Scope Ratings says 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). The TSOs will try to recoup costs through increased tariffs while, in the meantime, more “green financing” is likely to come to market.

The ramp-up in spending is 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% and as much as 64% of Germany power generation in September 2019 - can strain the overall network, hence billions of euros of extra spending that TSOs face in the years ahead to ensure grid stability and the integration of renewable energy sources (See Scope’s 5 March 2019 research report: Germany’s grid operators face growing multibillion-euro green-energy investment challenge).

“The side-effects of Europe’s energy transition becoming more and more obvious, begging the question: who is paying the bill?” says Sebastian Zank, analyst at Scope.

Zank highlights key recent developments:

“In the end it will be the end customer who have to pay the bill as investments will be converted into increased grid tariffs,” says Zank.

The capex surge has profound consequences for TSOs owners and creditors. 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,” says Zank.

In the meantime, the TSOs wooing investors this year with “green bonds,” whose proceeds are earmarked for grid-related transition investment, include TenneT (EUR 1.25bn in May, EUR 500m in January), Terna (EUR 500m in April, EUR 250m in January) and Dutch utility Alliander (EUR 300m in June).