Transmission grid operators face billions of Euros of extra spending in the years ahead to ensure grid stability and the integration of renewable energy sources.
The cost of Europe’s shift to cleaner power from fossil-fuelled electricity generation is mounting fast for the companies responsible for transmitting power to customers, new evidence suggests.
According to German-based rating agency, Scope Ratings, the Dutch government’s willingness to consider a full or partial sale of grid operator TenneT shows how rising capital expenditure programmes are testing the finances of privately held and state-owned transmission grid operators (TSOs).
This is one several recent announcements of increased capital spending. The TSOs will try to recoup costs through increased tariffs while, in the meantime, more “green financing” is likely to come to market, notes Scope Ratings.
The ramp-up in spending is, reportedly, a consequence of the daily intermittency of solar and wind power on which Europe is increasingly reliant. Such variability – renewables provided as little as 31 per cent and as much as 64 per cent of Germany power generation in September 2019 – can strain the overall network.
“In the end, it will be the end customer who will have to pay the bill as investments will be converted into increased grid tariffs”
Scope said TSOs face billions of euros of extra spending in the years ahead to ensure grid stability and the integration of renewable energy sources.
Among the key recent developments highlighted by Scope are:
“The side-effects of Europe’s energy transition are becoming more and more obvious, begging the question: who is paying the bill?” said Sebastian Zank, analyst at Scope.
“In the end, it will be the end customer who will have to pay the bill as investments will be converted into increased grid tariffs.”
The capex surge has profound consequences for TSOs owners and creditors, warns Scope. Most TSOs in Europe, apart from Germany and the UK, are still in the hands of sovereign and sub-sovereign shareholders which have benefited from their reliable dividends.
TSOs now face a more delicate arbitrage between returning cash and investing more in their networks.
Privatisation, such as the Dutch government might consider for TenneT, can also have rating implications as most regulated grid operators benefit from rating-supportive state shareholders which helps lower their cost of capital,” added Zank.
In the meantime, the TSOs wooing investors this year with “green bonds”, whose proceeds are earmarked for grid-related transition investment, include: TenneT (€1.25bn in May, €500m in January); Terna (€500m in April, €250m in January); and Dutch utility Alliander (€300m in June).
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