NMa: Improving utilization of cross-border connections could lead to lower prices for electricity and natural gas

Dutch companies and consumers could see lower prices for electricity and natural gas if international transportation connections are utilized more efficiently, enabling them to benefit from cheaper electricity and natural gas from neighboring countries. Savings could amount to as much as €30 million per year.

The Netherlands Competition Authority (NMa) comes to that conclusion in its 2007 monitor report on energy markets. Dutch transmission system operators have already taken significant steps towards further integration between the Dutch energy markets and their foreign counterparts, according to the NMa. This is illustrated, for example, by the so-called 'NorNed'-cable, operational since the spring of 2008, which is the connection between the Dutch and Norwegian electricity markets. Information about the volume of available cross-border capacity has been made available online for a year now, increasing transparency. However, additional efforts are needed in order to have the wholesale market function better, according to the monitor report. GTS, the Dutch gas transport system operator, and TenneT, the operator of the Dutch electricity transmission system, play an important role in that process.

Removing bottlenecks on gas market
Findings of the monitor reveal that the natural gas market seriously lags behind the electricity market. A major bottleneck affecting the functioning of the gas market is underutilization of the cross-border connections. Existing import capacity is still often unutilized, even when increased utilization would be profitable considering the price differences with neighboring countries. It is essential for GTS to put even more effort into making unutilized capacity available to market parties, according to the NMa. Another important point is the so-called balancing regime. Having a market-based system that enables traders to balance their incoming and outgoing gas flows is a necessary condition for improving the functioning of the wholesale market. The Dutch Minister of Economic Affairs announced in the so-called Gas Letter to the Dutch Parliament earlier this year that the new system will be launched on January 1st, 2009, step that is welcomed by the NMa.

Also, the development of the central trading facility Title Transfer Facility (TTF) is a source of concern to the NMa. A full-fledged gas trading platform is critical to the development of the gas market and also to the position of the Netherlands as a European gas hub. A bigger and more diverse range of products is needed to truly kick-start this trading platform. The Minister announces in the Gas Letter a legislative amendment that will enable market parties to buy all of their gas through the TTF. The NMa finds it essential that this intended amendment is implemented in full. The Ministry of Economic Affairs currently has the amendment in preparation.

Competition on electricity market remains limited
The NMa is of the opinion that the electricity market functions better than the gas market. Close attention is needed to the fact that there is a limited number of electricity suppliers. As a result, prices are higher than in a situation where there is ample competition. Competition could be improved if the Dutch electricity market is further integrated with those of its neighbors. One way to achieve this is through the use of so-called market coupling. Coupling the Dutch power-exchange market APX with those in Belgium and in France has already shown that cross-border connections are utilized more efficiently. Coupling with the German and Norwegian markets should therefore be established as soon as possible.

Monitoring the Dutch electricity and natural gas markets is a statutory task of the NMa. The current monitor report on energy markets 2007 covers the wholesale markets. An NMa report on the consumer markets will be published in the fourth quarter of 2008.