Pondera organises an annual New Year's event with its clients and relationships. At this event, Laetitia Ouillet shared her light on the complexity of the energy market we are experiencing and the lessons we can bring to 2025. This article looks back at her inspiring views and the challenges and opportunities ahead.

It seems that little has changed in the energy market for years, with well-known promises such as the shift from central to decentralised, the consumer as prosumer an industry that deploys sustainable molecules. Although these themes were discussed as early as the 2000s, it appears that they have had little effect so far. Nevertheless, there have been shifts that have taken place that have changed the foundation of the energy market. The invasion of Ukraine in 2022 brought geopolitical uncertainty, with questions about dependence on China, the safety of offshore wind farms and the role of nuclear power. At the same time, society is struggling with the choice between accelerating the energy transition or sticking to well-established models such as coal and gas power plants. What do we take into 2025? 

Global growth of PV

Working on the development of wind farms can sometimes be discouraging. For example, when you hear that a development cannot proceed because motorists might get distracted by wind turbines, but not by the big billboards with lingerie or offers for hamburgers that are currently there. In that case, it sometimes seems that some people are working to slow down the energy transition. Yet the targets for renewable electricity are big: the Dutch Planbureau voor de Leefomgeving (PBL), in its Klimaat- en Energieverkenning (KEV) 2022, expects growth to 85% renewable electricity in 2030, up from 74% in 2021.
The onshore transmission capacity remains a constraint and for solar, 1 to 2 GW growth is expected by 2024. Globally, PV may grow by more than 600 GW, and hopefully we even underestimate the increase again, as we have done for decades.

Due to concerns about net-metering and grids, grid operators expect declining growth, but new business cases offer new opportunities. While the number of solar farms is declining, this is a fine development in a country with scarce available space and challenges to put it to good use. In addition, the falling prices of PV panels offer more households and building owners the opportunity to invest.

Batteries are getting cheaper

Large-scale batteries, including those at solar farms, are growing rapidly and helping to balance the energy system. Whether the large-scale deployment of EVs as batteries will actually generate business cases remains to be seen. Grid operators are currently sceptical about this.

The expectation is that by 2033 around 3 million electric cars with a battery capacity of more than 200 GWh will be driving in the Netherlands. If 10% of these are connected to a 10 kW charging station (a conservative estimate), this will provide 30 GW of additional capacity in terms of capacity and flexibility. This potential is much larger than the large-scale batteries and home batteries we know today. Getting the technology right remains important, but creates interesting opportunities.

Merit-order model needs revision

With the explosive growth of gas prices during the 2022 crisis, the merit-order suddenly came into the spotlight. How was it that in a market with increasing wind and solar power, prices still remained high? In the classic merit-order model, the most expensive generation plant determines the electricity price. This worked well in a world dominated by nuclear, coal, gas, and occasional solar and wind. Demand was predictable and so was supply.

In today's world, with 85% renewable electricity soon in the mix, supply is determined by wind, solar, nuclear and (hydrogen) gas plants. Wind or solar supply can exceed demand up to five times or be completely absent at any given time. Regular demand remains predictable, but additional demand from electrolysis or other flexibility options can vary depending on supply. In other words, the merit order needs revision.

Weak financial perspective

Unfortunately, the current energy market is not leading to the necessary investments. Who still invests in a solar or wind farm that yields nothing most hours of the year? And who will keep a gas plant running for the few hundred hours when it does pay off, especially if it bids at marginal cost? The problem lies not in failure, but in the fact that the current system does not attract enough investment.

And if we look at the industry: Does the huge amount of wind and solar power during zero or negative hours translate into affordable supply? The answer is no. Over the past 20 years, the industry has seen commodity prices double, while grid costs have increased 10 times. The price paid by the industry has increased from less than €2 MWh (due to the volume correction scheme) to more than €20 MWh, with further increases towards 2030. In addition, the flexibilisation of their electricity demand to take advantage of the regularly low EPEX prices is yet to materialise. Speculating on the electricity market is not what the industry is focusing on. The fact that the industry in Europe pays 158% more for electricity than its competitors in China or the US raises concerns about its competitiveness in the global market.
The industry is lagging behind
Every day we hear calls about decreased competitiveness and the threat of leaving for abroad. Green hydrogen projects are being scaled back, offshore tenders are yielding fewer and fewer bids, e-boilers are not (yet) profitable, and battery projects are shying away from grid tariffs.

If the market worked, the industry would quickly become more flexible, but that is not happening. Unfortunately, the Emission Trading System and social pressure are not yet proving sufficient. We need to tempt industry to invest in a clean future. All those beautiful green jobs we as Europeans should simply grant ourselves. If only to build our economic independence instead of putting our fate in the hands of China and the US.

Where are the opportunities? 

There are many opportunities in the challenges that we face in the energy system. We must manage to make industry more sustainable, because that is where the key to a stable market for our produced electrons lies. All the research into the motivation of Dutch people shows that they are willing to change as long as the biggest polluters also contribute. And they want to, but it is not their core business and they will need support.

Support that we at Pondera, as specialists in energy transition, can provide by working together with developers, initiators and the industry to realise projects that take energy transition forward with an integrated view. It's time to focus on that in 2025.