TenneT has three core tasks in the Netherlands and Germany, which follow from our appointment as grid operator under the Dutch 'Elektriciteitswet' (E-wet) and the German 'Energiewirtschaftsgesetz' (EnWG).
Our core tasks
TenneT builds and maintains the high voltage grid that is used to transport large quantities of electricity from producers to consumers in the Netherlands and in a large part of Germany. TenneT also builds and maintains the cross-border interconnectors with neighbouring countries. The high voltage grid functions as the ‘highway’ of electricity transmission and connects to the lower voltage grids of regional grid companies and also to certain large industrial users.
TenneT operates the high-voltage electricity system. Because electricity cannot be stored in a direct way, the supply and demand must continuously be kept in balance. TenneT monitors the balance 24/7, 365 days a year.
Facilitating the electricity market
TenneT’s third task is to facilitate a smoothly functioning, liquid and stable electricity market and to support the large-scale transition to renewables.
Building and maintaining our grid
TenneT is responsible for securing the uninterrupted supply of electricity, at an efficient cost, and for providing access to the grid in a non-discriminatory way. To achieve its performance targets, TenneT undertakes significant construction and maintenance projects. The asset management model supports the realisation of these projects.
Decisions on the maintenance of the grid and on the realisation of grid extensions are taken in three steps: (1) long-term grid planning, (2) medium-term grid planning and (3) realisation of the annual investment plans.
Long-term grid planning
Long-term grid planning is about setting key performance indicators (KPIs) for evaluating the performance of the grid, including identifying existing and future grid constraints. Based on this, the long-term plan for construction and maintenance activities is conceived.
In the Netherlands, TenneT published its bi-annual Quality and Capacity document 2013 (Kwaliteits- en capaciteitsdocument 2013, KCD 2013) on 1 December 2013. This document contains our forecasts of the required transport capacity and constraints in the Dutch grid in the coming ten years. The plan was formally submitted to the relevant Dutch regulatory body (Autoriteit Consument & Markt, ACM).
In Germany, the four TSOs prepare scenarios which describe possible developments in the German electricity market in the next ten years. Based on these scenarios, each year a ten-year grid development plan for onshore (Netzentwicklungsplan, NEP) and offshore (Offshore-Netzentwicklungsplan, O-NEP) is prepared and submitted to the relevant German regulatory body (Bundesnetzagentur, BNetzA).
Medium-term grid planning
Based on the long-term grid plans and our key performance indicators, TenneT draws up the Annual Investment Plan (AIP), which has a ten-year horizon. This AIP is the basis for the medium-term plan which forecasts the investments and maintenance expenses in the coming three years. This is a risk-based approach, taking TenneT's seven business values into account: safety; quality of supply; customers; environment; financial result; compliance and reputation. These are applied to ensure the right priorities and focus of the investment plans.
Realisation of the annual investment plans
The maintenance and investment plans are carried out on the basis of detailed project plans which consider efficiency, quality and timing targets, the realisation of which is closely monitored during the year.
The allowed revenue of TenneT’s regulated activities is determined by the regulators in the Netherlands (ACM) and Germany (BNetzA). Regulation is set for a period of three (the Netherlands) and five (Germany) years, including the method of calculating allowed revenue and the key parameters to be used in that calculation. In 2014, the sixth Dutch regulatory period started, which will last until 2016; in Germany the second period of incentive regulation started in 2014 and will last until 2018.
Allowed revenue and tariff income
The allowed regulatory revenue set by the respective regulators comprises the reimbursement of operating expenses (OPEX), a return on invested capital and depreciation expense.
To determine the allowed OPEX, regulators generally distinguish between influenceable and non-influenceable costs.
Influenceable costs are those that can be influenced by TenneT. An example is grid maintenance costs. Reimbursement for influenceable costs is measured against the cost level of an efficient TSO. The regulator uses cost assessments and benchmarks (or similar techniques) to determine such a level.
Non-influenceable costs are dependent on various factors that TenneT has no influence over. Examples are energy and capacity expenses, such as redispatch costs and grid losses. Reimbursement for non-influencable cost is mainly based on historical cost levels. Differences between budgeted and actual costs are typically settled through future tariff adjustments.
Allowed return on capital
TenneT is allowed to earn a return on the capital invested in its regulatory asset base. In the Netherlands, the return rate is based on a weighted average cost of capital (WACC). In Germany, the regulator distinguishes between a rate of return on equity and a separate cost of debt reimbursement.
TenneT is compensated for the depreciation of its investments. The basis for the reimbursement are the capital expenditures deemed efficient by the respective regulator. Benchmarks (or similar techniques) and cost assessments by the respective regulators are used to determine the efficiency level.