TenneT mulls sale to German state as grid capacity continues to drive investment

As the Dutch-German TSO TenneT investigates the sale of its German operations to the Federal government, its annual investments are expected to grow to at least €10 billion ($10.9 billion), spurred by the call for grid expansion.

In 2023, Tennet invested €7.7 billion ($8.4 billion), split between its operating areas in the Netherlands at €2.9 billion ($3.2 billion) and Germany at €4.8 billion ($5.2 billion). According to the TSO in its fiscal results for last year, this represents a sharp increase in investments due to on- and offshore grid expansion.

The TSO is now saying it will continue to increase its annual investments, while also mulling the sale of its German operations to state-owned investment and development bank KfW, on behalf of the state.

According to reportage in the German Handelsblatt, the state sale has been in negotiation between the federal and Dutch governments for months.

The TSO belongs to the Dutch state, although a large part of its grid operations are located in Germany and run by a TenneT-owned subsidiary, also named TenneT. The state negotiations concern the sale of said subsidiary.

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Flailing grid capacity

Although TenneT reports healthy financial results of €1.8 billion ($2 billion) in earnings before income and tax, up 50.2% year-over-year, over the course of 2023 underlying revenues decreased by €600 million ($655 million) to €9.2 billion ($10 billion), driven by a decline in ancillary service costs.

These costs come from lower market prices for costs incurred by TenneT to compensate for grid losses, maintain the energy balance in the grid and pay for alternative electricity routes in case of congested or unavailable grid sections.

In the Netherlands specifically, the power grid has continued to reach capacity, despite record investments from its operators last year. According to Alliander, traffic jams will recur on the Dutch electricity network for at least another 10 years.

In June 2023, the Dutch state provided €1.6 billion ($1.7 billion) to TenneT to cover the funding requirements of its Dutch operations.

Additionally, states TenneT, as there is no certainty of the German sale materialising in the short term, the Dutch state has also provided a bridge loan facility of €25 billion ($27.3 billion) in 2024, safeguarding TenneT’s planned investments in both countries for 2024 and 2025.

According to Handelsblatt, Tennet CFO Arina Freitag promised a sale within the next 12 months.

Said Freitag in a statement: “To achieve a futureproof energy system for a competitive and climate neutral economy halfway through this century, we must sustain investment momentum. Balancing economic efficiency, sustainability and a high level of grid availability expected by our end-customers in the Netherlands and Germany requires a massive grid expansion.

“For TenneT this adds up to an investment programme of as much as €160 billion ($174.8 billion) and requires a consistent energy policy and solution-orientation from all parties involved.”