Demand for clean energy and clean energy capacity remains strong throughout Europe, driven by national policy commitments, energy security concerns, and long-term expectations of structurally high gas prices. Current market structures and select policies in Great Britain and the Netherlands, however, undermine the economics of clean energy development.  Meeting clean energy goals and needs will require a number of significant market and/or policy changes.

In a recent webinar previewing Ascend's latest energy market forecasts for Great Britain and the Netherlands, Dr. Gary Dorris, CEO at Ascend Analytics, joined Dr. Brent Nelson, Managing Director of Markets and Strategy, to discuss the impact of high and volatile gas prices on the European energy transition, the impact of problematic market structures on resource development, and key differences between European and US energy markets.

Key Takeaways

• European market structures differ from those in the US, with transmission charges and a lack of nodal pricing obscuring the value of storage and the risk of renewable curtailment.
• Policy commitments in Great Britain and the Netherlands, reinforced by energy security concerns, create firm demand for clean energy and capacity, anchored by ambitious climate laws and policies that drive offshore wind, solar, and onshore wind deployment.
• Solar generation in the EU has almost quadrupled in the past four years, leading to growing 'duck curve' price dynamics in the summer and a growing need for storage to manage the variation in supply.
• In both Great Britain and the Netherlands, significant changes to market mechanisms must occur to support further storage development. These changes include the adoption of locational price signals, appropriate capacity incentives, and reformed transmission tariffs.
• Leveraging analysis from Ascend Market Intelligence^TM, the webinar offers guidance for where, what, and when to add new capacity resources in Great Britain and the Netherlands.

Firm Commitment to Clean Energy in Great Britain and the Netherlands

The Netherlands and Great Britain possess robust, aggressive clean energy policies that create a persistent mandate for new clean energy and capacity resources. The Netherlands has mandated 100% clean energy and a 95% emissions reduction by 2050, as well as a coal phaseout by 2030. Great Britain has an aggressive – and likely unattainable – goal of decarbonizing its power sector by 2035.

Energy security concerns further bolster this commitment to clean energy. Nearly half of European gas imports come from countries, such as Russia or Qatar, that range from unfriendly to unreliable. High and volatile gas prices also buoy clean energy demand: decreasing pipeline supply from Russia has been offset by increased reliance on imported liquid natural gas(LNG), creating long-term expectations of structurally higher gas prices.

Great Britain and Netherlands Energy Markets: Structurally Different from US Markets

Energy markets in Great Britain (comprising England, Scotland, and Wales) and the Netherlands lack nodal pricing, and market structures limit real-time participation opportunities. While zonal differentiation exists in some European countries, the overall lack of nodal pricing stifles the ability to indicate locational value or grid congestion. Energy markets in Great Britain and the Netherlands also include an intraday trading mechanism. This mechanism allows trading to continue up until the start of delivery time, as load and renewable forecasts become clearer. It also reduces the need for real-time balancing, which only applies to resources committed through ancillary services or eligible to provide balancing.

The False Simplicity of National Energy Markets

While both the Netherlands and Great Britain offer a 'single price,' this seemingly simple approach obscures the same complicated grid dynamics that are present in all energy markets. Congestion still exists on the transmission system, so having a single price limits the ability to identify locational value in curtailment and energy value. As the energy transition advances in both countries – and Europe-wide – this inability to clearly identify locational differences will become increasingly untenable in the face of a growing locational imbalance between supply and demand.

Energy Markets in Great Britain and the Netherlands: Solar and Storage Implications

Unlike most US power markets, Northern European countries, including Great Britain and the Netherlands, have relatively low cooling demand during the summer. Thus, the majority of peak demand hours occur after sundown and in the winter. Growing demand, as well as this fundamental solar generation/demand misalignment, create surplus solar generation and a pressing need for storage in both the Great Britain and Netherlands power markets.

Several current market structures, however, undermine the economics of storage in both the Netherlands and Great Britain. A lack of locational pricing obscures curtailment, surplus generation, and price volatility, thus also obscuring price signals that might emerge from locational differences in value for different resource types. In the Netherlands, no capacity market exists to incentivize new unit entry for storage. Perhaps more damagingly, the Netherlands has punitive transmission fees for storage charging that pose a prohibitive barrier to storage development. In Great Britain, battery buildout is already – and predictably – saturating ancillary and capacity markets. As a result, significant capacity market derating and reduced ancillary revenues have followed. Fundamental changes will be needed to market mechanisms in both countries in order to ensure that enough revenue exists to incentivize storage development.

Interested in Learning More?

Access the webinar recording, which offers guidance for where, what, and when to add new capacity resources in Great Britain and the Netherlands. The webinar also offers insights related to energy demand, projected renewable energy buildout, and policy evolution for both countries.

AscendMI™(Ascend Market Intelligence) delivers proprietary power market forecasts that have been trusted in hundreds of projects and resource planning activities, supporting over $25 billion in project financing assessments. Contact us to learn more.

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Ascend Analytics is the leading provider of market intelligence and analytics solutions for the energy transition. The company’s offerings enable decision makers in power development and supply procurement to maximize the value of planning, operating, and managing risk for renewable, storage, and other assets. From real-time to 30-year horizons, their forecasts and insights are at the foundation of over $50 billion in project financing assessments. Ascend provides energy market stakeholders with the clarity and confidence to successfully navigate the rapidly shifting energy landscape.