TenneT mulls sale to German state as grid capacity continues to drive investment
As the Dutch-German TSO TenneT investigates the sale of its German operations to the Federal government, its annual investments are expected to grow to at least €10 billion ($10.9 billion), spurred by the call for grid expansion.
In 2023, Tennet invested €7.7 billion ($8.4 billion), split between its operating areas in the Netherlands at €2.9 billion ($3.2 billion) and Germany at €4.8 billion ($5.2 billion). According to the TSO in its fiscal results for last year, this represents a sharp increase in investments due to on- and offshore grid expansion.
The TSO is now saying it will continue to increase its annual investments, while also mulling the sale of its German operations to state-owned investment and development bank KfW, on behalf of the state.
According to reportage in the German Handelsblatt, the state sale has been in negotiation between the federal and Dutch governments for months.
The TSO belongs to the Dutch state, although a large part of its grid operations are located in Germany and run by a TenneT-owned subsidiary, also named TenneT. The state negotiations concern the sale of said subsidiary.
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Flailing grid capacity
Although TenneT reports healthy financial results of €1.8 billion ($2 billion) in earnings before income and tax, up 50.2% year-over-year, over the course of 2023 underlying revenues decreased by €600 million ($655 million) to €9.2 billion ($10 billion), driven by a decline in ancillary service costs.
These costs come from lower market prices for costs incurred by TenneT to compensate for grid losses, maintain the energy balance in the grid and pay for alternative electricity routes in case of congested or unavailable grid sections.
In the Netherlands specifically, the power grid has continued to reach capacity, despite record investments from its operators last year. According to Alliander, traffic jams will recur on the Dutch electricity network for at least another 10 years.
In June 2023, the Dutch state provided €1.6 billion ($1.7 billion) to TenneT to cover the funding requirements of its Dutch operations.
Additionally, states TenneT, as there is no certainty of the German sale materialising in the short term, the Dutch state has also provided a bridge loan facility of €25 billion ($27.3 billion) in 2024, safeguarding TenneT’s planned investments in both countries for 2024 and 2025.
According to Handelsblatt, Tennet CFO Arina Freitag promised a sale within the next 12 months.
Said Freitag in a statement: “To achieve a futureproof energy system for a competitive and climate neutral economy halfway through this century, we must sustain investment momentum. Balancing economic efficiency, sustainability and a high level of grid availability expected by our end-customers in the Netherlands and Germany requires a massive grid expansion.
“For TenneT this adds up to an investment programme of as much as €160 billion ($174.8 billion) and requires a consistent energy policy and solution-orientation from all parties involved.”
Related Knowledge Center: Offshore wind energy
Over the next decade, U.S. offshore wind power is expected to grow from a single 30-megawatt wind farm off Rhode Island to more than 2,000 MW of capacity along the Atlantic Seaboard. There are contracts for wind power off the coasts of Massachusetts, Connecticut, New York, Maryland, New Jersey, Rhode Island, and Virginia.
The National Renewable Energy Laboratory has estimated the United States has over 4,000 gigawatts (GW) of offshore wind potential, enough to power the country four times over.
The growth in part being spurred by state solicitations, including in New York, where then-Gov. Andrew Cuomo (D) set a commitment of 9,000 MW of offshore wind by 2035, and in Connecticut, where in June 2021, Gov. Ned Lamont (D) signed legislation authorizing the construction of 2,000 MW of offshore wind by 2030.
The offshore development is also being driven by an investment tax credit set to end in December 2019 and is equal to 12 percent of expenditures. U.S. Sens. Susan Collins (R-Maine) and Tom Carper (D-Del.) have introduced a bill to extend the tax credit for up to eight years.
The Interior Department has held eight competitive lease sales that resulted in 15 offshore wind leases over 1.7 million acres that has the potential for 21 GW of capacity. In February 2022, the Bureau of Ocean Energy Management completed a bidding process that realized $4.37 billion for 488,000 acres across six lease areas in federal waters off New York and New Jersey.
Projects have also been proposed off the Southeast coast, off California and Hawaii, and for the Great Lakes.