Free market system electricity & gas

Positions free market system

Position free market system

Energie-Nederland is in favor of a free, reliable market system with adequate supervision. This would enable the various energy companies to contribute to a sustainable, reliable and affordable energy system for Dutch society. In this, energy companies could be both privately and publicly owned.

A free energy market has brought three main benefits:

As customers, each household and each company can choose between the different energy providers. This does not include district heating, as customers are dependent on nearby suppliers. Heat is linked to a local (generation) source.
Energy companies consistently invest in innovation and enhanced sustainability of the energy system. This applies to both the short term and long term.
The knowledge and expertise of competing energy companies makes the energy transition more efficient and more rapidly achievable. Energy is also less expensive because of cost awareness resulting from competition between market participants. In the heat market, there is competition for the construction of district heating systems, but not on the network itself.

The main advantage of the free energy market is that customers can choose where they want to buy their energy or which energy carrier they want to use. Energy companies are continuously developing their specialized knowledge and innovation capacity. They do this to be able to provide in the best possible, affordable and sustainable way. The mutual competition and the cost awareness of energy companies makes our energy companies more efficient. As such, prices can be kept as low as possible. In addition, more and faster investment can find its way to new sustainable forms of energy. This is done in collaboration with government and the regulatory body. This, too, aligns with a free Dutch energy market.

Position Market processes

Energie-Nederland advocates for market processes in which financial risks are borne by market participants who are able to limit said risks. In other words, Energie-Nederland is a proponent of market processes which interfere as little as possible with the market system. This can be achieved by giving accurate and real-time incentives to the relevant market participants, for example through smart meter data management.

Position Revision of the EU electricity Market Design

At the initiative of the European Commission, the design of the European electricity market is being reformed. It is positive that no extreme interventions in the electricity market are proposed. Market forces ensure free price formation, this being the best basis for lower energy prices for the consumer. Energie-Nederland supports the proposals for better supervision of suppliers. We do reject the obligation to have to offer fixed-price contracts. Especially if no proper cancellation fee applies.

The levy on infra-marginal revenues from renewable energy will not be structural. This previously was the case. Energie-Nederland opposed the introduction of such a levy. This limits investments in renewable energy, among other things, while these are so very necessary for the energy and climate transition.

The European Commission has proposed that member states be given the space to stimulate investments in sustainable production and in flexibility. This is positive. It does raise the question of whether the so-called Contract for Difference (CfD)* is needed as the only instrument to encourage renewable energy.

Further, Energie-Nederland does not want national targets for flexibility from demand response and storage. Such target underestimate the extent to which flexibility can also be provided through production. Flexibility is not a goal in itself. However, any barriers to the provision of flexibility should be removed.

The EU proposals could lead to unnecessary legislation. For example, it is not desirable to introduce a peak shaving product that can be utilized by the national grid operator. The market already absorbs demand peaks during the day.

It is also unnecessary to introduce so-called virtual trading hubs. The EU is now investigating whether to adjust the current bidding zone classification. First, this research must be conducted on the basis of a sound methodology.

*A CFD (Contract For Difference) is a financial product that allows one to profit from a rise or fall in the price of an underlying product. It is a contract between buyer and seller. In this case, it involves a contract between producer and the state, whereby the state pays the producer when market prices are low and the producer pays when market prices are high.

Position Market interventions

1. Market interventions
Energie-Nederland is in favor of a free, reliable market system with adequate supervision. This would enable the various energy companies to contribute to a sustainable, reliable and affordable energy system for Dutch society. In this, energy companies could be both privately and publicly owned.

Partly due to the recent energy crisis, both national and European policymakers intervened in the market, with such measures as the introduction of a price cap in the Netherlands in 2023, the decision to purchase gas at European level and the introduction of an infra-marginal levy.

1.1 EU gas market price cap
Like the Dutch government, Energie-Nederland has always opposed a price cap in the international wholesale market for gas. It does not resolve the cause of the problem; after all, scarcity leads to a high price. The EU’s decision to implement a price cap is worrying and counter-productive.

A price cap removes the incentive to save energy. And suppliers could choose to supply the gas elsewhere in the world at a higher price. So physical scarcity could occur, which is possibly even more damaging than a high price.

Supply must be increased and demand must be decreased. This would bring balance back to the market. This means, among other things, that it should be appealing for gas flows that were already en route to other destinations to choose the European option. The price cap increases the risk that LNG tankers will avoid Europe.

1.2 Joint Gas Purchasing
The rationale for buying gas jointly is questionable. Energie-Nederland believes it is logical that the gas price is exceptionally high. After all – suddenly – virtually no gas is being supplied in the EU by its largest supplier: Russia. Chances are that joint procurement will be counterproductive and eventually lead to higher costs. Indeed, the current high gas prices are the result of scarcity. This is not resolved through joint procurement of gas.

1.3 Inframarginal Revenue Cap
Energie-Nederland supports the notion that the government compensates vulnerable groups and industry for the high energy prices. However, we feel it is a bad choice to fund the compensation with an infra-marginal electricity levy; a new and complex tax measure. This could be done better and more fairly through existing tax instruments.

Moreover, the infra-marginal levy is counterproductive. It curtails the financial leeway to be able to invest in renewable energy such as solar and wind. While the smooth expansion of renewable energy is precisely what reduces the impact of high gas prices on energy bills as quickly as possible.

This levy must be implemented correctly in law. This means, for instance, that only actual market revenues should be taxed, that the use of generation resources should be disrupted as little as possible, and that the scheme should be as simple and unambiguous as possible. In particular, the way producers that are part of an integrated energy company are going to be taxed will backfire. Energie-Nederland believes that producers should be given the opportunity to determine their market revenues based on their internal transactions. Legislation and regulations contain sufficient principles and provisions to ensure that such transactions are market-based.

Sustainable energy system

Energy market

End consumers