Shortage of transmission capacity on the electricity grid is the new reality

Shortage of transmission capacity on the electricity grid is the new reality

28 February 2023

Enexis invested a record amount of € 1,027 million in its grids in 2022. At the same time, it became clear that a structural mismatch exists between the demand for transmission capacity on the electricity grid and the additional capacity that Enexis can build or make available on the existing grid. Due to rising gas prices, Enexis's customers switched to electricity faster than expected. As a result, TenneT's high voltage grid and Enexis's electricity grid reached their maximum capacity in several areas. As a consequence, customers had to wait longer for a new connection or an upgrade of an existing connection. Enexis expects that the mismatch between the supply and the demand of transmission capacity will sustain in the coming years. In addition, continuing shortages of personnel and materials are forcing Enexis to decide where to start first. Governments must decide which projects have priority. This is what Enexis is advocating at the time of the publication of its annual report.

Enexis installed about 1,400 kilometres of electricity cables and built a record number of new stations in 2022. With the installation of in total 1,180 megawatt, the capacity of the electricity grid was increased by over 10%. In addition, the electricity outage time remained at a historically low level of, on average, 14.0 minutes. Despite, the expansion of the electricity grid, it became clear that always getting new or heavier connections, unfortunately, is not self-evident.

The energy transition is forcing Enexis to depart from its usual approach. In order to realise a larger work package, Enexis decided to tender and outsource work in a different manner. Where this concerns work carried out by contractors as well as the purchase of materials, Enexis plans to tender larger workpackages for the longer term. Enexis tendered around 150 transformers with an estimated value of € 300 million to ensure that it will have a sufficient inventory of transformers for the coming years.

In addition, Enexis is focusing on a more efficient use of the existing grid in order to make extra connection capacity available in the short term. With new types of contracts, congestion management, optimal incorporation of batteries, and targeted steering of supply and demand, Enexis can make extra connection capacity available in the short term. The cooperation of customers is of crucial importance in order to realise this. Businesses can contribute to making more efficient use of the electricity grid by unburdening the grid during peak hours. For example, by turning on their cooling systems outside of peak hours. They receive a financial compensation for this. This demands a structural adjustment of their business operations and entails a major transformation for customers. By making use of flexibility, Enexis helps to create extra connection and transmission capacity and to make optimal use of the available transmission capacity.

Evert den Boer, CEO Enexis: “We are facing a new reality now and we realise that we will not be able to solve this problem in the short term. This is a huge challenge for us and, unfortunately, for our customers as well. Considerably longer waiting times for new of heavier connections are the new normal. We continue to expand our capacity as fast as we can. In the coming years, we will build an additional 2 GW in capacity, which is about 15% of the existing grid, an expansion that equals 600,000 households with solar panels. However, the demand for electricity will remain structurally higher in the coming years than the rate at which we can expand the grid.”

Further strengthening of our financial position

Expenditures will continue to rise in the coming years to enable the energy transition in Enexis' service area. At present, Enexis is still able to realize these investments because of its sound financial position. Net revenue rose to € 1,705 million in 2022 (2021: € 1,634 million). Net profit for 2022 amounted to €1,300 million (2021: € 199 million). This is an increase of €1,101 million compared to 2021. This
increase is fully attributable to the non-recurring book profit of € 1,113 million on the sale of Fudura in 2022. Excluding the sale of Fudura, net profit amounted to €187 million; a decrease of €12 million compared to the year before. This decrease is attributable to the increased costs of transmission services and grid losses and higher operating expenses due to the growth of the work package.

The sale of Fudura improved Enexis’ equity position. By using most of the book profit from the sale of Fudura, Enexis expects to have sufficient capital available to realise the energy transition in its service area in the coming years. In order to further improve Enexis' financial position, agreements have been made with the Dutch State about a possible future capital contribution. To this end, the Dutch State, Alliander, Enexis, and Stedin have laid down the conditions in a Framework Agreement.

Enexis' credit profile remains strong: Early 2023, Enexis' credit rating from Standard & Poor’s was A+ (positive outlook) and its credit rating from Moody’s was Aa3 (stable outlook). In 2021, our credit rating from Standard & Poor's still had a negative outlook. This was revised in a stable outlook following the sale of Fudura in 2022. At the beginning of 2023, our credit rating from Standard & Poor's was revised in a positive outlook following the above-mentioned Framework Agreement with the Dutch State. Based on this, S&P assigned its government-related entity (GRE) status to the three large regional grid operators, including Enexis. This GRE status enhances the creditworthiness of the grid operators and, as a consequence, their capacity to raise debt. Thus the GRE status supports the financing of the energy transition.