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Research: Green Subsidies Make Importing Electricity More Expensive

The price increases on the market for import capacity, on which electricity is transmitted from foreign countries to the Netherlands, are caused partly by the demand for subsidised green electricity from abroad. This is the conclusion reached by the Market Surveillance Committee after research commissioned by the Office for Energy Regulation (DTe) into the causes of these higher prices.

The Dutch government subsidises the production and consumption of green electricity. This subsidy also applies to green electricity generated abroad. Since Dutch producers cannot fully satisfy demand for green electricity, Dutch traders obtain this electricity abroad. The Netherlands has a limited number of connections for transmitting electricity from foreign countries to the Netherlands. In order to distribute the import capacity on these connections fairly amongst the traders, the national grid manager, TenneT organises an auction together with foreign colleagues. The traders may bid for import capacity on this auction. Due to the subsidies, the demand for import capacity has increased, which has resulted in price increases. The Dutch electricity traders use part of their subsidy to purchase the required import capacity from, for instance, TenneT and the German grid managers, E.On-Netz and RWE-Netz. Consequently, a large part of the subsidies leaks away to grid managers, while the aim of the subsidy is to enable green electricity to compete with grey electricity. TenneT is obliged to use the proceeds of the auction for investments in its network. This is not so in the case of foreign companies.

In addition, MSC concludes that the increased demand for import capacity has resulted in further congestion on the import connections. This congestion is caused by the fact that German electricity prices are generally lower than those in the Netherlands, resulting in a high demand for foreign electricity. The subsidy regime has resulted in a further increase in this demand. MSC is of the opinion that further congestion on the import connections can be avoided by restructuring the production subsidy.

MSC is an independent advisory committee of NMa en DTe. MSC analyses the operation of the liberalised electricity market in the Netherlands and advises NMa en DTe (on request or of its own accord) on improvements to the operation of the market.

The MSC report on price increases on the market for import capacity can be obtained from DTe's website.