Electricity prices in the Netherlands declined 20% in 2014, according to a new Market Review published by Tennet, the Dutch transmission system operator (TSO), which is also active in Germany. According to the Market Review, electricity prices went down across Europe. Prices in the Netherlands and Germany showed convergence, but there was little convergence overall in Europe. The report also shows that coal-fired power plants are taking over from gas-fired power plants in back-up supply.
Tennetâs Market Review focuses on the Netherlands and its neighbouring countries: Germany, Belgium and France. Of these countries, Germany had the lowest yearly average price last year: âŹ32.76/MWh, compared to âŹ41.18/MWh in the Netherlands. The prices in the Netherlands were 20% lower than in 2013, when they averaged âŹ52/MWh.
According to Tennet, âmarket prices in the Netherlands and Germany are gradually converging. Whereas prices were equal in both countries for 19 percent of the time in 2013, this figure rose to nearly 30 percent in 2014 (see figure below).
Price convergence to the Netherlands and Germany in various European countries in 2014. The first figure given for each country refers to price convergence in relation to the Netherlands, while the second figure refers to price convergence in relation to Germany. For instance, the figure 100/29 for the Netherlands means that prices in the Netherlands and Germany were the same for 29% of the time in 2014.
In other parts of Europe, there was very little convergence. The UK and Italy have the highest electricity prices in the EU.
According to Tennet, the price decrease in the Dutch market in 2014 is attributable to various causes. âAverage gas prices were lower than in the previous year, three new coal-fired power plants were taken into operation, a number of gas-fired plants were taken out of operation, and cheaper electricity was imported from Norway and Germany on a large scale. This was possible thanks to the land-based and subsea electricity connections (known as âinterconnectorsâ) that link the Netherlands to its neighbouring countries. The Netherlands is one of the worldâs most interconnected countries in this respect, serving as a major electricity hub.â
Tennet notes that coal-fired power plants and interconnectors are the main providers of flexibility in the power market. Thus, Germanyâs exports to neighbouring countries increase rapidly during periods of high solar energy generation, as can be seen in the figure below.
Annual average net exports (exports minus imports) of commercial electricity flows, and hourly feed-in of solar energy in Germany.
Tennet notes that âThe Netherlands benefits from this arrangement because it is able to import cheaper (subsidized) electricity via the aforementioned interconnectors. However, Germany also benefits because solar energy can be exported to generate more income. Furthermore, this results in a reduction in the lower renewable energy surcharge payable by German consumers. In this way interconnectors contribute to the optimum deployment of renewable energy sources in Europe.â
According to Tennet, coal-fired power plants increasingly ensure flexibility in Germany. And âa similar picture may emerge in the Netherlands, due to the expected major increase in renewable electricity production in the coming years (by onshore and offshore wind farms and solar panels). The market position of modern coal-fired power plants is expected to improve in the Netherlands as well, with three new, flexible coal-fired plants recently taken into operation and a number of gas-fired plants taken out of operation. In addition to their existing base-load function, these coal-fired plants can also fulfil a flexible role in the electricity supply system.â
The Market Review notes that âmarket conditions for gas-fired power plants are currently unfavourable in the Netherlands and particularly in Germany. Electricity prices in Germany are determined by coal-fired power plants. At the current gas prices, German gas-fired plants cannot be profitably deployed. Prices in the Netherlands are usually determined by gas-fired plants, but these plants are also finding it difficult or impossible to achieve sufficient return on investment. Gas prices are simply too high compared to the income generated from the sale of electricity.â
Tennet further notes that âthe subsea NorNed cable linking the Netherlands and Norway is used almost 100 percent of the time to import cheaper electricity from Norway. The three interconnectors between the Netherlands and Germany are largely used for electricity imports, while the subsea BritNed cable between the Netherlands and the United Kingdom exports electricity to the UK for most of the time.â
TenneT and many other European TSOs are taking additional steps to increase the efficiency of the European electricity market. âThe introduction of a market mechanism called Flow-Based Market Coupling is resulting in further optimization of the deployment of the transmission capacity of cross-border electricity connections, yielding expected benefits for Dutch electricity consumers.  Last week, the Dutch Authority for Consumers & Markets (ACM) approved implementation of this mechanism. Last year the ACM calculated the benefits for consumers to the tune of 80 million euros per year. Flow-Based Market Coupling is expected to result in further reduction of price differences between the Netherlands and Germany, and will be introduced throughout Europe in May of this year.â The Market Review includes a number of examples that explain the benefits of Flow-Based Market Coupling.
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Robert HĂźbner says
Good article. But I wonder if there is a mistake in the second figure (the map). According to it there is zero convergence between Czech and German electrictiy prices. But according to a report of the European Commision (figure 24 here https://ec.europa.eu/energy/sites/ener/files/documents/quarterly_report_on_european_electricity_markets_q1_2015.pdf) there is almost 100 % price convergence between the two countries. Is it a mistake or is there another explanation for this? Thank you