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Security of electricity supply Dutch approach Investors and European perspective Safety net mechanism IEA/NEA-workshop 24 may 2005 Pieter Boot Deputy Director-General for Energy, Dutch Ministry of Economic Affairs. Policy-based definition. SECURITY OF ELECTRICITY SUPPLY. Reliable networks.

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Security of electricity supply Dutch approachInvestors and European perspectiveSafety net mechanismIEA/NEA-workshop 24 may 2005 Pieter Boot Deputy Director-General for Energy, Dutch Ministry of Economic Affairs

Policy based definition
Policy-based definition


Reliable networks

Sufficient production capacity

Emergency supplier

Sufficient production capacity

Short-term balance

Long-term balance of supply and demand

Crises and calamities short and long-term

Central question:

How can the balance between production and consumption be guaranteed in the long-term in the most efficient manner possible?

Spearheads dutch policy
Spearheads Dutch policy

  • Enhancing the investment climate

    • Maintaining strong position NL

    • Minimalise regulations uncertainty

  • Promote realisation EU electricity market

    • Effective competition

    • Level playing field

  • Improving market structure in Netherlands

    • Removing market imperfections

    • Improving demand response

    • Safety net against market failure

Investors perspective
Investors perspective

  • Large investments needed in EU (IEA)

  • Investment climate in NL is relatively positive

  • Clear and consistent regulation needed

  • Main points Economic Affairs:

    • No intervention in price setting wholesale market

    • New interconnection must be economically sound

    • CO2-emissions trading efficient instrument but must not disrupt level playing field

    • European perspective on security of electricity supply

European perspective
European perspective

  • Importance of Security of Supply Directive

    • More coordination between TSO’s regarding interconnection investments and network management

    • No discrimation between national and “cross-border” contracts

  • Memoranda of Understanding’s

    • Optimisation of scope and use of interconnective capacity

    • Information exchange between TSO’s and congestion management

How to promote investment and use of production capacity
How to promote investment and use of production capacity?

  • Extensive international research and studies (experts, Brattle group, US-workshop, IEA, TenneT, DTe, CPB)

  • Different policy options: central capacity reserve, capacity payments, capacity markets, reserve contracts, reliability contracts, etc.

  • Main criteria: cost-effectiveness, market conformity, international applicability

How to promote investment and use of generation capacity
How to promote investment and use of generation capacity?

  • General conclusions:

    • mechanisms are complex

    • require extensive regulation and verification systems

    • more effective for “central pooling and planning”

    • major adjustment current Dutch electricity market

  • Cost-benefit analysis CPB (Neth. Bureau for Econ. Policy Analysis):

    • Reserve contracts, capacity market, capacity payments

    • “benefits do not justify social costs”

    • “a 24 hour-blackout Randstad every 5 years is cheaper”

Safety net against market failure
Safety-net against market failure

  • Alternative mechanism:

  • Small adjustment Dutch balancing market at lower costs

  • Indirect long-term investment effect

  • Prevent blackout’s (short term solution)

  • Tennet contracts extra reserve capacity:

  • calamity-capacity: mainly interruptible load

  • long term contracts (3-6 years)

  • extra last-resort capacity- in cases of emergencies (wind Germany)

  • substantial to meet n-1 criteria (450-600MW) (3% of Dutch market)

  • at Tennet’s exclusive disposal

Future steps
Future steps

  • Positive monitoring TenneT 2005-2012

    • Capacity (excl. imports): 1.21 (2005) and 1.15 in (2012) of consumption

    • Capacity (incl. imports): 1.42 (2005) and 1.44 (2012) of consumption

    • Since 2004: new investments en demothballing of 2600 MW (13 % Dutch market)

  • Conclusion:

    • Long term contracts calamity-capacity not neccesary

    • Only short term-contracts (2005 and 2006), yearly basis decision

    • Yearly monitoring TenneT; use 4 year-term perspective to introduce long-term contracts

    • Details to be examined; terms of contracts, call-of period (15 minutes-1hour), auction terms

  • More info?

  • Erik Sieders ([email protected])