Exploring the future electricity price in the Netherlands

Abstract

To limit global warming, greenhouse gases need to substantially be reduced in all sectors of the economy (IPCC, 2014). The Netherlands has translated this to ambitious goals towards a more sustainable environment. It aims to reach a 40% CO2 emission reduction compared to 1990 and have 27% of the total generated energy be produced through renewable energy by 2030. The large required adoption of renewable energy sources – like wind energy – evoke concerns by stakeholders of the Dutch electricity systems. The influence of a large capacity of renewable electricity production on the electricity system and on the electricity prices towards 2030, is uncertain. Besides it is unclear whether these targets are even within reach as these unknowns negatively influence the investment environment. How will the changing energy production mix interplay with the future electricity price of 2030 in the Netherlands? Answers to this research question can help energy utility companies and external financiers by providing insights in the future Dutch electricity system and in the future electricity prices, and thereby supporting them in making investment decisions. The results of this research might be of interest for policymakers, as the insights of the future Dutch electricity system can support them in the design of future policies. Using literature on the Dutch electricity system design, a translation is made to implement the system in a System Dynamics model – using Vensim software. Following a System Dynamics validation process and by comparing the model output with historical data, a foundation has been created to execute simulations. A Monte Carlo Analysis has been performed in order to deal with uncertainties of external forces and megatrends that influence the electricity system towards 2030. To explore the strengths and weaknesses of the designed System Dynamics model, it is compared with existing electricity system simulation models. The simulation model shows that the energy production mix will become more sustainable with more wind electricity production capacity and a decline of carbon intensive electricity production capacity. Due to the large adoption of wind energy capacity, the electricity prices will become more volatile towards 2030 – as the unpredictable wind speed will have more effect on the total available electricity supply when the installed capacity of wind becomes larger. The increased volatility negatively influences the stability of the electricity system and therefore more import and export capacity is needed to maintain stability. The interpretation of the results has led to several recommendations to various stakeholders of the Dutch electricity system. The Transmission System Operator might need to extend the interconnector capacity to neighbor countries to increase its import and export capabilities when the electricity system is subjected to a shortage or surplus of electricity supply. Policymakers should closely monitor the development of the CO2-price, this factor determines to a large extent the adoption of wind energy capacity. Every study is subjected to limitations. The limitations of this study and System Dynamics model consist of the absence of significant literature supporting the expected development of external forces towards 2030, the model consists of a simplified investment process, no simulations are performed on electricity (prices) of neighbor countries and wind energy capacity is the only renewable energy source that has been taken into account. This research contributes to science by designing the Dutch electricity system in a System Dynamics model. For different stakeholders it provides insights in the development of the Dutch electricity system towards 2030. To KPMG the System Dynamics process shows to be an interesting analytics tool.