Managing electricity supply and demand
The number of electricity producers in the Netherlands is set to increase in the coming years. Experience shows producers tend to cluster together in certain regions (e.g. at the Maasvlakte 2 site in the Port of Rotterdam and around the Ems estuary in the North Sea), significantly increasing the electricity output in these areas. To avoid a situation where the electricity supply exceeds the grid capacity (congestion), we implement a congestion management system.
Congestion management uses price mechanisms and market forces to manage electricity supply and demand. TenneT works with the regional grid operators to operate the system.
A producer wants to supply six megawatts (MW) of electricity that he has already sold on the energy exchange. By adding up all the electricity produced in a particular region and subtracting the expected usage, the number of megawatts this region is willing to supply can be estimated in advance. For instance, if 600 MW has been planned while there is only scope for 400 MW, the producer can offer to refrain from supplying the 6 MW he has produced. The producer makes this offer through his Programme-Responsible Party (BRP). In this way, the producer contributes to a reduction of the demand for transmission capacity. The producer indicates the price he is willing to pay for not producing electricity. On balance, this is advantageous for the producer, as he saves on variable costs while retaining his revenue from the sale of 6 MW of capacity on the energy exchange.
Although the problem of excessively high supply has now been tackled, another problem has come into being: the missing 6 MW still have to be supplied, but from another region that still has sufficient transmission capacity. Therefore, a party willing to produce the additional 6 MW is sought elsewhere.
Once all the arrangements have been made, we have to check whether the producer abides by them. After all, the risk remains that the producer who agreed not to supply his 6 MW of capacity will do so nevertheless, for instance because he sees on the energy exchange that an electricity shortage exists in the Netherlands. Meeting that shortage can be very profitable. However, this is technically not possible, as there is insufficient transmission capacity in the producer’s region. Consequently, a producer who supplies capacity in violation of the agreement, will not receive any payment.
In the final analysis, this approach results in a new balance between the available transmission capacity and the capacity supplied by electricity producers. This will enable grid operators to take adequate measures to adjust the transmission capacity, so that the grid has sufficient capacity to meet the increasing demand.