The Hydrogen backbone

This week’s pod discusses plans for a hydrogen backbone in the Netherlands, including proposals for a trading exchange for the potentially green fuel. We also talk about why November has been a key month historically for power market coupling. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guest: 

• Bert den Ouden, Managing Director for Energy, Berenschot. 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:29

Hello listeners and welcome to the Montel Weekly Podcast, bring You Energy Matters in an informal setting. Today's pod is a bit of a mixed bag. We will look back in time before discussing current market developments and then move on to a glimpse into the future. Today's guest is a pioneer of European wholesale energy markets. He played a key role in the integration of the continent's electricity markets, driving on market coupling and cross-border trading. He was at the helm of Amsterdam based APX, seeing the company through a series of acquisitions in the UK and the Benelux region, and he still has very ambitious plans to help with the decarbonization of Europe. So joining me, Richard Sverrisson today is Bert den Ouden a warm welcome to you, Bert.

Bert den Ouden, Managing Director for Energy, Berenschot: 1:15

Thank you for having me. Richard,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:17

I know you are a consultant now at Berenschot, but I think before we talk about your current role and what you're up to at the moment, I hope you don't mind me dwelling a little bit on the past.

Bert den Ouden, Managing Director for Energy, Berenschot: 1:25

Please do. Please do.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:27

How in your view have markets developed over the past 10, 15 years? I'm talking about. Wholesale electricity and gas markets in particular.

Bert den Ouden, Managing Director for Energy, Berenschot: 1:34

I have, of course, like you mentioned, the experience by curating those markets of being helpful in creating them in the past. Interesting is that is now the month of November, next Monday on the 9th of November. It is 20 years since the CWE market coupling start. And a SP predecessor started in 2006 or 14 years ago on the 25th of November. So the November is an important month when it comes to the history of the European electricity market integration. And I can say that when that has gone very well indeed, I think more countries have joined that market. Of course, we've. A market coupling in CWE, which has been involved and the ever tighter coupling of all the regions and more and more countries coming to the system. So I think now the whole majority is now a single market, albeit it is a single part-time, which is then it has one price and it has for other moments is as different prices, but it gets as close as it can be. That's really a big success story and I think it deserves more attention, this achievement, which so many people have worked very hard on from the TSOs and from the exchanges, and still do to this day. And I found out when I was in touch with the Apex spot lately that this market is now operated. Online from people's homes, the employees of the exchange in this COVID-19 time are operating at all remotely at that desk at home. This is incredible. A European. Coupling market spanning from Finland to Iberia and Italy and everything is operated on a decentralized manner from people's homes when it is needed. It's a remarkable achievement.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:37

You wouldn't have thought that would've been possible 14, 15 years ago then, Beth, that that would've been our direction of travel or the endpoint.

Bert den Ouden, Managing Director for Energy, Berenschot: 3:44

I thought that the market coupling was possible and I believed in it and I realized big parts of it. To see it realized now in such a manner with this achievement of the ICT, it's really quite something. But coming back to the market coupling, it deserves more attention. I would say that. November could be a RIS and as the market coupling month of Europe to herald all the achievements and see the new things coming. I learned that of course the CW market coupling flow-based market coupling has been upgraded lately. So that's another step forward.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:21

It's no coincidence that we choose November to speak to you, but yeah, it was all part of the plan. It's all part of the plan. Okay. But for you personally, but what are you most proud of spanning back these last sort of 15, 20 years?

Bert den Ouden, Managing Director for Energy, Berenschot: 4:34

I really would mention two things. Three things. First of all, when I was running a PX sand index, it was really the market coupling, the CU first of trilateral and later. CW in the flow based market coupling. Those were the heydays of the plan, the big plan to turn once a monopoly run commodity into a real market based thing with all the benefits, because I thought early around the turn of the century and 2001 and 2002. It were national markets, but they did not have the full benefits of the liberalization. It was only after we connected them through the market coupling that you get to the full benefits of the whole thing. So the full potential of the liberalization ill electricity was only a realized after the market coupling. I think second thing is I think the TTF market the guys market, TTF by now. I did a lot of things to create it, an important hub in gas trading. After I left, it grew further and further Until now, it's become the main market in Europe and one of the key indicators worldwide of natural gas trading. I think that has been an incredible adventure too, leading index for all of the guest prices in Europe. The third came afterwards at consultancy, did realize that gas and electricity are both needed or renewable gas and renewable electricity. We did that when we did scenarios. First we did s and molecules to see how both can be added to each other to get the sound and sheep path to the energy transition. And lately we did also. Carbon neutral scenarios for the Netherlands in 2050. So three achievements all connected to together.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:31

Knowing what you know now, is there anything you would've done differently? Ah,

Bert den Ouden, Managing Director for Energy, Berenschot: 6:37

I hadn't thought of that question before. Which means it doesn't come naturally to, to me that I should have done things differently.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:46

That's fair enough. Bet if you're very happy with the way decision.

Bert den Ouden, Managing Director for Energy, Berenschot: 6:48

I can't, not with anything really.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:50

So you're very happy with the way things have done and all the decisions you took.

Bert den Ouden, Managing Director for Energy, Berenschot: 6:53

That's absolutely. I was very happy. I think for the market. For the market and for many people in the market, there was a lot of fulfillment. And a lot of promises that were kept.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:06

We'll talk a little bit about decarbonization and some of the scenarios that you outlined earlier, but I'd like to first of all talk about the landscape in Europe. There have been some changes within exchange. There's been some consolidation, some growth. I remember interviewing you 15 years ago, Bert, and you were talk, we were talking about competition versus cooperation. What do you think is the role of exchanges at the moment? Do you think they, they're suited to, to compete or should they cooperate more or is there a combination of the two?

Bert den Ouden, Managing Director for Energy, Berenschot: 7:34

It's been quite extraordinary at the achievement that they are able to do both at the same time. It was needed for the market coupling. Absolutely. And in my time there was also some competition of sorts. Now they compete more. At the same time they cooperate for the sake of this market integration. I think I was explaining to the people in other parts of the world and I couldn't understand it, and I said this is Europe. This is how we work. We compete for the sake of the optimization, and we work together for the sake of the optimization. Because there are two times of optimization, the optimization of the market and the optimization of the system, and that's what market coupling does.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:19

But is there a danger, for example, in the spot markets that you might split liquidity that's already quite precarious in some areas? By forcing too much competition here,

Bert den Ouden, Managing Director for Energy, Berenschot: 8:29

I don't think that there is a threat caused by the competition between exchanges because it's all happening within this virtual hub system, which is all the, so while the risk competition between exchanges, the liquidity is bundled at the same time. That is how the system is working, and we got the first experience with that in the uk. And then it was transferred to other countries. So really we have the best of both wills or you can have your cake and eat it too.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:00

Perfect. Exactly. What more do you want? If we're talking as well, there's been a lot of discussion in recent months and years about, changing the bidding zones within Europe. What's your view here? But should you split large zones or, is that, I know it's very politically, very difficult.

Bert den Ouden, Managing Director for Energy, Berenschot: 9:15

Politically it's very difficult, but like you very often see after a while the technical economical reality sets in the, it's been a very difficult discussion in a Nordic before they split Sweden into different price zones. I think it's a very difficult discussion here in Central Europe. It was happening in my time already. I think it is advantage is to create some splitting of zones. At the same time maintaining a big enough price areas. I think it would be advantageous to look into that. I think if you don't do it, then the stress will continue to build up. And the stress by, I mean keeping the large bidding zones together and trying to hold it together by re-dispatch and all the costs with that, with all the regional imbalances that are there. That will continue. I think the energy transition will put more and more strain to the system.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 10:19

Are you a fan of nodal pricing instead of bidding zones?

Bert den Ouden, Managing Director for Energy, Berenschot: 10:22

I'm not a fan of anything. Noble pricing is known around the world. It's a fair system. It's a mandatory system. Everything has to go through the pool. In Europe, we have done a different road, which is in some aspect more liberal. Than the, for instance, the nodal system, which is happening in the United States in a way, the pool system the Nole pool system, but any pool system is more centralistic and the rules of the pool determine a lot about a pricing. The advantages of having a zal system, any zal system, also with more pricing zones, but it stays the same and the exchanges can handle it. And the TSOs. Is that you have a system which is not governed by pricing rules of the exchange. But which is counterbalanced and challenged by the bilateral market. It's is perhaps strange to hear me say a thing like that. I was also, but when I broke it, the the market coupling deal that was really done between me as the chairman of Europe, X of the exchanges and EFA to Federation of Traders, and I promised them one thing. Don't, I will not go for a monetary market. I will go for a market coupling, which takes part of the cross border trade, but at the same time, there will be the bilateral trade, and that was a deal which got me and the TSOs into the Florence Forum and that we got in the trans forum 2004. We got a majority and we got an understanding. And I want to keep that deal. I think it's good.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:10

Was there any resistance to that deal then within the Florence Forum?

Bert den Ouden, Managing Director for Energy, Berenschot: 12:14

At that time? The resistance was coming from, yeah, large industries at that time, Germany. Therefore, it was difficult, but we had an understanding with the French and the Belgians. So then we created the trilateral market coupling in 2006, 25th of November. I can send you the graph. It was a raving success. The price differences overnight between France and the Netherlands, 10 euros per megawatt hour difference. The price difference went to zero overnight, not by building new power lines, not by creating new exchanges, not by the consolidation of the exchanges, but just creating a smarter system. It was wonderful.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:01

Yeah, absolutely. I remember those days very clearly. But even though it's fading a bit, but if we can stick with the cross-border side of things, policy makers have made a, the 70% target that TSO should make available 70% of capacity for cross-border trade in mandatory. What's your view here?

Bert den Ouden, Managing Director for Energy, Berenschot: 13:17

I think it is a difficulty because some countries are very well interconnected and some countries are poorly interconnected. For a country like Iberia, for instance, this 70% doesn't mean a lot for the market inside that country. For a country like Belgium and the Netherlands, we have a large percentage of interconnection compared to the national volume, it's different. So I've not been following that lately, but I think they should be implemented with some understanding. That those countries have different positions. In fact, the smaller the country, the more the impact of the rule because then you have less national volume. And you have more interconnector volume on the average.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:10

Absolutely. I think we should move on and talk a little bit about what or talk a lot about what you're doing now, Bert. Can you tell us a little bit about your current position and what you are working on?

Bert den Ouden, Managing Director for Energy, Berenschot: 14:19

After I left a PX index, I was asked by a very very well established. Long lived consultancy, be suit consultancy to build up an energy team and really an energy transition team going for the energy transition. And at the moment, over 25 people are working on the energy transition at Be suit consult. So it's been really a very good experience and we've been done many things on scenarios, like I mentioned. Making scenarios that give food for thought of how to make an energy transition in an economical way. We did lots of other things on electrification, on flexibility. Really in electricity because there, my market background is useful. Of course we did a very lot on hydrogen because that was that was key and we were one of the first who started with it.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:12

You mentioned the 2050 goals, but if we can skip the 2030 goals now being discussed in Brussels. Yeah. To move to 60% potentially. 55, but mainly 60% cut in reduction by emissions by 2030. What does that mean for wholesale electricity and gas markets?

Bert den Ouden, Managing Director for Energy, Berenschot: 15:29

Are we talking 2030 now?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:31

2030? Yeah.

Bert den Ouden, Managing Director for Energy, Berenschot: 15:32

It means 2030 by all means is still in character. It is a lot of additional renewables in an otherwise still fossil fuel driven system. So the basic parameters of the system do not change because the security of supply backbone is still there in 2030. You will see some effects of the electrification kicking in, and sometimes there will be a danger for shortages because of electrical heat pumps. Entering the scene and creating more demand in cold winter periods, that is often underestimated. You will see, of course, overproduction of renewables and you see that already and it'll continue to build up, but by and large, so you see more volatility in the system short term and long term.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:32

Absolutely. You mentioned hydrogen, but we've talked about your massive experience in exchanges energy exchanges, and I know there are some plans for a hydrogen exchange. Could you talk a little bit about that?

Bert den Ouden, Managing Director for Energy, Berenschot: 16:44

Yeah. This is really an interesting thing because I've been asked after an initiative study, free feasibility study, which was commissioned by the Dutch government or myself. And we offered that to the Dutch Minister of Economic Affairs and Climate a month ago, and it was also sent to Parliament. And at the end of that project, we really thought we should make a next step. This is an important opportunity we have in the Netherlands and beyond because we have important harbors, we have an important gas infrastructure that can be partly converted to hydrogen. We have very good connections to other countries and we have lots of plans, especially in the harbor and industrial regions. So then GNI and for Dutch Harbors when came together with me and said, let's make a next step and do what we call a definition study about a hydrogen exchange, which is about how can it be built up. And it's really different, Richard, from anything else I have done before because you could say, ah, au and have founded in electricity exchanges and gas exchanges in different countries, acquired them and be acquired and so on is been there. But in one fundamental way, of course this market is still different. Very different. The Dutch minister said to me, he said to me, you have the audacity to launch a plan for an exchange between a demand which is yet to come, and a supply which is yet to be established. That is largely, at least in the liberalization, physically, the demand and the supply was there. It just needed to be liberalized. That wasn't an important step from a regulatory viewpoint, but physically it was all there. The power plants were there the gas supply was there, everything was there. Also, the grid was there and the pipelines were there. We have the audacity that we can think we can build up and change or trading facility parallel to the market, which is it's supposed to service. And that is a challenge. But a challenge. I'm ready to take. I'm very eagerly, I would say.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:08

Absolutely. In terms of setting on an exchange when the commodity doesn't even exist yet, that's quite cons but can you tell us a little bit about, the status and maybe some of the plans? When do you hope it have it up and running? These kind of things?

Bert den Ouden, Managing Director for Energy, Berenschot: 19:20

It was stated in the report called a hydrogen exchange for the climate. Which was submitted to the parliament really at the latest. We know when it would be ready and that would be when the, what we call the hydrogen backbone, which is contemplated, is realized. And that is a hydrogen backbone. And the plans are all there and visible for everyone to see where you convert one part of the Dutch gas pipeline system into hydrogen, and here it really is one of the key ACEs in the Netherlands. Because in many countries, in any given area, you have only one high pressure transportation, line of gas, of natural gas. Here the Netherlands is different. We have pipeline streets in which several high pressure pipelines are running together in parallel, so it is relatively easily to convert only one of them for hydrogen use. And still keep the natural gas intact so we can build the new system parallel to the old system. He here too. You can have your cake and eat it too.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:36

Perfect. And when by when can we have our cake then? About do you think gas? Five years. 10 years.

Bert den Ouden, Managing Director for Energy, Berenschot: 20:40

There's a project there which is called Highway 27.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:45

Okay.

Bert den Ouden, Managing Director for Energy, Berenschot: 20:45

And that tells it all, but we don't want to wait with the exchange till 27. That's why we are also involving also the harbors because they have many plans, eh, we talk about honing and seaports, we talking about Amsterdam. We talking about Rotterdam, of course we're talking about North Seaport, which is ze. So four of them as co-sponsored of this of this project. And each of them together with the industry in those parts have far reaching plans in hydrogen and they're coming online earlier. And so maybe something earlier can be started up in one of, or more, or these harbors or between these harbors we are at the moment trying to find out,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:31

but I hope we don't have to wait five years to have that cake and eat it. In the meantime, I look forward to welcoming you back on the pod at another occasion. And best of luck with this project. Thank you very much for joining.

Bert den Ouden, Managing Director for Energy, Berenschot: 21:43

Thanks for having me, Richard. Once more

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:48

listeners, that's about all from the Monte Weekly podcast this week. You can now follow the podcast on our own Twitter account, the Monte Weekly podcast. Please direct any suggestions, questions, or potential guests. You can send us an email to podcast@montenews.com. And lastly, remember to keep up to date with all that's happening in energy markets. On Montel News, you can subscribe on all the regular podcast sites, but please rate and review us if you can. That helps us to improve. Thank you and goodbye.