Introduction
With increasing price volatility, grid constraints, and an evolving regulatory landscape, stakeholders in the Dutch electricity market must navigate a complex and rapidly changing energy system. However, these challenging market circumstances have also opened up lucrative new opportunities for flexibility and storage solutions. According to energy expert and trendwatcher Jan Willem Zwang, adapting to these shifting dynamics holds the key to unlocking a more resilient and profitable market.
For this article, we interviewed Jan Willem about the state of the Dutch electricity market, price formation mechanisms, and the critical role of energy storage in stabilizing the grid. He shared his insights on future market trends, potential policy shifts, and how businesses can position themselves for success in this evolving landscape.
This article serves as a foretaste of the discussions that will take place at the upcoming Solarplaza Summit Energy Storage The Netherlands, on 8 April 2025, in Amsterdam. During the event, industry leaders, policymakers, and investors will dive deeper into the topics discussed here, exploring strategies to navigate price volatility and maximize the potential of energy storage in the Dutch electricity market.
Interview with Jan Willem Zwang - Dutch Electricity Market Overview
Can you provide a brief overview of the structure of the Dutch electricity market and key trading mechanisms?
Jan Willem Zwang (JWZ): The Dutch electricity market is divided into three primary markets. These are the wholesale markets, balancing markets, and congestion markets.
Wholesale markets
The wholesale markets allow for long-term trading through exchanges or bilateral agreements. The latter are typically referred to as Power Purchase Agreements (PPAs). On exchanges, trading can occur up to four to five years in advance, whereas bilateral agreements may extend up to 15 or even 25 years. This segment of the wholesale market is known as the ‘Forwards & Futures markets’.
Spot trading is also conducted on the wholesale markets, primarily through day-ahead and intraday trading. Day-ahead trading, primarily executed via EPEX Spot and Nord Pool, determines hourly prices for the next day. The auction occurs at noon, and prices are published by 12:45 PM. In 2025, the Netherlands will transition from hourly day-ahead prices to quarter-hourly day-ahead prices.
Intraday trading begins at 3:00 PM the day before delivery and includes hourly, half-hourly, and quarter-hourly prices. Three intraday auctions are scheduled at 3:00 PM and 10:00 PM on the day before delivery, and at 10:00 AM on the day of delivery (for transactions covering 12:00 PM – 00:00 AM). Intraday trading can also be conducted continuously without auctions, including via ETPA in the Netherlands.
Settlement on wholesale markets is based on MWh transactions. A Balance Responsible Party (BRP) is the entity authorized by TenneT, the Dutch TSO, to participate in these markets.
Balancing Markets
Balancing markets consist of:
- Frequency Containment Reserve (FCR)
- Automatic Frequency Restoration Reserve (aFRR)
- Manual Frequency Restoration Reserve (mFRR)
To participate in balancing markets, entities must qualify as a Balancing Service Provider (BSP) under TenneT. These markets operate under a single-buyer model, where all services are provided to TenneT.
Participants in balancing markets receive:
- Capacity payments for making their capacity available.
- Activation payments for actual dispatch (only applicable for aFRR and mFRR, not for FCR).
Congestion Markets
Congestion markets currently include:
- Capacity Constraint Contracts (CBCs)
- Redispatch agreements
CBCs involve contracts where grid operators request market participants to reduce or increase electricity generation or consumption during specific timeframes in exchange for a fixed monthly compensation plus reimbursement for constraints.
Redispatch operates similarly but can be activated both day-ahead and intraday, making it a more dynamic tool than CBCs. Unlike CBCs, redispatch requires both a buyer and a seller to ensure that the national grid balance is maintained. Additionally, redispatch prices are determined via market mechanisms, whereas CBC prices are pre-agreed upon.
Imbalance market
While technically not a market, imbalance pricing is currently treated as such. Prices are determined based on the activation of aFRR and mFRR. Entities can profit from responding strategically to TenneT’s imbalance signals. However, this practice is under scrutiny as TenneT seeks to limit speculation on imbalance pricing.
Which trading markets can non-energy businesses participate in?
Jan Willem Zwang (JWZ): For businesses outside the energy sector looking to engage in energy trading, the most accessible options are:
- Forward markets: Businesses can secure fixed-price energy contracts for one, three, or five years.
- Dynamic contracts: These charge usage based on hourly prices, removing profile and imbalance risks.
- Capacity-based contracts (CBCs): Simple capacity constraint contracts where businesses receive advance notice (by 8:30 AM) to reduce or shift consumption the following day.
These options provide businesses with flexibility and cost-saving opportunities without requiring deep expertise in energy trading.
Price formation and market volatility
What are the primary factors influencing electricity prices in the Netherlands?
Jan Willem Zwang (JWZ): Electricity prices in the Netherlands are shaped by several key factors, closely linked to broader energy market dynamics:
- Gas prices: As gas-fired power plants play a major role in electricity generation, fluctuations in gas prices directly impact both forward and day-ahead market prices.
- Emission allowance prices (EUA ETS): The cost of CO2 emission allowances under the EU Emissions Trading System (ETS) affects power prices.
- Weather conditions: Wind and solar generation significantly influence spot prices. Periods of low renewable output (Dunkelflaute - a prolonged period of low wind and solar generation) drive prices higher due to increased reliance on conventional power plants. Conversely, when renewable generation is high, electricity prices can drop sharply or even turn negative.
What drives electricity price volatility in Europe?
Jan Willem Zwang (JWZ): Electricity price volatility in Europe is primarily driven by global energy market dynamics and geopolitical factors, including:
- Reduced Russian gas supply: The decline in Russian pipeline gas imports has forced Europe to rely more on liquefied natural gas (LNG), which is subject to global price fluctuations.
- Global LNG competition: Europe competes with Asia for LNG shipments, meaning price spikes in Asian markets can impact European electricity costs.
- Geopolitical risks: Policy changes in major LNG-exporting countries (such as the US or Qatar) or disruptions caused by extreme weather events in Asia can impact gas availability and prices.
What role does energy storage play in mitigating price volatility?
Jan Willem Zwang (JWZ): Battery energy storage systems (BESS) can help short-term price stabilization in:
- Imbalance markets
- Intraday markets
- Day-ahead markets
For long-term volatility reduction, investments in seasonal (large-scale, long-duration) storage technologies such as pumped hydro, and compressed air energy storage (CAES) are required.
Grid constraints
What are the biggest grid congestion challenges?
Jan Willem Zwang (JWZ): The Dutch electricity grid is facing increasing congestion, posing significant challenges for businesses, renewable energy developers, and grid operators. Key issues include:
- Capacity constraints: The grid’s limited transmission capacity is preventing business cases for new connections, delaying investments, and slowing the energy transition.
- Limited flexibility in power flow: Without solutions like cable pooling or energy storage, businesses have little room to optimize electricity use and generation efficiently.
- Trade impacts: Capacity-Based Contracts (CBCs) restrict participation in crucial markets such as balancing, day-ahead, and intraday trading.
How are BESSs participating in the balancing and trading markets?
Jan Willem Zwang (JWZ): While the total installed capacity of BESSs in the Netherlands remains below 1 GW, TenneT has a 70 GW pipeline of applications.
Current market participation includes:
- Congestion mitigation is currently the primary use case for most batteries.
- Large BESS projects such as those developed by GIGA Storage and Semper Power are often leased to energy firms to optimize their portfolios.
- Renewable-integrated BESSs participate in load shifting, redispatch, balancing, and imbalance markets.
Future trends
What upcoming regulatory changes should traders in the Dutch market be aware of?
Jan Willem Zwang (JWZ): The Dutch electricity market is poised for potential regulatory changes that could significantly impact trading strategies, market access, and costs.
- The potential introduction of a transmission fee on electricity injection could increase costs for producers and storage operators.
- Discussions on splitting existing market zones in countries like the Netherlands, Germany, Italy, and France could impact electricity price formation.
- The ‘Dutch Energy Act’, which is expected to introduce energy-sharing regulations, will allow businesses and communities to trade electricity directly.
- European balancing and intraday markets continue to integrate, with developments such as PICASSO (aFRR platform) and MARI (mFRR platform), which intend to harmonize balancing markets across Europe, ALPACA for improving future grid reliability planning, and the joining of Baltic States to ENTSO-E.
What do you foresee as the most significant shifts in trading strategies over the next five years?
Jan Willem Zwang (JWZ): We can expect major changes in electricity trading strategies driven by market dynamics, regulatory shifts, and evolving technologies. Key trends include:
- Increased price volatility due to higher wind and solar penetration
- Lower capture prices for renewables, pressuring gas plant profitability and reshaping market incentives.
- More complex bidding strategies. Traders will need to optimize across multiple markets including day-ahead trading, voluntary aFRR bids, intraday adjustments, and imbalance markets to maximize revenues and hedge against volatility.
- BESS deployment at solar and wind sites becoming a necessity for profitability.
- Blind power markets emerging as a new revenue stream (e.g., GOPACS for industrial sites)
Conclusion
Building upon Jan Willem Zwang's expert insights, it's clear that the Dutch electricity market is in a period of dynamic change. The intricate interplay of wholesale, balancing, and congestion markets, coupled with the growing influence of renewable energy sources, presents a complex landscape for all stakeholders. Price volatility, driven by factors like gas prices, emission allowances, and weather conditions, necessitates innovative solutions like energy storage, particularly BESS, for short-term stabilization. As grid congestion challenges persist, the strategic deployment of energy storage becomes crucial for optimizing power flow and enabling greater market participation. Moreover, upcoming regulatory shifts and the increasing integration of European energy markets will require traders and businesses to adopt more sophisticated and adaptable strategies. The evolving energy landscape demands a keen awareness of market dynamics, technological advancements, and policy changes. Therefore, proactive engagement, like participation in events such as the Solarplaza Summit Energy Storage The Netherlands, is essential for navigating these complexities and capitalizing on emerging opportunities in the Dutch electricity market.
