Netherlands: Status updated on the Dutch Climate Agreement – Focus on the Electricity Sector

• Netherlands

• Energy and infrastructure

11-09-2018

Pursuant to the e-briefing published on 25 July 2018 regarding the status of the Dutch Climate Agreement (“the Agreement”) to be finalised for execution in 2019, this briefing will focus upon the impact that the Agreement’s implementation is envisaged to have on the Dutch electricity sector (if the Agreement remains in its current proposed form).

While the terms of the Agreement have not been finalized as yet and are currently under review by the Dutch Minister of Economic Affairs and Climate Policy (“the Minister”), its draft terms can shed substantial light on the manner in which the Dutch Government wishes to achieve the desired reduction of Netherlands’ carbon dioxide emissions by 49% (from its 1990 levels) by 2030. In achieving this target, the current version of the draft Agreement would see a reduction in the electricity sector by 20.2 megatons of carbon dioxide, being by far the sector (out of the five targeted sectors) with the greatest reduction objective, followed by the industry sector (with a target of 14.3 megatons). It is expected that the Dutch Government will make 300 million euros available annually up to and including 2030 for the achievement of all sectors’ carbon dioxide reduction targets.

The ‘table’ or discussion group for the electricity sector (“the Sector Table”), after consultation with relevant stakeholders and citizens, have suggested the proposals outlined below – which have since been included into the draft Agreement - for the accomplishment of the sector’s desired reduction target.

The three contingent proposals made by the Sector Table

Seeing as the Netherland’s electricity demand for the future is unknown and is also heavily dependent on developments within the industry sector (which, despite also being a targeted sector under the Agreement, would see substantial work being done in regard to the construction of renewable energy plants and the electrification of industry), the Sector Table has proposed a contingent plan for the Agreement involving three potential scenarios of future electricity demand. It is expected that the Netherlands Assessment Agency for the Living Environment (“Planbureau voor de Leefomgeving”) (“Planbureau”) will provide information on the predicted future electricity demand for the Netherlands and other proposals made for the different sectors contained within the draft Agreement by the end of this summer, in order to allow the Sector Table and other sector groups to finalise their strategies and proposals for review by the Dutch government during the course of September 2018. However, pending the receipt of such information, the Sector Table’s contingent proposals for the Agreement are set out below.

1. The 'basic' scenario:

The basic scenario would see an envisaged future electricity demand of 84 Terawatt-hours (“TWh”) for the Netherlands. If this scenario is confirmed by the Planbureau as representing the country's expected future electricity demand for the Netherlands, the Sector Table has then assumed that all of this wattage will be produced by renewable energy by 2030, with 49 TWh thereof being produced by offshore wind and the remaining 35 TWh being produced by onshore renewable sources such as solar energy or onshore wind.

2. The 'basic plus' scenario:

This scenario envisages a greater electricity demand than the basic scenario proposed by the Sector Table and has an associated electricity demand of a 110 TWh, of which all will be procured from either offshore wind or onshore renewables.

3. The 'acceleration' scenario:

This third scenario has an assumed future electricity demand of 120 TWh. This scenario was created by the Sector Table to cater for the possibility that it is possible for the Netherlands to obtain a carbon dioxide reduction of 55% by 2030 (as opposed to the intended 49%), which would see an associated increase of electrification within the industry sector. The Sector Table also envisages that this third scenario will rely upon offshore wind or onshore renewable energy sources to procure the full wattage required to meet the envisaged electricity demand.

Importantly, in respect of all three potential scenarios, the Sector Table also envisages that additional renewable alternatives will be developed (for example, geothermal energy) that will allow for the generation of emission-free electricity, which can then be relied upon to supply 15 – 40 TWh to each scenario, with the concomitant reduction of the country’s need to rely upon either onshore renewables or offshore wind for the generation of electricity.

The Agreement’s focus on renewable energy

As is clear from the Sector Table’s expectation to source all electricity for each of the above scenarios from renewable energy sources, the Sector Table seeks to place considerable emphasis on the country’s shift away from the reliance upon traditional fossil fuels in achieving the electricity sector’s carbon dioxide reduction target. While this will result in considerable development and growth accordingly being seen in the renewable energy sector, it will also see a strong emphasis on the phasing out of coal-fired power plants, which would result in the estimated loss of 2,800 jobs within the coal chain. Indeed, in May this year, the Dutch Government prohibited the country’s production of electricity from coal from 2030 onwards, with the two oldest power stations in the country (being the Hemweg and Amer Power Plants) being directed to cease electricity production by coal by the beginning of 2025. It is also not envisaged that nuclear energy will be relied upon as a substitute for the production of electricity from fossil fuels given the substantial costs associated with the construction of nuclear power plants and the estimated construction term for such plants being more than 10 years. That being said, the possibility of relying upon nuclear energy for electricity production purposes was considered by the Sector Table as a potential short-term alternative in circumstances where the country goes through a period of experiencing little or no wind or sun.

As stated in our previous e-briefing, and for the achievement of the wattages required under each of the three contingent scenarios, the Sector Table wishes to see approximately 700 offshore wind turbines constructed, 500 wind turbines constructed on land and 75 million solar panels installed by 2030. In regard to offshore wind facilities, the Sector Table wishes to see a reduction in offshore wind production costs to 3 – 4 ct / kWh by 2030, which is proposed to be achieved by using grid tariffs to pay for the connection and completion of the offshore grid.

The Sector Table is desirous for 50% of the new production capacity for onshore renewables (whether in respect of onshore wind, solar photovoltaic systems or other renewables) to be owned by local communities and to possibly be established on state land. The Sector Table accordingly expects the provinces and municipalities in the Netherlands to adopt a proactive stance in developing regional renewable energy facilities and for involving local communities therein. In this regard, each province has since committed itself to provide a portion of the total 6000MW required by the country from wind power in the future. The Sector Table subsequently wishes to see a reduction in the production costs of onshore wind to (less than) 4.9 ct / KWh in 2024 and to 3-4 ct / KWh in 2030 and, in respect of solar energy, a reduction to (less than) 5.6 ct / KWh in 2024 and 3-6 ct / KWh in 2030.

Pending the achievement of these reduced production costs for renewable energy alternatives, the Sector Table – as stated in our previous briefing – wishes for the Dutch government’s renewable energy incentive scheme (known as the SDE+ subsidy) to remain available up until 2025. After this date, alternative non-subsidy instruments are proposed to be implemented (which will be researched from 2021 onwards) so as to increase demand for renewable energy and therefore provide investment security to developers. Examples of such non-subsidy instruments would be, for example, the introduction of statutory obligations on energy suppliers to procure a certain portion of their total energy supply from renewable energy or the stimulation, through marketing, of consumer demand by consumers for renewable energy.

Conclusion

The Sector Table has stressed that flexibility is key in the management of electricity demand and also the development of renewable energy alternatives. Moreover, it continues to emphasise that the responsibility falls to local and provincial governments to adopt active campaigns for the use and production of renewable energy so as to ensure that the transition to a carbon dioxide free electricity sector is achieved through a joint effort from industry, government and citizens alike.

Information regarding the changes to be seen in the four other sectors as a result of the coming into force of the Agreement in 2019 will follow in separate publication instalments over the coming months.

For further information on the Dutch Climate Agreement or the Dutch market, please contact the team below.