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How is HKN’s electricity sold on short-term markets?

On June 19, the first green electricity from the Hollandse Kust Noord (HKN) wind park flowed into the Dutch power grid. With the commissioning of the first turbines, Eneco and Shell started trading their share of green power on the electricity markets. As a 100% Shell-owned company, Next Kraftwerke's task is to trade part of the electricity production on the short-term power markets – the so-called day-head and intraday market.

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Elias De Keyser, energy and flexibility expert at Next Kraftwerke

We had a chance to talk to Elias De Keyser, energy and flexibility expert at Next Kraftwerke and closely involved in the HKN project. In this interview, he tells us more about how the complex power markets work and why they are important for the HKN wind park.

How does trading at the power exchanges work and what is the role of the day-ahead and intraday market?

For many people, the functioning of electricity markets is a mystery but at its core, it is not too different from how other commodities are traded between sellers and buyers, whether coffee beans, French wine, bread or mobile phones. If demand for a commodity is high at moments when supply is scarce, prices will be high. When supply is plentiful and demand is limited, prices fall.

However, an important difference between coffee beans and electricity: the latter cannot yet be easily stored on a large scale. Therefore, an ingenious system of consecutive electricity markets has been set up to ensure that buyers and sellers of electricity can find each other so that sufficient power will be produced exactly at the moments it is needed.

Because it is difficult to predict the production of an offshore wind park far in advance, the most relevant power markets for trading the power output of HKN are the so-called day-ahead market and the intraday market. They allow electricity traders such as Next Kraftwerke to buy and sell power from noon the day before up to 15 minutes leading up to the moment of production. The intraday market is especially important for a wind park since weather conditions can change rapidly and in unforeseen ways. When we get a picture of our weather forecasts and find, that we sold too much or too little in the day-ahead market, we can correct this in the intraday market.

Electricity trading is not only important from an economic perspective, but also for the safety of the electricity grid. If supply and demand are not in balance, the resulting grid imbalance can, in a worst case scenario, lead to a blackout. A well-functioning electricity market is therefore essential for a safe and reliable grid.

Is it normal that there are discrepancies between the predicted and actual amount of electricity?

Yes, absolutely. I think everyone has experienced inaccurate weather forecasts. Predicting wind speed and direction is particularly hard and conditions can change quickly. As a result, the power production of a wind park can rise or fall rapidly and deviate quite a bit from forecasts we made a couple of hours earlier. However, intraday trading gives us a possibility to smooth out imbalances that may occur. To trade power produced from HKN, we work closely with the Shell forecasting team. They have several years of experience with offshore wind projects in the Netherlands and provide us with good forecasts that are close to the real electricity injection.

Next Kraftwerke is also the Balance Responsible Party in the cooperation. Can you explain what this role entails?

This is where we get into the weeds of the electricity market design. The operator of the Dutch transmission grid, TenneT, is ultimately responsible for the balance between supply and demand in the grid, but it delegates some of this responsibility to market parties called Balance Responsible Parties (BRPs). Each grid connection in the Netherlands is allocated to such a BRP, which is responsible for buying or selling the necessary amount for consumption or production on a 15-minute basis. If all Balance Responsible Parties do a good job, the Dutch grid is balanced.

Next Kraftwerke is the BRP for the HKN wind park and must therefore make sure that all energy generated by the park is sold in the electricity markets. As BRP, it is also our job to send production forecasts directly to TenneT. These forecasts are also known as transport programmes and are stipulated in the European GLDPM rules (Generation and Load Data Provision Methodology). TenneT uses this information to simulate the flow of electricity in the grid in advance to make sure the grid can operate in a safe manner.

We read a lot about negative power prices and congestion in the Dutch electricity grid in the news. Does that impact HKN?

We have seen more negative prices in the Dutch electricity markets lately. It is due to a combination of factors. Renewable energy generation from such wind and solar projects has risen rapidly in recent years. Unlike gas fired power plants, generation is dependent on weather conditions. Other entities in the market cannot yet deal so well with this new situation. For instance, thermal power plants are not always able to reduce their power output when there is plenty of solar or wind power to cover the demand for electricity. At the same time, the consumption of electricity is still rather inflexible at the moment. This leads to moments where the production is far in excess of demand, resulting in negative prices. It is not ideal, but as a short-term solution, we can switch off renewable power plants like HKN to avoid grid instabilities. In the long term, we need to aim for a combination of energy storage, demand response and expanding grid infrastructure nationally and internationally to resolve the mismatch.

Are there any other tasks or roles Next Kraftwerke fulfills for HKN?

Yes, as soon as the wind park has been fully commissioned later this year, we will offer balancing services to TenneT. In this way, we support the grid operator at times of unforeseen imbalances in the Dutch electricity grid. TenneT can then ask us to temporarily reduce the power output of HKN to level out imbalances in the grid and thus ensure a stable grid frequency. In doing so, the HKN wind park not only contributes to meeting the Dutch targets for the decarbonisation of electricity production, but also to TenneT’s excellent reputation for grid reliability.

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