As the percentage of renewable electricity in the energy mix increases, so too does the importance of flexibility. Interconnection capacity, in addition to demand-side management and storage, will play an important role in dealing with the increasing volatility of supply of energy resources. Differences in supply relative to demand for electricity in a given bidding zone create price differences relative to surrounding bidding zones. These are a trigger to import or export electricity, as long as it fits within existing transmission capacity.
The 2022 Supply Security Monitoring report by TenneT report shows that the importance of interconnection capacity is relatively high in the coming years. The report also shows that in a base case scenario the Netherlands will exceed the security of supply standard for electricity for the first time in 2030 if sufficient investments in storage and demand-side management are not made. Before the end of this year, there will be clarity on whether the number of bidding zones will be expanded. More bidding zones would lead to more efficient use of existing interconnection capacity. More bidding zones would also lead to welfare gains, reductions in CO2 emissions and a reduction in switching off renewable resources. At the same time, the liquidity of trade within a bidding zone decreases. This can lead to higher price volatility.
The next few years will therefore be exciting when it comes to investing in further expansion of interconnection capacity. In this update we look at the availability of interconnection capacity in the Netherlands and surrounding countries. We also look at expectations and developments in terms of policy in this area.
Other than previous market updates, this market update can be read in its entirety via the download button.