Decision of the Board of the Netherlands Competition Authority regarding the applicability of congestion management and the allocation of transport capacity

On 9 November 2009 Eemsmond Energie ("EE") submitted a request to the board of the Netherlands Competition Authority ("NCA Board") to settle a dispute with TenneT TSO ("TenneT"). EE's request pertained the refusal of TenneT to make transport capacity available in 2013 for EE's new power plant, which is scheduled to start operations in 2013. In this news flash we will address the decision of the NCA Board in the light of the bill on, among others, priority access to renewable energy (31904) (the "Priority for Renewable Bill") that is currently pending before the Senate.

Priority for Renewable Energy

The Renewable Energy Directive 2009/28/EC of 23 April 2009 (the "Directive") imposes the obligation on Member States to provide priority or guaranteed access to the national grids and guaranteed transmission and distribution for electricity produced from renewable energy sources. The Priority for Renewable Bill which implements such priority access for renewable electricity was adopted by Parliament on 9 February 2010 and is currently pending before the Senate. This Bill imposes an obligation on the grid manager to apply congestion management in the event of congestion (shortage of transport capacity) on the grid and to provide priority transport for renewable electricity. While the Priority for Renewable Bill only outlines the system of congestion management, the further substantiation will be laid down in a governmental decree.

In anticipation of the implementation of the Directive the MEA issued a ministerial regulation on 20 May 2009 requiring grid operators in congestion areas to make more efficient use of transport capacity (the "Capacity Regulation"). On the basis of this Regulation, all connected parties receive equal rights on transport regardless the date of connection, whereby generators of renewable energy will have a higher priority to be connected. The Capacity Regulation also provides information on elements of the congestion management system that will be included in the NetCode. According to the Capacity Regulation the system of congestion management will be based on implicit redispatch of production capacity via an auction mechanism. Whether the congestion management system shall be applied in a certain situation will be determined via an assessment on the reasonableness and proportionality, considering the circumstances of that situation.

Dispute between Eemsmond Energie and TenneT TSO

EE requested TenneT to connect its new power plant in the Eems harbor to the grid as of 2013 and to provide its plant with transport capacity. TenneT declined this request since in 2013 transport capacity on the grid in the North-east of the Netherlands will be insufficient. Although TenneT is currently expanding the grid in this area, such expansion will not be ready before 2016. TenneT therefore took the position that it will only be able to grant the requested transport capacity to EE's power plant after 2016. This refusal was based on section 24 (2) of the Electricity Act’98, which allows TenneT to decline to grant transport capacity to a grid user if it reasonably does not have any transport capacity available. TenneT did not consider to apply congestion management. According to TenneT it only makes use of congestion management when maintenance of the grid is performed. TenneT moreover indicated that the system of congestion management has a number of drawbacks, such as the uncertain availability of transport capacity forecasts, the insufficient regulating power and the absence of the possibility to shut down a network user.

EE filed a request to the NCA Board on 9 November 2009 to determine whether TenneT rightfully declined to grant transport capacity to EE's power plant.

The Decision

The NCA Board ruled, by its decision of 16 April 2010, that providing transport capacity is one of the core activities of a grid manager. Under the Electricity Act ’98 a grid manager is required to offer transport services to anyone that requests such services, as recently confirmed in the explanatory note of the MEA to the Capacity Regulation. In this note the MEA considers that the right of a grid manager to decline a request for transport capacity can only be applied restrictively. A grid manager is required to do its utmost to fulfill its obligation to provide transport capacity and may only decline to grant such transport capacity if it would be unable to ensure the reliability of the grid when using all applicable means.

The NCA Board takes the position that the application of the system of congestion management would allow TenneT to grant transport capacity to EE. Although the system of congestion management has a number of drawbacks, as indicated by TenneT, the explanatory note of the Capacity Regulation provides for a fairly detailed overview of elements that will be included in the NetCode. Such elements are among others (i) the designation of certain areas as congested areas, (ii) conditions in relation to the forecasts of required capacity, (iii) a provision in relation to the responsibility for incorrect forecasts, (iv) an obligation for grid users to offer regulating and reserve power in certain situations and (v) the possibility to require a grid user to shut down if the reliability and safety of the grid is at stake. The introduction of these elements will resolve TenneT's objections against the current system of congestion management.

Given the envisaged introduction of the aforementioned elements to the system of congestion management in the NetCode, the NCA Board has taken the view that TenneT is not allowed to rely on section 24(2) of the Electricity Act’98 to decline EE's request for transport capacity without considering the application of the system of congestion management.

TenneT has appealed this decision.