IOverview

The energy markets in the Netherlands are fully liberalised and the public electricity and gas infrastructure is operated by fully unbundled network operators. Numerous companies are active in the production and generation, and trade and supply markets. These activities are strictly separate from the operation of electricity and gas networks by independent transmission system operators (TSOs) and distribution system operators (DSOs).

However, the energy sector faces disruption and huge challenges as a result of the ‘energy transition’ (i.e., the required transformation of the traditional, fossil-fuel-based industry into a sustainable low-carbon economy). The Netherlands has been dependent on its natural gas reserves (especially the large Groningen field) for more than half a century, but this will have to change as a result of the ongoing climate debate and the increasing occurrence of earthquakes in the Groningen province (as a consequence of the production of natural gas). In a 2018 letter to the parliament, the Minister of Economic Affairs and Climate (the Minister) proposed to reduce production from the Groningen field from 21.6 billion m3 in 2017 to 12 billion m3 per year, by October 2022 at the latest.2 The termination of gas production in Groningen will require a series of drastic measures on both the supply and demand side. As the majority of Dutch consumers still use low calorific Groningen gas, most gas-fired equipment (for, inter alia, central heating and cooking) is not compatible with high calorific non-Groningen gas and will have to be replaced in due course. In the meantime, Gasunie Transport Services (GTS, a subsidiary of Gasunie that is designated as the national gas TSO) intends to expand its nitrogen facilities, where (imported) high calorific gas is converted into low calorific gas by adding nitrogen. The Minister recently informed the parliament that the demand for Groningen gas is decreasing faster than anticipated, as a consequence of GTS procuring additional nitrogen and accelerated reduction of gas exports to Germany.3

The year 2018 was rather turbulent when it comes to energy and climate policy in the Netherlands. Further to the Paris Agreement, a much-debated new Climate Act was adopted by the Dutch lower house of parliament in December 2018. If also adopted by the Senate in 2019, the new act will set a main goal of 95 per cent emission reduction by 2049 and an intermediate target of 49 per cent emission reduction by 2030. In order to reach the proposed targets, a national, consensus-based approach was started in 2018 by way of the ‘climate tables’. These discussion platforms involved over 100 public and private stakeholders, divided over several sector-focussed groups and sub-groups, to debate proposals for emission reduction in their specific sectors: electricity production, industry, built environment, mobility and agriculture and land use. A draft agreement was reached between the stakeholders in December 2018, containing a comprehensive package of measures and proposals. However, the Netherlands Bureau for Economic Policy Analysis (CPB) and the Netherlands Environment Assessment Agency (PBL) concluded that the proposed measures will most likely not be sufficient to reach the 2030 reduction target. In addition, the Court of Appeal issued a groundbreaking judgment in the controversial Urgenda case (see SectionVI), ordering the Dutch government to increase its carbon emission reduction efforts.

In view of all these developments, 2019 again promises to be an exciting year.

IIRegulation

iThe regulators

The Authority for Consumers and Markets (ACM)4 is the designated national regulatory authority in the field of energy market regulation. The specialised Energy Department of the ACM monitors and enforces compliance with the Electricity Act 1998, the Gas Act (together: the Acts) and the Heat Act, and the rules laid down in several EU regulations and delegated legislation. To that end, the ACM has a wide range of powers to enforce compliance with energy regulations. It has the competence to impose an order subject to a penalty or a fine of up to €900,000 per violation or in some cases up to 10 per cent of a company’s annual turnover (in each case depending on the nature of the infringement). Besides ex officio investigative and enforcement powers, the ACM also has the power to resolve and settle disputes between customers and network operators and the discretion to act upon a request for enforcement action. Apart from enforcing compliance with the Acts, the ACM adopts regulation regarding tariffs and tariff-setting methodology, technical codes and rules concerning information exchange between operators.

In February 2018, the ACM published its policy priorities for 2018 and 2019. Transition of the energy supply market is one of the key priorities as the ACM wishes to ensure that the transition to sustainable energy sources takes place efficiently, while preventing the energy transition from becoming more expensive than necessary. The ACM emphasises the importance of reliable and well-functioning energy markets during the transitional period.

As regards mining, the State Supervision of Mines (SoDM) is the independent supervisory authority to monitor compliance with the Dutch Mining Act. It supervises the exploration, production, transport and storage of minerals such as oil, gas and salt, as well as geothermal heat (an increasingly important source of renewable energy). Its supervision focuses on safety, health, environment and (technically) efficient extraction. SoDM also regularly advises the Minister and other competent authorities on mining related topics.

iiRegulated activities

The operation of electricity and gas transmission and distribution networks is strictly regulated, in accordance with the EU rules on energy market liberalisation. The Minister has appointed TenneT as the TSO for the national high-voltage electricity network and GTS as the TSO for the national gas transport network. These TSOs have been certified by the ACM to confirm their compliance with the unbundling requirements from Directive 2009/73/EC (gas) and Directive 2009/72/EC (electricity). The regional electricity and gas network operators, DSOs, are required by law to have economic ownership over their operated networks. Both TSOs and DSOs have specified tasks pursuant to the Acts and are prohibited from providing goods or services in competition with third parties (apart from certain exceptions). This competition prohibition does not apply to group companies of network operators, but these group companies may only engage in certain infrastructure-related activities, as further explained below.

In addition to transportation activities, network operators perform certain other statutory tasks as well, such as providing connections to customers and performing metering services to small (household) consumers. The provision of metering services to other than small consumers is in principle an unregulated market activity. Parties that carry out metering responsibility must be accredited by TenneT.

The supply of electricity and gas to small consumers requires a supply licence from the ACM (through delegation by the Minister). The Acts define ‘small consumers’ as users with a grid connection with a maximum capacity of 3x80A for electricity and 40m3(n)/h for gas. Suppliers can either choose to apply for a licence or cooperate with a licensed supplier and act as reseller. Applicants must demonstrate that they have the required organisational, financial and technical capabilities and comply with the applicable regulations for the supply of electricity, gas or both to small consumers. The ACM has the competence to attach conditions and restrictions to a licence, and has the right to revoke a licence.

The supply of heat to small consumers (e.g., via district heating networks) requires a licence from the ACM as well, in accordance with the Heat Act, which defines ‘small consumers’ as users with a heat grid connection with a maximum capacity of 100 kilowatts. No licence under the Heat Act is required if is supplied to only up to 10 users at the same time or to one or more buildings the supplier itself owns or leases, or amounts to less than 10,000GJ of heat per year. The ACM sets the maximum tariffs for the supply of heat. An amendment to the Heat Act was adopted by the Dutch parliament on 3 July 2018. The amendment aims to increase consumer protection and create a better functioning heat market, leading to more confidence in the potential of collective heat as an alternative to natural gas. To achieve this, a number of definitions in the Heat Act are improved and clarified. In addition, it is provided that the ACM will not only determine the maximum heat prices, but also the rates for, inter alia, the connection fee and the delivery device. The new Heat Act also creates room to apply for exemptions to deviate from certain provisions by way of experiment, for instance to gain experience with new market models.

For the generation of electricity, no licence is required under the Electricity Act. However, a licence from the Minister is required for building and operating an offshore wind park, pursuant to the Offshore Wind Energy Act. The applicant must perform a feasibility study in order to apply for a licence and the Minister can attach conditions to such licence.

For balancing purposes, programme responsibility applies to the feed-in and extraction of electricity and gas from the relevant networks, which must be exercised by a programme responsible party accredited by TenneT or GTS, respectively.

Exploration and production activities regarding minerals, including oil and gas, and the exploration and production of geothermal heat, require a licence from the Minister pursuant to the Mining Act. Furthermore, the Minister can grant a licence on the basis of the Mining Act for the underground storage of substances such as gas and CO2. Licences can be subject to conditions.

LNG installations are also subject to several provisions in the Gas Act, including the obligation to designate an operator and submit the applicable tariff structure to the ACM for approval.

iiiOwnership and market access restrictions

The Acts stipulate that transmission and distribution networks, as well as the shares in TSOs and DSOs, must be owned directly or indirectly by the Dutch state, provinces, municipalities or other public bodies. The Acts also contain the group prohibition, which provides that a company that produces/generates, trades or supplies electricity or gas cannot be part of the same group of companies as a network operator. The Acts also prohibit network operators to deliver goods and provide services by means of which they enter into competition.

On 1 January 2019, the Energy Transition Progress Act entered into force, which amended the Acts to implement a set of policies that mainly aim to further define the role of the network operator and the other companies in the network company group. The legislator deems it important to protect the network infrastructure against unnecessary (commercial) risks, and to prevent network group companies from operating too broadly, thereby hampering innovation from private market parties. Therefore, the amended Acts clearly demarcate the tasks of the network operator and its group companies. The network operator is only allowed to perform certain tasks specifically assigned to it. For group companies of the network operator, an exhaustive list of allowed activities is included in the Acts. These permitted activities relate to infrastructure and network operation and include the construction and operation of cables, pipelines, electric-vehicle-charging infrastructure, installations for hydrogen, biogas and heat, as well as the provision of metering services. While introducing stricter definitions of allowed activities, the new Act also creates the possibility for the Minister to assign temporary tasks to network operators and grant exemptions from certain provisions (restrictions) in the Acts by way of experiment. A proposed new Decree on the Acts was published on 15 May 2018 and gives substance to the extended ministerial power to allow for experiments, enabling network operators and other market parties to request permission to deviate from certain provisions in the Acts in the context of specific projects or activities. By allowing such experiments, the government can examine whether certain deviations are beneficial for the energy transition and whether structural legislative changes might be needed. Other matters that are regulated by the new Energy Transition Progress Act include the possibility for the national TSOs (TenneT and GTS) to enter into cross-participations with foreign TSOs, and potential relocation or underground reconstruction of parts of the high-voltage network that are close to housing.

ivTransfer of control and assignments

The Electricity Act 1998 provides that any change of control (within the meaning of the Dutch Competition Act) with respect to a power generation plant with a nominal capacity of more than 250MW must be notified to the Minister. In cases of a change of control in an LNG installation or LNG company, a similar notification requirement applies under the Gas Act. Following such notification, the Minister assesses the risks with respect to public safety and security of supply and may attach conditions to the change of control. An (appealable) decision will normally be taken by the Minister within four months.5 Transactions that are not (timely) notified are subject to possible annulment.

IIITransmission/transportation and distribution services

iVertical integration and unbundling

The Dutch government opted for unbundling of TSOs as early as in 2001, two years before European unbundling regulations were adopted in the second energy package. Under the current Acts, TSOs are subject to full ownership unbundling and certification by the ACM, which must verify that the TSO is organised and structured in accordance with the conditions of ownership unbundling. Although not required by the EU rules on energy market liberalisation, ownership unbundling is also required by law for DSOs in the Netherlands. This is reflected in the Acts by the aforementioned group prohibition that was introduced by the Independent Network Operators Act (WON). When the WON entered into force in 2008, the group prohibition was challenged before the Dutch courts by three (at the time) vertically integrated energy companies. After lengthy proceedings and a preliminary ruling from the Court of Justice of the European Union, the Dutch Supreme Court finally ruled in 2015 that the group prohibition is compatible with EU law. Subsequently, the last two remaining vertically integrated incumbent energy companies, Delta and Eneco (two of the claimants in the legal proceedings), were unbundled in 2017.

iiTransmission/transportation and distribution access

For both electricity and gas, a distinction is made in the Acts between the national transmission networks (operated by TenneT and GTS) and the regional distribution networks (operated by several DSOs). Each DSO operates the public network in its own designated region and is responsible for its construction, maintenance and operation as well as possible expansion. Access to the networks must be granted on a non-discriminatory basis and can only be denied if capacity is reasonably not available. Tariffs for use of the network are regulated pursuant to the Acts, and the entire process regarding access is supervised by the ACM.

In respect of certain private energy networks, the Acts provide for an exemption from the obligation to designate a network operator, which can be granted by the ACM to owners of closed distribution systems.

iiiTariffs

The tariffs for services rendered by network operators (transportation tariffs) are regulated by the ACM, which determines these tariffs ex ante in three steps. First, the ACM adopts a method decision for a regulatory period of three to five years. Five different types of network operators are discerned and for each of these groups a different method decision is published.6 The method decisions provide how the ACM will calculate the allowed revenue of the operators in question, based on efficient costs. Second, the ACM publishes X-factor decisions for each individual network operator, in which the ACM calculates the base level of revenue for the network operator and the annual tariff cut (this is the X-factor, being an efficiency factor). X-factor decisions are adopted for the same regulatory period as the method decisions they are based on. Lastly, the ACM publishes annual tariff decisions for each regulatory period, in which the maximum tariffs for each individual operator are set on the basis of the calculations in the X-factor decisions and in accordance with the tariff codes.

With respect to heat, the Heat Act provides that the ACM determines maximum tariffs for the supply of heat.

ivSecurity and technology restrictions

Under a new act regarding rules on data processing and cybersecurity notification requirements, which was adopted in July 2017, companies operating in vital sectors are obliged to notify cyberattacks to the National Cyber Security Centre. The notification obligation applies irrespective of the public or private nature of a company. Vital sectors include the gas, electricity, telecommunications and drinking water sectors. Gas and electricity network operators, as well as the NAM, are mentioned explicitly in a delegated act as vital companies to which the notification obligation applies.7

IVEnergy markets

iDevelopment of energy markets

On the Dutch wholesale markets for gas and electricity, various types of energy spot and forward contracts can be entered into. These energy contracts can be concluded for different periods and times. The energy markets are characterised and subdivided based on the type of contract that is offered.

In the Netherlands, GTS offers the title transfer facility (TTF) as a virtual market place that enables parties to transfer gas in the transport network (entry-paid gas) to another party. Gas can be traded on the TTF via ICE ENDEX (European Energy Derivatives Exchange) under spot and future contracts.

Electricity is traded on different markets: via exchange markets ICE ENDEX and the Amsterdam Power Exchange (APX), which is now part of the pan-European energy trading market EPEX SPOT, via the over-the-counter market and via the imbalance markets for gas and electricity that are operated by GTS and TenneT respectively. ICE ENDEX enables trading in future contracts for electricity. The APX offers day-ahead and intraday trading in electricity.

iiEnergy market rules and regulation

Exchanges for derivatives (such as futures) must be licensed by the Ministry of Finance under the Financial Services Act, and are supervised by the Netherlands Authority for the Financial Markets and the Dutch Central Bank. Parties that wish to trade on an exchange need to be members and must meet the administrative requirements that are imposed by the relevant platform.

iiiContracts for sale of energy

Suppliers of gas and electricity enter into individual supply contracts with end users. Gas and electricity prices for medium and large consumers are not regulated. Suppliers to small consumers must have a supply licence and are obliged to provide a reliable supply of energy at reasonable tariffs and conditions. These suppliers must annually inform the ACM regarding the tariffs and conditions they will apply for the supply of electricity and gas in the following year. If a supplier wishes to change its tariffs for the coming year, the new rates must be submitted to the ACM four weeks in advance. When the ACM deems the new rates to be excessive, it may impose a maximum rate in order to protect consumers.

Suppliers must also inform the ACM about organisational, financial and technical changes within their companies. In addition, licensed suppliers must have a customer complaints procedure in place and inform customers about the origin and environmental quality of the electricity supplied. Licensed suppliers are obliged to offer small consumers a model supply agreement (in accordance with the uniform model established by the ACM), but may in addition also offer other contract forms.

ivMarket developments

The Dutch government intends to close all coal-fired plants in the Netherlands by 2030 at the latest. According to the Minister, this is an important measure to achieve the required CO2 reduction. The Council of State has advised the Minister that the phasing out of coal-fired plants can best be realised by introducing a specific production prohibition.

As indicated above, an amendment to the Heat Act was adopted by the parliament on 3 July 2018. However, on 13 February 2019, the Minister announced the preparation of a new bill to further amend the Heat Act. This bill, the Heat Act 2.0, aims to anticipate the coming energy transition, where heat networks are expected to play an increasingly important role as an alternative to gas. To facilitate decision-making and investment in the construction and operation of heat networks, the Ministry intends to use the Heat Act 2.0 to elaborate on the roles and responsibilities of public and private parties, and outline the prerequisites for creating a reliable, affordable and sustainable collective heat supply. The main themes of the Heat Act 2.0 will be market and price regulation, and sustainability.

VRENEWABLE ENERGY AND CONSERVATION

iDevelopment of renewable energy

A budget of €10 billion is available in 2019 for subsidies under the Renewable Energy Production Subsidy Scheme (SDE+). The SDE+ subsidy can be applied for during two subsequent application rounds (with a budget of €5 billion each).

The SDE+ subsidy scheme grants producers an annual financial compensation (during a period of 8, 12 or 15 years) for renewable energy produced and is available for the production of renewable electricity, renewable gas and renewable heat or a combination of renewable heat and electricity. The relevant renewable energy project must be realised in the Netherlands.

The SDE+ scheme is a feed-in-subsidy where the compensation is equal to the difference between the base rate and the correction amount The base rate is equal to the production costs of the relevant renewable energy (electricity, gas or heat) and the correction amount is the energy market price. For each technology, a base energy price is determined that sets the lower limit for the correction amount and thus maximises the compensation received per unit of renewable energy.

2019 is the last year of the SDE+ in its current form. The Minister announced on 23 November 2018 that the scheme will be renamed the Stimulation of Sustainable Energy Transition Scheme (SDE++). The subsidy mechanism as such will not change, but certain amendments and extensions of subsidy categories are implemented as a result of recent developments in the energy transition. The goal of the new SDE++ scheme is to reduce CO2 and other greenhouse gas emissions. Therefore, the subsidy will no longer be granted on the basis of generated sustainable energy, but on the basis of avoided emissions.

In January 2019, electricity network operators TenneT and Enexis reported a lack of transportation capacity to facilitate grid connections for new renewable energy (mainly solar) projects in several parts of the Netherlands. As timely grid connection is of crucial importance to project developers and financiers of solar energy projects (also in view of the realisation deadline in their SDE+ grants), the announced capacity shortage immediately gave rise to complaints from market parties and questions from the parliament. The Minister is currently investigating potential remedial actions to increase the available capacity (such as mitigating requirements for keeping back-up capacity).

In addition, the current practice of allocating transportation capacity is debated. As network operators apply the ‘first come, first serve’ principle, parties by way of anticipation often reserve capacity well in advance, sometimes years prior to the actual realisation of a project. It is questionable whether transportation capacity may be refused if there is no ‘physical congestion’ but in fact merely ‘contractual congestion’, when transportation capacity has been reserved for future projects (too) long in advance. This question becomes increasingly significant in the discussion on grid access for renewable energy projects and legal proceedings on this issue seem inevitable.

iiEnergy efficiency and conservation

The Energy Agreement for Sustainable Growth (the Energy Agreement) is a public-private agreement between the Dutch government and employers, trade unions, environmental organisations and others. The Energy Agreement contains provisions on energy conservation, boosting energy generation from renewable sources and job creation, in line with the Dutch government’s aim of achieving a wholly sustainable energy system by 2050. The main goals set for achieving this sustainable energy supply system are:

  1. reducing final energy consumption by an average 1.5 per cent annually, which corresponds to a saving of 100PJ in the country’s final energy consumption by 2020; and
  2. an increase in the proportion of energy generated from renewable sources to 14 per cent in 2020, and an even further increase to 16 per cent in 2023.

In October 2017, the Energy Research Centre of the Netherlands (ECN) published the National Energy Exploration (NEV), noting that additional measures were necessary to reach the goal of 14 per cent renewable energy and 100PJ extra energy saving in 2020. The anticipated measures include the use of the Dutch government’s own substantial areas of land for the generation of renewable energy, which potential is currently being assessed on the basis of pilot projects.

In addition, pilot projects are being developed under the public-private Green Deal for Ultra-Deep Geothermal Projects between the government and seven consortia. The potential pilot projects, divided over different regions, aim to extract geothermal heat from a depth of more than 4km, with a temperature far above 100 degrees Celsius, mainly for heat supply in the process industry. The aim of the Green Deal is to realise the three most promising ultra-deep geothermal energy projects. The projects of the consortia each have a size of approximately 1PJ.

In March 2019, the government also announced plans to financially participate in the development of geothermal heat projects in the Netherlands through Energie Beheer Nederland (EBN), the government-owned natural gas company. EBN will take a risk-bearing participation of 20 to 40 per cent in new geothermal projects. This long-awaited role of EBN in the development of geothermal heat projects will be implemented through an amendment of regulation under the Mining Act, which is expected next year. Until then, EBN participation in new projects is possible on a voluntary basis.

iiiTechnological developments

The Netherlands wants to reduce the negative effects and the use of fossil energy sources such as coal, petroleum and natural gas, in order to reduce CO2 emissions and create a more sustainable energy production. Carbon Capture and Storage (CCS) is one of the tools to achieve this. As mentioned above, the government aims at a CO2 reduction target of 49 per cent in 2030 compared to 1990. Under the government coalition agreement, CCS is intended to play a major role in reducing industrial emissions. The coalition agreement states that ‘CCS can be a major contribution to the reduction of emissions in industry, the electricity sector and waste incineration plants’. Further incentive schemes for CCS and other low carbon technologies are currently being investigated.

VITHE YEAR IN REVIEW

The year 2018 was characterised by an intensified public debate on energy and climate policy in the Netherlands. The ‘climate table’ approach for a national climate agreement was aimed at consensus, but caused quite a stir leading to polarisation in the political arena, with some political parties urging certain sectors to increase their reduction efforts and other political parties claiming that energy transition policy is nothing more than money-wasting ‘climate nonsense’. The energy and climate policy debate especially led to questions on the division of the financial burden of the energy transition (between industry and consumers) and whether certain parties should be compensated. Shortly after the CPB and PBL had assessed and made public their findings regarding the draft climate agreement measures and proposals, the government responded by announcing that it will decrease taxes on energy for households and introduce a carbon emission tax for businesses.

The Dutch state faced a painful legal setback in the controversial Urgenda case in November 2018, when the Court of Appeal upheld a 2015 court decision ordering the state to increase its carbon emission reduction efforts and ensure that emissions in the year 2020 will be at least 25 per cent below 1990 levels. The judgment raised praise from climate activists, but criticism from legal scholars claiming the judgment infringes on the separation of powers (arguing that emission reduction policy goals should be set by the government and parliament, not judges). The state has lodged an appeal with the Supreme Court. A judgment of the Supreme Court is not expected before the end of this year.

VIICONCLUSIONS AND OUTLOOK

Even though the Energy Transition Progress Act has just recently entered into force, a proposed new Energy Act is already anticipated (the ‘Energy Act 1.0’, to be followed up in due course by an ‘Energy Act 2.0’). This new Energy Act should eventually unify and replace the existing Acts and further streamline energy market regulation. A review of the Mining Act and related regulation is envisaged as well, in order to better facilitate the production and use of geothermal heat as a relatively new source of energy and the participation of EBN in new geothermal projects. In addition, the Netherlands will have to implement the new European Clean Energy Package, which is currently being prepared and will most likely be ready for implementation by 2021.

On 20 March 2019, elections for the twelve Provincial Councils were held in the Netherlands. These (regional) elections were of particular importance for the national government as well, since the members of the Provincial Councils elect the members of the Dutch Senate (upper house of parliament). The election results were disappointing for the current government as it lost its majority in the senate. It now needs to cooperate with other parties to gain ad hoc majorities for its legislative proposals. This could have consequences for energy-related legislation, such as the anticipated Climate Act, as the largest party in the new Dutch senate is an outspoken climate-change-sceptic party. The coming year will show what impact these developments will have.


Footnotes

1 Sander Simonetti is a partner, and Nicolas Jans and Pieter Leopold are associates at HVG Law LLP. The authors wish to thank former senior partner Dick Weiffenbach for his valuable contribution to this chapter.

2 Letter from the Minister to the speaker of the Dutch lower house of parliament, dated 29 March 2018.

3 Letter from the Minister to the speaker of the Dutch lower house of parliament, dated 8 February 2019.

4 ACM was established in 2013 as a merger between the Netherlands Consumer Authority, the Netherlands Independent Post and Telecommunications Authority and the Netherlands Competitions Authority, the latter of which monitored compliance with energy regulation until 1 April 2013.

5 Parliamentary Papers Second Chamber 2010-2011, 32 814, No. 3, p. 10.

6 The two TSOs, several gas network DSOs, several electricity network DSOs and the operator of the offshore electricity network.

7 Decision (order in council) of 4 December 2017, Stb. 2017, 467.