsidy flows were currently being directed towards renewable
generation whereas the proceeds in terms of tonnes of CO2 not having been emitted were significantly less.
that this should be so, and I find it considerably
regrettable. Excessive subsidies are allocated to
renewable generation such as wind power
whereas the proceeds in terms of tonnes of CO 2
not having been emitted fall considerably short of
what would have been earned had a grant in the
same amount been spent on CHP.”
According to some, CHP would be given fresh opportunities in a future emission trade system, and would
prove to be self-sufficient.
Most of the interviewees also appreciated the lasting importance of CHP as a tool in realising the Kyoto targets,
and felt that there can be no question of any comprehensive overhaul for this very reason.
“It will be necessary in the somewhat
“The current CHP policy is a disaster. In my
view CHP should be preserved in the long
term as a mechanism enabling energy saving.”
“CHP has always been supported
throughout, and must continue to be
supported if it is to remain a more or
less profitable option.”
longer term for CHP subsidies to be
replaced by the negotiable emission right
systems, with CHP having to prove its
economic mettle within such systems.”
4.
CHP developments
22
Specific questions
o
o
o
o
What are your expectations regarding developments involving (decentralised) CHP?
Will subsidy measures continue to be key to the success of this option?
Would you consider CHP as a major factor in achieving the Kyoto targets?
How would you rate the current status as far as the deployment of CHP is concerned?
Replies
The respondents were unanimous in stating as their opinion that the current market climate was decidedly
unfavourable for CHP because of the steep gas and low electricity prices. Many interviewees pointed out that
the poor market climate was causing the CHP units to be deployed to a lesser degree, to the point where some
of these units – especially in the horticultural sector – are actually being shut down.
“There is a strong tendency towards
flexibilisation in today’s market, which
is complicating matters further where
CHP is concerned.”
Many saw the lack of flexibility as a major problem. CHP units have to remain in operation in times of low
market prices because of the heat supply commitment. Investments are currently being made aimed at
enhancing the deployment flexibility, especially for district heating units, for example by fitting heat buffers.
“It is flexibility that we will
probably be investing in.”
5.
Developments in the area of renewable capacity (1)
23
Observations and propositions
Specific questions

Although developments involving wind power surged in 2002, they
continued to lag behind the government’s objectives.
1.
Is your company planning any projects in the area of renewable
electricity generation?

External growth in 2002 in the demand for renewable as a result of the
eco tax measure, which has brought additional pressure to bear on the
import capacity.
2.
Do you think that renewable generation will feature in making
investment decisions involving large-scale electricity generation?

Developments for period from 2003 to 2009 reconciled with government
objectives, which have two mainstays, viz:
 Wind, and
 Biomass
Expansion of wind power (x MW) over the period from 2002 to 2010
België
Uitbreiding windvermogen MW
periode 2002 - 2010
Frankrijk
Duitsland
1600
13400
17400
Source: Brattle Group
11100
Engeland
(UK)
5.
Developments in the area of renewable capacity (1)
24
Specific questions
o
o
Is your company planning any projects in the area of renewable electricity generation?
Do you think that renewable generation will feature in making investment decisions involving
large-scale electricity generation?
Replies
Applications for permits have now been filed for the construction of 1,000MW in wind power off the coast of
North and South Holland relating to three locations at a distance of 50-75 kilometres from the coast.
The aggregate level of on-shore wind farm projects which the interviewees were currently working on amounted
to several hundreds of megawatts. Some electricity generators and bulk users are looking into the possibilities for
constructing wind farms in existing generation locations.
Some of the interviewees are considering the construction of small-scale biomass plants with a scale of up to
50MW.The realisation of these units will depend on the sustainability of the MEP Scheme, although some
interested parties are identifying the potential differentiation of MEP grants as a threat to the success of this
option. Other businesses admitted to having studied the options but having had to establish that environmental
requirements and the availability of waste were insurmountable obstacles preventing such projects turning out
successful.
“Although off-shore wind power is a
useful development, it would be nice
to observe the appropriate
geographical spread in picking the
wind farm locations.”
Sudden changes in wind intensity could
jeopardise the reliability of supply if large
quantities of physically concentrated wind
power were abruptly to shut down.
5.
Developments in the area of renewable capacity (1)
25
Specific questions
o
o
Is your company planning any projects in the area of renewable electricity generation?
Do you think that renewable generation will feature in making investment decisions involving
large-scale electricity generation?
Replies
Many of the interviewees stated as their expectation that the growth in wind and solar power would trigger
an increase in the demand for balancing power, which in the somewhat longer term will cause the demand
for newly developed peak and medium load units to increase and that for newly constructed basic load units
to dwindle.
A crucial factor in the flexibilisation of electricity generation would, however, be that Gasunie should revise
its tariffs, as the current penalty system does not allow for the flexible deployment of gas-fired generating
resources.
“Perhaps we should give
consideration to energy storage if
renewable continues growing.”
The growth in renewable is causing
the need for flexibility to surge.
Energy storage could offer a splendid
solution in this respect.
5.
Developments in the area of renewable capacity (2)
26
Observations and propositions
Specific questions

1.
How will the use of biomass as additional fuel affect the deployment of
the coal-fired units?
2.
Will renewable electricity become a European product, will it remain a
tax or subsidy driven product?
3.
Do the TenneT-developed systems for balancing interfere with the
development of renewable capacity?


Increase in on-shore wind power from 500 to 1,200MW over the period
from 2003 to 2009, either through stand-alone or through relatively
small-scale wind farms.
“Off-shore”- wind: three projects have been identified, viz:
 1,000MW off the North Holland coast,
 1,000MW near Eemshaven, and
 1,000MW near Lelystad.
Biomass: Use as additional fuel in coal-fired plants to be upgraded from
just over 100MW to 475MW.
5.
Developments in the area of renewable capacity (2)
27
Specific questions
o
o
o
How will the use of biomass as additional fuel affect the deployment of the coal-fired units?
Will renewable electricity become a European product, will it remain a tax or subsidy driven product?
Do the TenneT-developed systems for balancing interfere with the development of renewable capacity?
Replies
Generally speaking the use of biomass as additional fuel in coal-fired plant will cause the capacity (in megawatts) of
units to drop due to the relatively low calorific value of biomass.
Coal Fired Plants and CO2 Reduction Covenant: Article 2
Target for initial budget term from 2008 to 2012 as per the Kyoto Protocol
Name of generating company
CO2 emission reduction
Expected biomass deployment
5.
Developments in the area of renewable capacity (2)
28
Specific questions
o
o
o
How will the use of biomass as additional fuel affect the deployment of the coal-fired units?
Will renewable electricity become a European product, will it remain a tax or subsidy driven product?
Do the TenneT-developed systems for balancing interfere with the development of renewable capacity?
Replies
The interviewees were unanimous in stating as their view that renewable electricity would remain a
tax/subsidy driven product over the period to 2010. However opinions varied widely as far as the incentive
format was concerned.
According to some interviewees, they were not expecting a uniform subsidy system to be implemented in
the EU in the period until 2010 Others took a more positive view, arguing that renewable electricity will be
a tax/subsidy driven European product from 2006 onwards which could in fact allow for arrangements being
agreed between Member States on a mandatory portion of renewable power as part of the electricity supply.
A third group of interviewees expected the various grant possibilities for renewable power in due course to
be incorporated into negotiable emission right systems.
“Although subsidies are unavoidable, it can
be useful to chart the hidden cost of
renewable power.”
The incorporation of major quantities of
renewable capacity would also necessitate the
strengthening of the grid, upgrading of
reservation using conventional capacity and
fortification of the systems for balancing.
Some respondents criticised the lengthy subsidising of renewable power. According to them, subsidy
measures should be reserved for launching new technologies whereas mature technologies should be capable
of surviving on their own.
“The hidden costs are accompanied by hidden
proceeds such as additional job
opportunities.”
5.
Developments in the area of renewable capacity (2)
29
Specific questions
o
o
o
How will the use of biomass as additional fuel affect the deployment of the coal-fired units?
Will renewable electricity become a European product, will it remain a tax or subsidy driven product?
Do the TenneT-developed systems for balancing interfere with the development of renewable capacity?
Replies
The majority of interviewees answered this question in the affirmative, qualifying this either as a good or a
bad thing depending on their position in the electricity market.
“Yes, but it’s hardly fair that this should be so, as the
systems for balancing make no allowance for noncontrollable renewable sources.”
“Yes, and quite right too, as
renewable power will have to be
self-sufficient just like conventional
power. Adding subsidies to system
balancing would be overkill.”
6.
Interconnector capacity upgrades
30
Observations and propositions
Specific question

Two projects have been involved in the deliberations for the
period under review, viz.:
 The construction of an Anglo-Dutch marine cable
connection having a capacity of 1,320MW, and
 The construction of a marine cable connecting Norway
and the Netherlands having a capacity of 600MW.
1.

No further upgrading for now of the transmission capacity
involving Belgium and Germany.
How would you rate the opportunities for Dutch generating
companies if the interconnector capacity is upgraded to a higher
level?
6.
Interconnector capacity upgrades
31
Specific question
o
How would you rate the opportunities for Dutch generating companies if the interconnector
capacity is upgraded to a higher level?
Replies (1)
Quite a few respondents expressed concern regarding current developments involving the upgrading of
import capacity using the phase shifters, with the patchy information being made available by TenneT being
identified as a particularly annoying problem.
According to some interviewees, the upgrading of all kinds of connections with other countries opened up
opportunities for international trade.
Others distinguished between the various upgrading options. The market opportunities for an Anglo-Dutch
interconnection were given the thumbs-down by most interviewees. Mostly because of the similarity between
the Dutch and British electricity systems. The economic value for this cable should come from the volatility
and the differences in load pattern owing to the time difference between the two countries. As it turned out,
the interviewees regarded the construction of gas pipes between the United Kingdom and the Netherlands as
a more useful option.
According to the respondents, an interconnection between the Netherlands and Norway stood a better
chance of succeeding as this would enable a hydropower system to be hooked up to a fossil fuel based
electricity system.
“Trade in the Netherlands is
dictated by TenneT’s
communications regarding
available import capacity. This is
what keeps the entire wholesale
market afloat.”
“The construction of interconnections
could confer European electricity hub
status upon the Netherlands”.
6.
Interconnector capacity upgrades
32
Specific question
o
How would you rate the opportunities for Dutch generating companies if the interconnector
capacity is upgraded to a higher level?
Replies (2)
Players from diverse market segments were shown to agree that there was no need for the time being for
additional upgrading of interconnector capacity involving Belgium and Germany.An important pointer in this
respect being the increase in forward prices in Germany resulting from:
 The decommissioning of thermal capacity,
 The growth in expensive wind power,
 Safety issues involving nuclear plant, and
 The increase in balancing power prices.
However, a small group of interviewees pronounced themselves to be in favour of maximising the
interconnector capacity so as to be able to make as much use as possible of the full range of trading
opportunities as well as cutting back reserve capacities in the international plane.
A few market players pointed out that having interconnector capacity at one’s disposal can act as a makebelieve guarantee in terms of reliability of supply as it is not clear whether the foreign supply is actually
available, especially if Member States were to start implementing a self-sufficiency policy.
“The self-sufficiency drive on the
part of Member States can
cause us in a couple of year’s
time to return to the old
situation where the
interconnectors were
exclusively used for lending
mutual assistance in the event
of failures.”
7.
Gas and coal price developments
33
Analysis of two scenarios
Specific questions

Coal will continue to represent a financially attractive fuel for
electricity generation.
1.
How would you rate the competitive opportunities for gas over the
period under review until 2010?

The discrepancy between gas and coal prices will be scaling such
heights as to cause a substantial portion of coal-fired capacity to be
supplanted by gas-fired capacity.
2.
In your view, would the elaborate Dutch gas infrastructure give us the
edge over other countries in this respect?
The latter scenario could arise due to:
 The successful liberalisation of the gas market,
 A more prominent role for Russia as a gas supplier,
 Reduced transmission and system service tariffs,
 Introduction of CO2 emission tax or trade.
Source: Finergy Report
7.
Gas and coal price developments
34
Specific questions
o
o
How would you rate the competitive opportunities for gas over the period under review until 2010?
In your view, would the elaborate Dutch gas infrastructure give us the edge over other countries in this
respect?
Replies
Only two businesses expressed genuine optimism regarding the competitive opportunities for gas in the period
under review until 2010 whereas a few others ruled it out altogether, arguing that no competitive gas market
would form due to the small number of dominant players (“Gaspec”) and the rigid link between gas and oil
prices.
The majority of interviewees saw coal being supplanted by gas in the longer term as soon as the price for CO2
emission rights would surpass the EUR 25/tonne mark.
Most of the respondents agreed that the confusion surrounding the Gasunie unbundling was not doing
anything for market transparency (this being something that DTe as the Dutch energy watchdog should
tackle!).
Diverse views were put forward concerning the opportunities for LNG, with some interviewees referring to
technological developments in this area as promising whereas others stated that Europe lack sufficient numbers
of landfall locations. This option could become more prominent beyond 2010 in response to an increase in
demand and the depletion of competitively priced European gas fields.
“Gas stands a chance”
The impact of Kyoto agreements, the
discovery of several small-scale gas fields in
the North Sea and the transparency being
introduced into the Dutch gas market will
combine to narrow the gap between gas
and coal prices.
“Forget it – it’s the national treasuries
that call the shots”
Although sizeable reserves are to hand
(e.g. Russia, Norway, Algeria, the
Netherlands), they are not being opened up
to the market in a transparent manner.
7.
Gas and coal price developments
35
Specific questions
o
o
How would you rate the competitive opportunities for gas over the period under review until 2010?
In your view, would the elaborate Dutch gas infrastructure give us the edge over other countries
in this respect?
Replies
According to quite a few interviewees, the sound Dutch gas infrastructure, especially in terms of opportunities for storage, gives our country the edge
over other countries.
Some interviewees addressed the German situation in more detail, arguing that Germany has a minimal gas infrastructure. The investment
requirement is so steep as to make it difficult for gas to compete with coal in that country, even in the long term.
Source: Finergy Report
8.
Bourse and price developments
36
Observations and propositions
Specific questions

Bourse prices in the Netherlands and Germany have been converging in
2002.

Do you regard APX, the Amsterdam Power Exchange, as a suitable
pricing medium?

The Dutch contract prices continue to top those prevailing in Germany
and France by approximately EUR 7/MWh.

Do you consider the current electricity prices to be sufficient to
safeguard long-term continuity?

Do you think there is a need for new products and services, such as an
ICAP market?
Platts Forward Prices Year Base Load
mei t/m sept. 2002
EU R / M W h
34
32
30
NL Year 03
NL Year 04
28
D Year 03
D Year 04
26
F Year 03
24
22
1-mei
1-jun
1-jul
1-aug
1-sep
Source: Platts European Power Daily
8.
Bourse and price developments
Specific questions
o
o
o
37
Do you regard APX as a suitable pricing medium?
Do you consider the current electricity prices to be sufficient to safeguard long-term continuity?
Do you think there is a need for new products and services, such as an ICAP market?
Replies (1)
Some of the interviewees – all of them players which do not actively participate in the market –
regarded APX as a suitable pricing medium.
The active market participants by contrast were found to come in two categories.
The first did not think much of APX as a medium. These interviewees argued, for example, that APX
operates on an exclusively day-ahead basis and is being resorted to when unforeseen circumstances
cropped up. Furthermore the bourse is too small in terms of volume with a major part of this volume
to be accounted for by the mandatory tendering of daily imports. This category of respondents
characterised APX as a “residual market” whose prices were excessively volatile (as a sign that
situations with scarcity could most definitely occur).
The other category of active market participants, by contrast, regarded the APX prices as one of a
range of references alongside data provided by brokers, EEX, ENDEX, Platts, and Argus. However they
did confess to preferring the forward prices as a better pricing medium.
“APX is leading in the decisions we make,
with the peaks showing the hidden
potential.”
As APX is the only market of its kind in
the Netherlands, we treat it as a tool in
support of risk management and when longterm investments are made. The average
prices for 2002 are decidedly realistic. The
market will be maturing as other markets
emerge.
“Reliable prices are simply not available.”
The APX market is undersized as well as
overly volatile whereas the forward market
and ENDEX lack volume
8.
Bourse and price developments
38
Specific questions
o
o
o
Do you regard APX as a suitable pricing medium?
Do you consider the current electricity prices to be sufficient to safeguard long-term continuity?
Do you think there is a need for new products and services, such as an ICAP market?
Replies (2)
By way of supplement to the replies and comments on the topic of APX, a discussion was engaged in with
quite a few of the interviewees regarding the role of the Dutch balancing market relative to investments in
new-build capacity.
The consensus among interviewees was that the balancing market is of minor importance when new-build
decisions were made, although some interviewees admitted to the balancing market being of some use to
new market entrants as these lacked the resources required for hedging risks in their day-to-day operations.
As soon as a market player has secured access to resources, it stops making allowance for the balancing
market in its investment decisions.
“Balancing market?
We can’t even be
bothered to check it
out ”
Platts Forward Prices - Base Load
juli 2002 t/m maart 2003
EU R / M W h
34
NL Year 03
NL Year 04
NL Year 05
D Year 03
D Year 04
D Year 05
UK Sum 03
UK Win 03
UK Sum 04
F Year 03
F Year 04
32
30
28
26
24
22
Source: Platts European Power Daily
20
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
8.
Bourse and price developments
Specific questions
o
o
o
39
Do you regard APX as a suitable pricing medium?
Do you consider the current electricity prices to be sufficient to safeguard long-term continuity?
Do you think there is a need for new products and services, such as an ICAP market?
Replies
About half the interviewees declined making any concrete comments where this topic was concerned, as it was either
considered to be “too close for comfort” in terms of proprietary strategic information (generators, integrated energy
companies) or this kind of know-how was too far removed from their own core business.
One of the respondents was absolutely convinced that the market still offers scope for new-build investment. The lion’s share
of interviewees stated however that generating companies are currently mostly working on life time extension for their
existing generating units, arguing that the new-build investment climate was currently very poor, with low prices,
considerable uncertainty due to the lack of consistency in national and international politics and the lack of harmonised
European regulations. It was the latter aspect in particular which was having a disruptive effect on the market: nuclear energy
being dumped in a number of European locations whereas coal-fired generation was being subsidised quoting employment
considerations.
According to several interviewees, the market will be, and will have to be, taking care of itself: the increase in prices will
prompt fresh investments being made, possibly subject to “boom and bust” effects.
Opinions differed where the origin of a “boom and bust” cycle was concerned, with some parties stating as their opinion that
there most definitely is a chance of this happening whereas others disagreed, arguing that new-build projects are invariably
known to the market well in advance while the load development is not particularly difficult to gauge.
“Prices and long-term contracts
still offer leeway for investing in
new-build.”
“Forget it – prices are too low
and the political climate is
fraught with uncertainty ”
8.
Bourse and price developments
Specific questions
o
o
o
40
Do you regard APX as a suitable pricing medium?
Do you consider the current electricity prices to be sufficient to safeguard long-term continuity?
Do you think there is a need for new products and services, such as an ICAP market?
Replies (1)
Just over a third of respondents confessed to being unaware of safety net set-ups such as an ICAP
market, whereas those who were “in the know” were not particularly holding off safety nets. Several
interviewees commented, however, that ICAP was just one of the available options, with others such
as forward markets and contracting additional balancing and reserve power being frequently cited.
One of the interviewees saw a market of negotiable power generation options as an alternative to
ICAP. By analogy (of sorts) to the equities option market: these options could be used to buy an
“entitlement” to power generation whenever the price topped a preset level.
“We have personally never investigated the need
for an ICAP type of market, although we can
appreciate that the government would resort
to this kind of mechanism to avoid peak-price
periods, inevitable as these are in a completely
liberated market situations.“
“There is a need for a market so as to be able to hedge risks in addition to the existing products. This could possibly be a forward market, and need not
therefore by definition be an ICAP market.”
8.
Bourse and price developments
Specific questions
o
o
o
41
Do you regard APX as a suitable pricing medium?
Do you consider the current electricity prices to be sufficient to safeguard long-term continuity?
Do you think there is a need for new products and services, such as an ICAP market?
Replies (2)
Many interviewees drove the point home that security of supply is a political issue rather than
being the responsibility of market players, for which the only relevant thing is that they should
meet the terms of their contracts.
Several interviewees stated that they have concluded bilateral long-term contracts with generating
companies.
“In my view the Ministry of Economic Affairs should
take measures aimed at safeguarding the security of
supply in the long term. However, an ICAP
market would be too drastic a measure for
European markets”.
“There is freedom of choice in the Netherlands both on the sourcing and supply sides. The implications and consequences of a liberalised electricity
market have not always been sufficiently appreciated. If problems arise, another party (such as TenneT) should take out contracts for the shortfalls,
in parallel to the ‘strategic stockpiles’ in the oil business.”
9.
Developments among market players
42
Observations and propositions
Specific questions

1.
What role do you see for foreign players in the Dutch market?
2.
Which would you identify as the leading international players both now
and in the future?
3.
Do you think that there will be further concentration among market
players?
4.
How do you think international players will be providing for the
“spread” of their generating capacity in their countries of operation?
There are several neighbouring countries (e.g. Belgium, France) where
some players continue to dominate the market.
Source: Eurelectrics Conference, 2002
9.
Developments among market players
43
Specific questions
1.
2.
3.
4.
What role do you see for foreign players in the Dutch market?
Which would you identify as the leading international players both now and in the future?
Do you think that there will be further concentration among market players?
How do you think international players will be providing for the “spread” of their generating capacity in their countries of operation?
Replies
The interviewees were unanimous in stating that it was a handful of European players which would be calling the
shots, EDF, RWE, E.ON and, to a lesser extent, Endesa and Enel being names that were mentioned. There would be no
room for Dutch players alongside these market powerhouses. As no single large-scale Dutch energy company would be
accredited, Dutch players too would be absorbed into the European set-up.
“Energy is a commodity and the
market is developing into an
oligopoly, with a handful of sumo
wrestlers calling the shots.”
US companies had largely exited the European market, a variety of reasons being cited as to why this should be so,
such as the (information) gap compared with European players, cultural differences and the lack of cash to be spent on
European investments.
The process of consolidation among European players is expected to hold sway until 2010 or so, and would be
expanded to include Eastern European parties. Vertical integration was the number one motive in view of a wholesale
market not really having got off the ground. About half the interviewees admitted to seeing this as a typical (business)
economic trend given that energy is a commodity product. There are no major drawbacks to this form of market
regulation, as major players command the clout required for standardisation, cost reduction and implementation of the
necessary R&D. According to their opponents, however, will oligopolies lead to a reduction in transparency.
horizontale
integratie
29%
nieuw e
entreepositi
e
17%
verticale
integratie
40%
multi utility
14%
According to those which addressed the spread of generating capacity by European players, it would be national politics
which will be leading. Since it is national politics that dictates the European or national strategy vis-à-vis long-term
reliability of supply.
“Due to grid restrictions there is
no question of a pan-European
energy market.”
“The penchant among have-nots for joining
the haves continues at present to be a
dominant factor in the development of
generating capacity.”