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Dutch-German TenneT: Playing a central role in creation of NWE [free access]

May 10, 2016

TenneT, one of Europe’s leading electricity transmission system operators (TSO), recently announced plans to invest EUR22 billion to develop the grid infrastructure of Germany and the Netherlands by 2025. This mammoth investment will help in the integration of large scale renewable energy, mainly wind, from both onshore and offshore wind farms, thus helping both countries make the green energy transition.

 

TenneT, owned by the Dutch government, is the sole grid operator in the Netherlands and owns a large part of the German high voltage grid. With the acquisition of Germany-based E.ON’s extra-high voltage grid in February 2010, TenneT became the first cross-border grid administrator in Europe. The move was part of TenneT’s strategy to facilitate the creation of a North West European (NWE) electricity market in order to achieve price equalisation, improved grid balancing, insight into grid situations, and better possibilities for sustainable energy development in both countries.

 

TenneT presently owns 22,245 km of high voltage lines, of which 12,127 km are part of Germany’s grid and 10,118 km are part of the Dutch grid. With this transmission capacity it ensures a reliable and uninterrupted supply of electricity to 41 million Dutch and German end users.

 

Presently, all of TenneT Holding’s regulated activities are managed at the country level by two operating segments, TSO Netherlands (as TenneT TSO B.V.) and TSO Germany (as Tennet TSO GmbH). TenneT has three main functions, namely, providing transmission services, system services and facilitating the energy market. Along with these primary functions, TenneT is also involved in certain non-regulated activities, which help in the efficient operation of the energy market. These include a 50 per cent interest in BritNed, 100 per cent ownership of Nederlandse Opstelpunten voor Ethercommunicatie (NOVEC), a 50 per cent stake in Relined and a 40 per cent stake in Energy Trading Platform Amsterdam (ETPA). BritNed is a merchant cable operator that manages the electricity interconnector between the Netherlands and Great Britain while NOVEC and Relined manage infrastructure to send and receive broadcasting and telecom signals. ETPA is a trade platform for short-term electricity trades, with a focus on the trade participant’s capacity.

 

Europe is in the midst of an energy transition with a huge influx of electricity from renewable sources such as wind and solar. This is altering the dynamics of supply, bringing new players and energy sources into the market and decentralising electricity distribution. New onshore and offshore wind farms are coming on line and an increasing number of homes and offices are installing solar panels. This means more available electricity, but a fluctuating supply reliant on the weather. Given this scenario, TenneT has taken multiple steps to ensure the integration on renewable energy.  The company is focusing on the creation of offshore electricity infrastructure while upgrading the onshore infrastructure across Netherlands and Germany. In addition, it has pursued the creation of the NWE electricity market to address the shortcomings of renewable energy while improving grid balancing.

 

In the same direction, in 2015, TenneT and several neighbouring transmission grid companies introduced a mechanism called flow-based market coupling, which allows electricity to flow and be traded more effectively across borders. This system continuously calculates the optimal transmission of cross-border connections to all participating countries at the same time and ensures that the capacity of the international connections can be better utilised for cross-border electricity transports. 

 

Table 1: Growth in TenneT’s transmission infrastructure1 

 

2010

2011

2012

2013

2014

2015

NL

D

NL

D

NL

D

NL

D

NL

D

NL

D

Circuit length (km)

9,119

10,688

9,830

10,692

9,978

10,906

9,916

10,875

9,976

10,882

10,118

12,127

150/300/450 kV DC

290

0

420

0

420

200

290

200

290

200

290

1,035

220/380 kV

2,758

10,588

2,792

10,592

2,872

10,604

2,897

10,604

2,897

10,462

2,894

10,684

110/150 kV

6,071

100

6,618

100

6,686

102

6,729

71

6,789

220

6,934

408

Number of substations

282

120

314

121

318

121

317

121

321

122

325

129

220/380 kV

35

115

36

115

39

116

38

116

39

116

39

123

110/150 kV

247

5

278

6

279

5

279

5

282

6

286

6

Note: NL–The Netherlands; D–Germany; DC–direct current

1–In accordance with TenneT’s reporting principles, the figures in the table for the years 2013-15 include all activities of TenneT and subsidiaries in which it holds a controlling interest (in general >50 per cent voting interest). Consequently, the high voltage direct current (HVDC) converter station of BritNed (a 50 per cent joint venture) is not included.

Source: TenneT

 

Financials and investments

TenneT’s revenue has grown from EUR2,315 million in 2014 to EUR3,290 million in 2015. The increase is mainly driven by TenneT’s investments and growing asset base in recent years. In particular, the high level of investment in Germany, especially offshore grid development, has positively affected the revenue.  This is evident from the revenue increase for TSO Germany from EUR1,631 million in 2014 to EUR2,597 million in 2015, as compared to the far more modest revenue increase for TSO Netherlands from EUR653 million in 2014 to EUR676 million in 2015.

 

In 2015, TenneT’s investments in tangible fixed assets amounted to EUR2,405 million, of which EUR473 million was in the development of the Dutch grid, EUR1,460 million in grid connections for offshore wind farms in Germany, EUR466 million in the German onshore grid and EUR6 million in non-regulated activities. For the past few years, Germany has been the focus of investments for TenneT, with the majority of them being in the offshore grid. In 2015, five German offshore grid connections were commissioned.

 

 In the same year, TenneT issued a EUR1 billion green bond to fund the DolWin1, DolWin2 and DolWin3 offshore connections, which transmit renewable electricity from wind farms in the German North Sea to Germany’s onshore electricity grid. TenneT was the first Dutch non-financial company to do so, hence leading the way in a new form of corporate fundraising. The European Investment Bank (EIB) also invested in TenneT’s renewable energy projects, extending a EUR500 million loan to TenneT to finance the SylWin1, HelWin1 and DolWin1 projects. In total, EIB has made EUR1.2 billion worth of commitments to TenneT.

 

Table 2: TenneT’s key financials (EUR million)

 

2013

2014

2015

Revenue

2,243

2,315

3,290

Earnings before interest and tax

620

725

1,075

Profit for the year

357

418

681

Investments in tangible fixed assets

1,868

2,296

2,405

Total assets

11,534

13,645

15,424

Return on invested capital

11.60%

11.00%

12.70%

Net interest bearing debt, adjusted

3,147

4,167

5,703

Funds from operations/net debt

18.60%

18.00%

19.80%

Source: TenneT annual report 2015


Table 3: TenneT’s investments in transmission (EUR million)

 

2013

2014

2015

TSO Netherlands

362

323

473

TSO Germany onshore

174

298

466

TSO Germany offshore

1,330

1,673

1,460

Non-regulated companies

2

2

6

Source: TenneT annual report 2015

 

Future expansion and investment

TenneT has announced that it will be investing EUR22 billion in the coming 10 years in onshore and offshore electricity infrastructure across Netherlands and Germany.


In Germany, TenneT will invest in onshore alternating current (AC) infrastructure and offshore direct current (DC) grid connections as part of the energy transition policy known as ‘Energiewende’, while accommodating the increasing renewable energy generation. Additionally, TenneT plans to install onshore DC connections to secure power supply in southern Germany. In the Netherlands, the investment will go towards the offshore AC grid in the Dutch sector of the North Sea, of which TenneT has been appointed the offshore grid operator by the Dutch Senate.

 

Cross-border interconnection projects

The realisation of an integrated market in NWE will not only reduce electricity prices but also facilitate electricity trading across borders and improve the security of supply. In the midst of the influx of renewables, market integration becomes increasingly important. The Dutch grid presently has three cross-border interconnections with Germany, two with Belgium, one with Norway, and one with the United Kingdom. With TenneT investing in various cross-border interconnections, it has become a key player in developing an integrated electricity market. Whilst the NorNed cable from Netherlands to Norway and the BritNed cable from Netherlands to the United Kingdom have been successfully implemented, various other projects are presently under construction.

 

An interconnector called COBRA cable is being installed to connect the electricity grids of Denmark and the Netherlands. TenneT is partnering with Energinet.dk, Denmark’s TSO, on the project. The cable will be around 325 km long with a capacity of about 700 MW and will run from Eemshaven, Netherlands, to Endrup, Denmark, via the German sector of the North Sea. The connection will be designed in such a way as to enable the connection of an offshore wind farm at a later stage. Being a project of European significance, the European Commission has allocated a subsidy of EUR86.5 million to the project under the European Energy Programme for Recovery. The interconnector is likely to be commissioned by 2019.

 

Another interconnector called NordLink has been installed between Norway and Germany. It is a 623-km high voltage direct current (HVDC) interconnector comprising a pair of high voltage electricity cables. Due to the long distance covered, DC electricity is used to transmit power through the cables that connect the converter stations at each end. TenneT has entered into an agreement with German bank KfW, which is investing EUR500 million of equity (representing a 25 per cent stake) in NordLink while Norway’s TSO Statnett is responsible for financing the Norwegian section of NordLink (50 per cent stake). The interconnector transmits power from hydroelectric power stations in Norway, and will help prevent bottlenecks in the German transmission grid. Similarly, surplus electricity from renewable energy sources in Germany can be exported to Norway via NordLink and the water reservoirs in Norway can work as a natural storage for energy.

 

The market price of electricity in the Netherlands has fallen in the past years. This is largely due to high import volumes from Germany along with an increase in installed capacity of renewables and the addition of 3.3 GW of coal capacity in the past two years in the Netherlands. The high volume of electricity imports from Germany through the three interconnectors between the countries has benefited the Dutch consumers. Consequently, a fourth 380 kV interconnection between Netherlands and Germany is being constructed between the Dutch city of Doetinchem and German city of Wesel. It is likely to be commissioned by 2017.

 

Planned domestic projects

While TenneT gains a key position in the NWE electricity market, it is essential to improve the national transmission infrastructure simultaneously. In Netherlands, the most prominent projects are the North Ring of the Randstad 380 kV connection, the South-West 380 kV and North-West 380 kV connections, and the upgrade of the national 380 kV ring. TenneT’s planned investment is targeted to upgrade the existing onshore as well as offshore grid to accommodate larger and more volatile electricity flows. The upgrade is necessary because the Dutch electricity grid has reached the limits of its capacity and must be upgraded to keep pace with the developing energy landscape.

 

Additionally, the Dutch Senate in March 2016 appointed TenneT as the offshore grid operator to design and operate the grid that will make 3,450 MW of renewable wind energy available for the Netherlands by 2023. To this end, TenneT will build five identical offshore platforms in partnership with the wind farm developers to transport wind energy to the Dutch onshore grid. It will connect offshore wind farms at a voltage level of 66 kV instead of 33 kV to reduce energy losses during transport and also enable the development of wind turbines with a greater capacity.

 

In Germany, TenneT is investing in onshore AC infrastructure and offshore DC grid connections. It has already developed five new DC offshore connections, which together transport 4,300 MW of wind energy generated at sea. By 2019, TenneT expects to have completed 7,100 MW of offshore connection capacity, exceeding the German government’s target of 6,500 MW of installed offshore wind energy capacity by 2020. This will be possible with the completion of the BorWin3, DoIWin2, DoIWin3 and Nordergründe projects by 2019.

 

The German onshore high voltage grid is undergoing considerable expansion with a view to the energy transition (Energiewende).  Over 20 large projects are currently in the planning or implementation phase. In addition, TenneT is currently planning two first of their kind DC connections on land to secure the power supply in southern Germany. These are the Emden-Borßum–Osterath project and the SuedLink, which comprises the Wilster–Grafenrheinfeld and Brunsbüttel–Großgartach projects.

 

 While public support to shift from conventional energy to clean energy is high in Germany, there is huge opposition to the construction of onshore transmission lines. This is also evident from the delay faced in obtaining approval to build an overhead transmission line. While these transmission projects are critical for Germany’s planned energy transformation, initiatives by TenneT have failed to win substantial public support. To increase public acceptance, in October 2015 the German government decided to prioritise underground cabling for DC projects rather than building overhead lines. To this end, a new law came into force on January 1, 2016. While this will lead to a higher investment requirement for TenneT as adjustments will have to be made to originally planned routes, it is expected to accelerate grid development in Germany.

 

Conclusion

TenneT’s investment plans for infrastructure have been in line with the development of renewable energy in its markets, thus ensuring security of supply for its consumers. By pursuing its strategic goals through innovative fundraising such as green bonds, and ensuring the timely construction of Dutch offshore grid infrastructure, TenneT has played an important role in developing an integrated and sustainable NWE electricity market.