Letter from the CEO
Empowering society is at the heart of TenneT’s mission, as we provide a secure electricity supply in the Netherlands and a large part of Germany. However, as electricity does not recognise geographical borders, we need to cooperate with neighbouring countries to maintain security of supply and facilitate the development of an integrated North West European (NWE) market.
Responding to demand from governments and society, Europe is shifting fast from fossil fuels to renewable energy sources such as wind and solar. This radical change demands a fundamentally redesigned energy system. Initially, fossil fuels and renewables will complement one another as sources of electricity, but at a later stage, society strives to rely on sustainable energy sources.
TenneT empowers society by working to ensure a reliable, uninterrupted energy supply now and in the future. Crucial to this is engaging with the public to build acceptance for the maintenance and expansion of the high-voltage electricity grid. This is essential to a successful energy transition, as we manage and maintain a challenging balance between traditional and renewable energy sources.
Our three core strategic priorities for the next five years are: to enhance the flexibility and resilience of our transmission system to ensure security of supply; to advance the use of data and analytics in order to facilitate flexibility in the market; and to drive the integration of the NWE electricity market with a focus on the Netherlands, Germany, and Belgium.
In order to enhance the flexibility and resilience of our transmission grid and to support the transition to renewable energy, we need to make large-scale investments in onshore and offshore grid infrastructure. We also need to help shift the public mindset away from the notion that energy must be consumed in the same country as it is produced. Cross-border connections are becoming increasingly important and TenneT's investments and expertise play a key role in the establishment of an integrated European energy market. For example, in 2016, after years of planning, we have begun building the High-Voltage Direct Current (HVDC) submarine COBRAcable from the Netherlands to Denmark and in 2015 the NordLink cable from Germany to Norway. Also, the construction of the Doetinchem-Wesel interconnector between the Netherlands and Germany is well underway.
A single, integrated NWE electricity market serves to the benefit of millions of end-users and is one of our strategic priorities. In the past few years, we moved from a country-by-country energy system to a cross-border balance of local/regional and international cooperation. Given the already well-functioning cooperation among transmission system operators, we do not see the need to transfer responsibility for the security of supply from the individual transmission system operators to a supra-national entity as suggested by the European Commission.
Our view that wind energy is becoming increasingly important is underlined by the long-term vision we unveiled last year for an 'energy island' in the North Sea. This island would create an energy hub connecting 70 gigawatts (GW) of wind energy for the Dutch, German, Belgian, British, Norwegian and Danish markets. We believe that using interconnectors to combine the transport of large-scale offshore wind - so-called 'wind connectors' - is the way forward, keeping offshore wind-generated energy prices level with those of onshore.
Striking the balance
As cross-border TSO, we are developing our system operations departments to deal with the ever increasing international flows while at the same time facilitating national developments. We need to continue to invest in our operational systems as well as in our people to be future-proof and take our organisation to the next generation.
While we work to maintain security of supply and balance the flow of electricity from fossil fuels and renewable energy sources into the grid, we also need to account for the growing number of people generating and storing energy from solar panels, home batteries and charging stations for their electrical cars. These ‘prosumers’ create challenges in terms of organising transport and predicting the future balance of supply and demand, but also provide opportunities to enhance the balancing of supply and demand on the system.
Optimal market design will combine decentralised and centralised production, with a central data hub enabling the necessary flexibility of the grid and guaranteeing a level playing field for the rapidly growing number of market participants. This is why advancing the use of data and analytics is a core strategic priority for us. We have, for instance, successfully advocated for a new digitalisation law in Germany and are campaigning for new tasks in the Netherlands. At a consumer level, we are involved in pilots collecting data from electric car charging stations and cars that are en route.
The energy transition forces governments to decide what kind of electricity market they want: one driven by demand, or capacity. As a frontrunner in integrating large quantities of renewables into its energy supply, Germany faced this dilemma first. We have played a prominent role in discussing the future system there, and we are pleased the German government has stated that it will not introduce a classic capacity market and will move to one driven by market prices ('energy only'). We strongly believe in a price-driven system, as a capacity-driven system tends to be based largely on subsidies and, as such, stifles innovative generation, demand side response and storage solutions.
In the Netherlands, TenneT was appointed as developer and operator of offshore grid connections in the Dutch part of the North Sea. The Dutch government designated three zones for the development of new wind farms in the North Sea based on a price-based auction system which will substantially boost NWE renewable energy supply. TenneT recommended a standardised tender system for the auction of the first two wind energy areas, which was won by Denmark’s DONG. We were pleased that this auction resulted in a, at the time, unprecedentedly low price level of 7.27 cents per kWh. This was a significant step forward and was soon to be followed by even lower prices (i.e. 5.45 cents per kWh for Borssele III and IV).
Investment in innovation
Creating a complex energy infrastructure is by its nature a long-term project: it takes up to 10 years and sometimes even more to develop and build a transmission line that will be used for half a century. Yet the energy transition and technology are moving fast, and the coming decades are likely to produce many more technological developments.
We need to remain as flexible as we can, take up opportunities presented by the march of technological progress, and avoid investing heavily in concepts that further developments in technology could render obsolete. These objectives may result in difficult dilemmas.
Investment in innovation must serve a clear aim: ensuring long-term security of energy supply, at prices acceptable to consumers and in a controlled operational environment. Based on the Dutch energy law, the focus of the Dutch regulator is on low prices for end-users, but we should balance this with longer-term priorities, such as enabling the energy transition in a socially and economically acceptable manner. Achieving the 100% reliability for which we strive is not a given, and it requires continuous, long-term investment in infrastructure and innovation. Examples of our current innovation projects are a study investigating higher-voltage cables (i.e. 66 kilovolt (kV)), pilots for providing primary reserve capacity by using alternative technologies and alternative cooling of our substations.
Similarly, redispatch measures and related costs have been rising steeply in Germany and the Netherlands due to the inflow of renewables and the growth of international flows. The necessity for these short-term measures we consider to be a risk for our long-standing priority of ensuring adequate supply as the related corrective actions – for example, expensively ramping down electricity production facilities – may be seen as inhibiting further integration of the markets.
Society increasingly appreciates the need for the energy transition. The accompanying need for major changes to the grid has yet to gain widespread acceptance from the public and policymakers. This is why we work hard on dialogue with the people and communities that will be most affected by our projects. We take an open, collaborative approach and listen to people’s concerns, help them understand how our projects benefit society, and devise solutions that are as acceptable as possible to them.
Safety – for customers, employees, and contractors – is a top priority. We were shocked and deeply saddened by the death of a contractor employed at a shared TenneT and Liander high-voltage substation in February 2016. Furthermore, the decline in our safety performance during 2016 has management's highest attention. To eliminate work-related incidents and accidents, we do our utmost to implement the learnings from past incidents.
Finally, I would like to thank our employees, who once again made sterling efforts in 2016 to ensure we keep on empowering society. None of what we achieved would be possible without their dedication and hard work.
CEO and Chair of the Executive Board