The Energy Regulation and Markets Review: Belgium
As an EU Member State, Belgium has implemented EU energy legislation on electricity and natural gas. Electricity and natural gas markets have been unbundled: a single grid operator is appointed for a designated area, within which the grid operator is responsible for the operation, maintenance and development of the grid. The grid operator has to grant non-discriminatory third-party access to producers, suppliers and offtakers against regulated tariffs. The regulatory authority oversees market functioning and compliance by market actors.
Belgium is a federal state, in which legislative powers over energy matters and policy are divided among the federal and regional governments. The federal government is responsible for legislation regarding large energy generation and storage facilities, nuclear energy, offshore energy, transmission of electricity, transport of gas and retail energy prices. The regional governments of Flanders, Brussels and Wallonia enact legislation regarding renewables, energy efficiency, distribution grids and district heating. All governments cooperate on the implementation of Belgium's long-term energy policy and the shift to a climate-neutral economy. Pursuant to the Governance Regulation,2 Belgium has also submitted an integrated national energy and climate plan for the period 2021–2030 to the European Commission.
In 2003, Belgium decided to phase out nuclear energy from its energy mix and to decommission all seven nuclear power plants after 40 years of operation. Given that construction took place in the 1970s and 1980s, the last of the plants should be decommissioned by 2025. However, nuclear power plants still account for roughly half of Belgium's power generation. Furthermore, the politics on the phasing out of nuclear energy have been sending out contradictory signals, resulting in little effort being made by the market or the government to construct alternative (renewable) production units. A draft 'energy pact' has been agreed, which will result in a long-term energy policy for Belgium and facilitate the construction of new production units (gas-fired or renewable) to replace the nuclear power plants. As a transitory measure, the extension of the lifetime of the two most recent nuclear power plants – Doel 4 and Tihange 2 – is being heavily debated.
i The regulators
Because of its federal structure, regulatory responsibilities are distributed between the federal regulating authority, the Commission for Electricity and Gas Regulation (CREG), and the three regional energy regulating authorities: the Flemish Regulator of the Electricity and Gas Market (VREG) for Flanders, the Brussels Energy Regulator (BRUGEL) for the Brussels Capital Region and the Walloon Commission for Energy (CWaPE) for Wallonia.
These authorities are all independent, both from market players and from policymakers. Notably, the regulatory authorities may not receive any direct instructions from ministers or policymakers. However, they do have to comply with general policy choices.
The core competence of these regulators is grid tariffs. They set the tariff methodologies and approve the grid tariff proposals from the grid operators. In doing so, they must consult stakeholders.
The regulators can also impose administrative fines on market players that do not comply with the energy legislation (e.g., do not possess the required licences). The energy regulators cooperate closely with other market regulating bodies, such as the antitrust bodies.
ii Regulated activities
Considering that electricity and natural gas markets are unbundled, a distinction has to be made between grid operators on the one hand, and producers and suppliers on the other.
Grid operators are appointed for a fixed duration for a designated area. Before being appointed, they must receive an unbundling certification proving that they are operationally and legally independent from other market players, such as producers and suppliers. Depending on the level and region, grid operators are appointed by the competent minister or by the energy regulator. Grid operators enjoy a legal monopoly to carry out their activities, but are subject to strict regulatory supervision and to regulated revenue (through the grid tariffs). To develop their grid, grid operators benefit from easements and can use areas that are public property. If more drastic grid development needs to take place, there are specific expropriation procedures in place.
The construction and operation of new onshore power plants requires three permits: a production permit, an environmental permit and an urban planning permit. In Flanders and Wallonia, the latter two have been merged into a single permit. Smaller plants (of less than 25MW capacity) are exempt from the requirement to obtain a production permit. Very small plants, such as photovoltaic installations with consumers, do not require an environmental or planning permit either.
The production permit is granted by the federal Minister for Energy after he or she has obtained advice from the CREG, while the environmental and planning permits are granted by the regions, the provinces or even the municipalities. These different decision levels add to the complexity of constructing new production units, although it should be noted that a production permit is rarely refused after an environmental or planning permit has been obtained.
Offshore power plants require an offshore domain concession (granted by the federal Minister for Energy after he or she has obtained advice from the CREG, among others), a marine protection permit and, as the case may be, a submarine cable licence. All such permits are granted at the federal level. Until now, only offshore wind farms have been constructed in Belgium.
Finally, a supply licence is required to engage in retail electricity or gas supply. Depending on the voltage level and the regional location of the consumer, a federal or a regional supply licence is required. The duration of a federal supply licence is limited to five years, but it can be renewed indefinitely. The regional supply licences have no time limit. Licensed suppliers must also comply with the criteria laid down by law, such as having sufficient technical and financial capacities.
Energy traders do not require a licence to operate on the Belgian market. However, they must communicate certain information (stocks and volumes) to the CREG and other authorities for the purposes of market monitoring.
iii Ownership and market access restrictions
As mentioned above, grid operators must be ownership-unbundled. Furthermore, most grid operators are largely owned by public authorities with the ultimate shareholders being Belgian municipalities. The electricity transmission system operator is a listed company, but almost half of its shares are owned (indirectly) by public authorities. For what concerns the distribution system operators, it is a legal requirement that the distribution grid be fully or mostly owned and operated directly by municipalities or indirectly by inter-municipal cooperative entities.
Except for Flanders, suppliers are required to have a corporate seat in the European Economic Area (EEA). Producers must have their corporate seat, central administration or main office in the EEA also.
iv Transfers of control and assignments
The transfer or assignment of a supply permit or licence, or the merger, acquisition or change of control of the holder of such permit or licence, usually requires a prior notification to the authority that has issued the permit in question.
For an electricity production permit, the federal Minister of Energy must decide within 60 business days whether the permit can be kept or whether a new permit must be applied for. Before deciding on this, he or she will seek the CREG's advice on the matter. If a new permit must be applied for, the standard procedure applies (approximately three to four months). However, the transfer, assignment, merger, acquisition or change of control can be implemented already.
For an intention to transfer, assign or lease an offshore domain concession, a stand-still period of 50 business days applies during which the Minister for Energy's representative will assess whether the transaction is compatible with the retention of the concession.
Transmission/transportation and distribution services
i Vertical integration and unbundling
Pursuant to European directives, grid operators in Belgium are ownership-unbundled, meaning that they may not have any direct or indirect participation in or control over any supplier or producer, or vice versa. This model has been implemented gradually since the 1990s, with full ownership occurring since the beginning of the millennium. The structure of the industry has therefore not changed significantly in the past few years (except for some mergers and new players on the supplier and producer sides – see below).
ii Access to transmission, transportation and distribution
Grid operators are legally obliged to grant non-discriminatory third-party access to producers, suppliers and offtakers who meet the necessary legal and technical requirements. The grid codes set out which technical and legal requirements must be met by grid users to have access to the grid. Requirements include signing of a balance responsible party (BRP) contract and having a safe and certified installation. The grid codes have recently been revised to comply with the EU Network Codes.
Grid tariffs must be approved by the relevant regulator: transmission grid tariffs are approved by the CREG, and distribution grid tariffs are approved by the regional energy regulators VREG, BRUGEL and CWaPE. Grid operators have to submit a tariff proposal, calculating the expected costs and revenue for the coming years. This proposal has to take into account the general tariff guidelines and principles, as set out in tariff methodology (general framework), which is developed by the energy regulator. The grid tariffs are principally fixed for four to five years (the regulatory period). The tariffs of the transmission system operator are based on a cost-plus model, while the distribution grid tariffs are more incentive-based; for example, in Flanders, there is a specific stimulus to preserve the quality of services by the distribution system operators. Costs that stem from a legal obligation (such as public service obligations) or costs that the grid operator merely passes on, may always be fully integrated into the grid tariffs.
iv Security and technology restrictions
There used to be no specific regulation concerning the protection of critical energy infrastructure. However, Flanders introduced in 2019 a decree granting the Flemish government the power to annul any legal act (so not only share deals, but also contracts) from Flemish public bodies (including distribution system operators (DSOs)) that would lead to foreign persons or companies gaining control or decision-making power in those bodies, and where there is a risk that (1) the strategic interests of the Flemish government are threatened, (2) certain strategic or sensitive knowledge is likely to fall into foreign hands, or (3) the strategic independence of the Flemish government, including the functioning of the democratic legal order, is compromised. Before annulling a legal act, the Flemish government must first try to reach an amicable settlement with the foreign person or company. Other regions and the Belgian federal level do not yet have similar legislation, but are considering introducing it.
With regard to cybersecurity, it is up to each player to implement adequate software and hardware systems. This is monitored by the energy regulators. Data exchanges between grid operators, suppliers and BRPs happen by means of the data management system MIG.
Access to and imports of goods into the nuclear power plants is monitored by the Nuclear Safety Agency and the Belgian State Security Service.
i Development of energy markets
The opening up of EU electricity markets has led to the introduction of a power stock exchange in Belgium: EPEX Spot Belgium, in short, is the physical power exchange for electricity supply and offtake on the Belgian hub and was established in Brussels in 2006. It facilitates anonymous, cleared trading in two market segments, namely a day-ahead market segment (DAM) and a continuous intraday market segment (CIM). EPEX Spot Belgium's day-ahead market segment is coupled with the APX in the Netherlands and the United Kingdom, the EPEX Spot in France and Germany, and the Nord Pool Spot in the Nordic region. The CIM segment is coupled with the APX in the Netherlands and the Nord Pool Spot in the Nordic region.
The futures market is organised by the ICE Endex through the ICE Endex Power BE module.
The futures market for gas is organised on the ICE Endex (under the ICE Endex ZTP Natural Gas Futures module in monthly, quarterly and annual nominations) and on the PEGAS (the SEA module in monthly, quarterly, seasonal and annual nominations, and the ZTP module in monthly nominations). ICE Endex uses MW as a unit, PEGAS uses MWh for ZTP and ZEE therms. The gas spot market is organised on the ICE Endex (the ICE Endex ZTP Natural Gas Daily Futures module for the H zone) and on the PEGAS (the PEGAS Spot ZTP, PEGAS Spot ZTP L and PEGAS Spot ZEE modules).
On the power market, the BRP is responsible for maintaining a quarter-hourly balance between total injections and total withdrawals of the grid users in its portfolio. The BRP can be a producer, a major customer, an energy supplier or a trader. Each BRP can exchange energy with a view to maintaining a balanced portfolio. Annual, monthly, daily and intraday capacities are allocated by means of different allocation mechanisms. The annual and monthly capacities are allocated by means of explicit auctions. At these auctions, the BRP can acquire the right to import or export a certain volume (in MW) of power for each hour of the year, month or day in question. The transmission system operators (TSOs) in 17 EU Member States have created shared rules governing these explicit auctions. The auctions are organised through a jointly created entity called the Joint Allocation Office.
ii Energy market rules and regulation
Energy market rules are set out in the respective regulation. Market monitoring is done by the regulator. To have access to trading activities, traders must enter into some kind of participation agreement with the hub operator and usually also provide some kind of financial guarantee. Gas traders must also enter into a standard transport contract with Fluxys Belgium. Depending on the nature of their activities, electricity traders might have to conclude a BRP agreement with Elia.
iii Contracts for sale of energy
Electricity generators can either enter into direct, private contracts with suppliers and traders or sell their electricity on the wholesale market (over the counter or on the stock exchange).
There are three Belgian gas hubs: Zeebrugge Beach, ZPT (H) and ZTP (L). Trading on these gas hubs previously required the signing of a HUB Services Agreement. However, the HUB services have recently become part of the Fluxys Belgium standard transport contract. The user can submit nominations for ZTP Notional Trading Services, ZTPL Notional Trading Services or Zeebrugge Beach Physical Trading Services. There are regulated tariffs for the use of these HUB services.
Following the liberalisation of the energy market, end consumers are free to choose their electricity and gas suppliers. To protect the consumer from any negative effects as a result of the liberalisation, the federal minister for consumer goods, a majority of the suppliers and the consumer organisation entered into an agreement setting out good practices and consumer protection measures. This agreement is regularly updated.
Furthermore, the regional governments set up a system of social obligations, of which the most important pertains to maximum pricing, obliging electricity and gas suppliers to supply energy at a fixed price to certain consumers. This price is set by the regulator and adjusted every six months according to the lowest commercial tariff on the electricity market. Only protected and low-income residential consumers or those in a vulnerable situation benefit from this lowest commercial tariff. These protected consumers are placed on the social tariff automatically, regardless of the supplier they choose.
To ensure that every person can live in a dignified way, a DSO must always provide a minimal supply of electricity and gas to consumers, even if the bills are not paid or if the budget meter credits are exhausted. However, the consumer must still pay the cost of this minimal supply. DSOs are only allowed to terminate this minimal supply of electricity and gas in very restricted circumstances. These circumstances are set out in more detail in the respective legislative decrees relating to the sector. In Flanders and Wallonia, the installation of a budget meter is expected in certain circumstances. A budget meter is a device that can limit the supply of electricity and gas, which is paid for in advance.
iv Market developments
Demand side management and energy flexibility are expected to become more and more important, hence increasing the role of aggregators. In the summer of 2017, a legal framework for commercial energy flexibility was introduced. Each end consumer has a right to valorise his or her own energy flexibility. To this end, he or she can enter into a contract with an electricity supplier or with a flexible service provider, who in turn must have a BRP or similar contract with the grid operator. Each end consumer is also the holder of its grid data.
In the European Clean Energy for All Europeans Package, demand-side management also has a prominent role. Smart meters and dynamic electricity price contracts should foster the development of demand-side management, allowing consumers to adapt their consumption to real-time price signals.
The regions are also developing their own legal framework for technical flexibility.
Renewable energy and conservation
i Development of renewable energy
The Renewable Energy Directive imposes on Belgium a target of 13 per cent of renewable energy consumption by 2020. This target has been further broken down into separate targets, because renewable energy (except for offshore energy) falls under the individual regions' legislative powers. Furthermore, Belgium signed the United Nations 2030 Sustainable Development Goals, which set a target of 18 per cent of renewable energy consumption by 2030. All EU Member States have committed themselves to reaching jointly a renewable energy target of 32 per cent by 2030.
It is feasible for Belgium to reach its individual target despite unfavourable geographical and weather conditions, but given the division of powers, it will require political cooperation between all the Belgian entities.
The principal legal instrument for the promotion of investment in renewable energy sources is the green certificate. Each Belgian region has established its own green certificates system: in Flanders they are called green power certificates and CHP (combined heat and power) certificates; and in the Brussels Capital Region and Wallonia they are called green power certificates. There are also federal green power certificates that are awarded to offshore wind parks and offshore hydro-plants. For the production of geothermal green heat, subsidies are granted through a half yearly call system.
While the Flemish green power certificates and CHP certificates are awarded on the basis of the green electricity generated (corrected by a banding factor), the Brussels and the Walloon green power certificates are awarded on the basis of carbon dioxide savings.
Each licensed supplier must submit a certain number of green power certificates, depending on the amount of electricity supplied through the quota obligation. Suppliers can meet their quota obligation by either producing renewable energy (for which they are granted green power certificates) or acquiring green power certificates on the market. Producers of green electricity are granted green power certificates, which, in turn, they can sell on the market. However, green electricity producers in Flanders and Wallonia can also sell their green certificates to the DSOs (Flanders) or the TSO (Wallonia) at a fixed price. Hence, a minimum price is guaranteed to the renewable energy producers in these two regions.
By Decree of 10 March 2017, the Flemish government adopted a (limited) legal framework on district heating networks. The date of entry into force of this Decree is yet to be determined by the government.
ii Energy efficiency and conservation
Rational energy use (or energy efficiency) falls under the legislative powers of the regions, but the federal government provides the regions with supporting measures. The allocation of legislative powers in the field of energy has made it necessary to organise a consultation between the regions and the federal government. This consultation takes place as part of the Inter-ministerial Conference for Economy and Energy.
EU Member States must report annually on the progress they have achieved towards their national energy efficiency targets.
The Buildings Directive3 has been transposed into law by all three Belgian regions. Increased energy performance for buildings is promoted by the regions through energy premium schemes and through certain fiscal measures. Each region has its own variety of schemes and measures for energy efficiency.
Besides, several investment funds and banks are experimenting more and more with energy-saving contracts in the private market. The use of energy-saving contracts is encouraged by the European Union, the Belgian federal government and the regional governments.
iii Technological developments
The value of green certificates depends on the technology that is used to generate the renewable energy. Technologies that have become common, such as onshore wind turbines and solar panels, receive fewer euros per MW than more advanced technologies. Innovations may also benefit from premiums and investment subsidies under certain circumstances and conditions.
Following the potential from the geothermal energy projects in north-east Belgium, the Flemish legislature has amended the Decree of 8 May 2009 on Deep Subsoil. More particularly, a licencing system has been introduced for prospecting and extracting geothermal energy. The licence holder is given real rights, including expropriation rights, if necessary, for building the necessary infrastructure for its geothermal activities. Although the text has been ratified by the Flemish parliament, the amended Decree has not yet entered into force. The Flemish legislature has also introduced a guarantee to cover the geothermal risk, which should foster the development of geothermal energy.
Smart metering technology is expected to be rolled out gradually in Flanders in the coming years. No regional initiatives are currently undertaken for Wallonia or the Brussels Capital Region.
The year in review
Since the nuclear reactors in Belgium have experienced technical issues (for example, cracks in the concrete walls), they have regularly been offline for maintenance in the past few years. In 2014, Belgium introduced a winter reserve obliging certain production installations that are no longer in the market (i.e., that are shut down and awaiting deconstruction) to be on standby in case of an electricity shortage. This winter reserve shall be replaced by a fully fledged capacity mechanism, subject to a decision by the EU Commission on compatibility with the EU state aid rules.
Within its territorial sea and exclusive economic zone, Belgium is further developing offshore energy activities. Offshore wind farms used to be heavily subsidised by means of green certificates. Following the examples of offshore wind farms in the Netherlands and Germany that operated without any support by taxpayers, a deal was struck with the three newest offshore wind farms – Mermaid, Seastar and Northwester 2 (for which an offshore domain concession has been granted but is not yet operational) – to reduce the number of offshore green certificates that would be granted to them. In parallel, the Belgian government is working on a second offshore area for the installation of offshore wind farms. Plots for the new area will be tendered, as in the Netherlands, via calls for tender for zero-subsidy offshore wind bids.
On the gas market, the gradual depletion of the Groningen natural gas field has prompted the Netherlands government to completely phase out low-calorific natural gas exports to Belgium and France between 2024 and 2030 and to Germany between 2020 and 2030. In view of this situation, Belgium is preparing to switch to natural gas from other sources (high-calorific natural gas, or H-gas). Synergrid, the federation of electricity and gas system operators, has drawn up a technical methodology and a road map for this, which were discussed with the federal authorities, the CREG and the regions in early 2016. Fluxys Belgium has developed the Synergrid road map as part of its 10-year investment plan and is on track to complete the conversion on schedule in 2029.
Finally, the coronavirus pandemic and related government measures are causing energy prices to drop significantly and even become negative. The lockdown has significantly reduced the demand for electricity. Many companies are at a standstill or running at half power, which has reduced electricity consumption in Belgium by approximately 16 per cent.
Conclusions and outlook
The Belgian energy market is the result of the implementation of the EU energy liberalisation packages. This has resulted in liberalised energy markets that are gradually evolving into one EU internal energy market. The latest European Clean Energy for All Europeans Package (draft legislation) is to further foster the internal energy market.
The liberalised energy market, in combination with zero marginal cost technologies, has lowered commodity prices for electricity and gas significantly. However, the shift to a carbon-free economy and the decentralisation of the energy system (owing to decentralised renewable energy generation) has led to increased grid tariffs and taxes to be paid for renewable support schemes. This has led to an overall higher invoice for the end consumer. To protect the energy intensive industry, the Belgian legislature has created exceptions for large energy consumers. These exceptions are under increased scrutiny, however, by the European Commission for alleged illegal state aid.
Hydrogen, energy storage, district heating and geothermal energy are expected to be the biggest game changers in the next few years.
From a contractual point of view, corporate power purchase agreements are becoming increasingly frequent on the Belgian energy market.
Finally, Brexit may give rise to a wide range of problems: from new permits and licences to be obtained by UK-based suppliers, over guarantees of origin no longer being valid for submission, to specific trading issues (e.g., on the Nemo electricity interconnector between the United Kingdom and Belgium).
1 Frederik Vandendriessche is a partner and Cedric Degreef is a senior associate at Stibbe.
2 Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action.
3 Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings.