Report by the Board of Management

Major changes

Dutch consumers and producers benefit from the internationalisation of the electricity grid, as does the economy as a whole. Internationalisation ensures a stronger market and greater security of supply. The NorNed cable between the Netherlands and Norway, an initiative of TenneT and the Norwegian TSO Statnett, went into service in May 2008. This submarine electricity cable, the world's longest, produced turnover of EUR 110 million in 2008 alone. So the return on the investment to date has been higher than estimated and it appears likely that the investment will be earned back quickly. Security of supply has increased for Norway and the Netherlands and spot market prices appear to be more stable and exhibit less pronounced peaks. The cable exerts an abating effect, notably at times of highly fluctuating energy prices as in the past six months. Moreover, NorNed has contributed positively to the reduction of CO2 emissions. For more than 80% of the time electricity was generated using hydropower imported from Norway.

The European electricity market will integrate further in the coming years. Market integration ensures efficient trading. That is why TenneT committed to market coupling with France and Belgium as a first step. This Trilateral Market Coupling (TLC) began in 2006, with cooperation between the energy exchanges APX, Belpex and Powernext and the national grid administrators Elia (Belgium), RTE (France) and TenneT. This coupling will improve international spot trading, thus enhancing the resilience of each individual market, making it possible to absorb and reduce local price fluctuations in the short term. Thanks to these efforts the electricity prices in 2008 in the Netherlands, Belgium and France were the same 70% of the time. There has also been a drastic narrowing of the electricity price differential between the Netherlands and Germany.

In the meantime additional steps have been taken towards the further integration of the electricity market in this region, known as the Central Western European (CWE) Electricity Market, in line with European objectives. The common auctioning of yearly and monthly capacity at the borders between France, Belgium, the Netherlands and Germany was started at year-end 2008 by CASC-CWE (Capacity Allocation Service Company for the Central Western European Electricity Market), an enterprise jointly owned by the TSOs concerned.

The Netherlands is developing from an importer to an exporter of electricity. The pace of development will depend on how fast the plans announced for new power stations on the Dutch coast can be carried out. For producers the Netherlands is an attractive location for generating electricity for the European market. This is due to the excellent possibilities for shipping in fuels, the presence of cooling water and the quality of the transmission grid. Local generation capacity has also increased substantially and has the potential to continue doing so in the coming years. The realisation of new production units contributes to the further security of supply and the development of the Dutch economy. In the coming years TenneT will connect these producers to the national grid. The most recent Security of Supply Monitoring Report shows that the Netherlands may assume an exporting role in 2009, partly because of the sharp increase of production in our country. At a number of times in 2008 the Netherlands was already performing this export role during peak hours. This shows that the north-west European market is continuing to develop.

The government continues to pursue sustainability, among other things through the construction of wind farms in the North Sea. The Cabinet intends to increase offshore wind capacity to 6000 megawatts (MW) by 2020. TenneT wants to connect these offshore wind farms efficiently to the transmission grid. This is also the wish of the Lower House of Parliament, as laid down in a motion in 2008. This widely supported motion will be embedded in legislation in 2009.

To promote market forces TenneT will continue to invest in connections with other countries if the social cost-benefit analysis produces a positive outcome. In 2009 we expect to learn the outcomes of feasibility studies into a second NorNed connection and a proposed submarine electricity cable connecting the Netherlands to Denmark - a country with a large wind energy capacity. We will also step up cooperation with German TSOs. The large German electricity market has always been important to the Netherlands and the German energy companies are going to hive off their network divisions after years of discussion with the European Commission. We consider independent grid management to be pivotal to market integration, as has been borne out convincingly by developments in the Netherlands.

These developments in Germany open up prospects for further cooperation with German TSOs, enabling the strengthening of grids and markets both in the Netherlands and in Germany. Together with RWE Transportnetz Strom, TenneT is studying the effects of a fourth connection with the German market by means of a high-voltage connection between Doetinchem in the Netherlands and Wesel in Germany. E.ON Netz is upgrading the connection between Meeden and the German grid in Diele. Cooperation has also been established in the field of security and monitoring: in 2008 TenneT and RWE Transportnetz Strom set up a joint security centre. The objective is to use joint security calculations to limit the risk of overloading the grid on each side of the border. This marks the beginning of cooperation with German TSOs in more fields. In 2008 twelve TSOs agreed to set up a joint IT platform on which grid security will play a central role. What's more, an intraday platform became operational in 2008, with the aim of using the residual capacity still available on interconnectors for daily trading between the Netherlands and Germany.