The Netherlands’ electricity market has been fully liberalised pursuant to the applicable EU directives. This liberalisation process has led to heavy regulation, in particular of the electricity market, which largely depends on a sophisticated power transportation and transmission infrastructure, whereby third-party access to this network infrastructure had to be secured. The liberalisation process began with the introduction of the Electricity Act in 1998.
Based on, and pursuant to, the Electricity Act, a large amount of secondary legislation such as codes, regulations and decrees has been adopted and implemented. The Third Energy Package Directive (2009/72/EG) and Regulation (EC) No 714/2009 were implemented by an Act of 12 July 2012 amending the Electricity Act.
The Electricity Act makes a distinction between:
There is one transmission system operator (TSO) for the entire high voltage network, TenneT. TenneT is responsible for operating the high voltage network, maintaining the (cross-border) interconnectors and balancing supply and demand, both on the high voltage network and the distribution networks. Seven regional distribution system operators (DSOs) operate the distribution networks.
The Electricity Act prescribes that, in order to be allowed to operate an electricity transmission or distribution network, a separate company must be appointed as electricity network operator by the owner of the transmission or distribution network, with approval by the Minister of Economic Affairs (MEA). The Electricity Act imposes several legal, managerial and accounting unbundling requirements on network owners and network operators. Consequently, management and operation of a network must be entrusted to a separate legal entity, the network operator, which has to keep separate accounts in respect of the management of the network.
Network operators are usually part of the same corporate group as the owner of the network. The network operators are subject to legal obligations imposed on them by the Electricity Act, in order to prevent them from abusing their dominant position.
In order to further increase the independent position of network operators, the Electricity Act provides for mandatory transfer of the economic ownership of the distribution networks to the relevant DSO.
Furthermore, network operators and the networks under their supervision may no longer belong to an energy company that also supplies or produces energy. Ownership of the network operator must be transferred to the public shareholders of the energy company. The legislator intended that, as such, network operators operate entirely independently in the Dutch market.
In this context, the Electricity Act imposes four key prohibitions on network operators:
The aforementioned prohibitions underline the following differences:
As mentioned in 1.1 Principal Laws Governing the Structure and Ownership of the Power Industry, TenneT, the TSO, owns the electricity transmission network, while there are seven DSOs that own the distribution networks – Coteq Netbeheer, Enduris, Enexis, Liander, RENDO Netwerken, Stedin and Westland Infra.
Acquisitions of (i) distribution networks, or (ii) shares of a DSO, by non-public entities are prohibited pursuant to the Electricity Act. The Electricity Act does not contain an explicit prohibition on the (partial) privatisation of the TSO. However, in October 2013 the Dutch government decided not to initiate any (partial) privatisation of TenneT. This government policy is in line with the State Participation Policy.
The largest energy companies selling electricity to end-users are Essent, Eneco, Vattenfall, Nuts Energie and Greenchoice. They are all privately owned, whereas the following companies only deliver green electricity, mostly generated in the Netherlands: Pure Energie, Om, Vandebron, PowerPeers, Huismerk Energie and Greenchoice.
At present, incoming foreign direct investment is controlled exclusively in the electricity sector through the Electricity Act and the Regulation for notification of changes of control of the Electricity Act 1998 and the Gas Act (Regeling melding wijziging zeggenschap Elektriciteitswet 1998 en Gaswet). According to the Regulation for notification of changes of control of the Electricity Act 1998, a notification must contain information covering:
Pursuant to the Electricity Act, the MEA may prohibit an envisaged transaction or attach certain conditions to it on grounds of public safety or security of supply. Moreover, under the Electricity Act all transactions that result in a change of control over an electricity production plant with a capacity of at least 250 MW must be notified to the MEA. Such a notification must be made no later than four months before the intended change of control. Finally, any investment in the power industry, whether Dutch or foreign, will be subject to mandatory merger control pursuant to the Competition Act (please see 2.4 Principal Laws Governing Market Concentration Limits and 2.5 Agency Conducting Surveillance to Detect Anti-competitive Behaviour). Two of the top three electricity supply companies (ie, Essent and Nuon – nowadays also referred to as Vattenfall, the name of its sole shareholder) are in the hands of foreign shareholders, (E.On and Vattenfall, respectively).
Please see 1.3 Foreign Investment Review Process, 2.4 Principal Laws Governing Market Concentration Limits and 2.5 Agency Conducting Surveillance to Detect Anti-competitive Behaviour, dealing with any relevant competition law legislation.
The Netherlands Authority for Consumers and Markets (ACM) is the national regulatory authority for energy. The ACM regulates the energy markets in order to safeguard affordability, quality, continuity and accessibility in these markets. Enforcement of the Electricity Act and secondary legislation is one of the ACM’s core tasks. The ACM aims to prevent and/or resolve market and consumer problems.
The ACM has a specialised Energy Department, supervising the exercise of dominance in the electricity sector, including regulation of third-party access and tariffs related to the distribution networks.
Apart from the ACM, the MEA plays an important role. The MEA is responsible in the areas of security of supply, network access conditions and tariff structures (imposed by way of ministerial decree) in particular. He or she is accountable to Parliament for the performance of these duties.
Pursuant to the Electricity Act, the MEA has the authority to issue so-called ministerial regulations. Accordingly, the regulating influence of the MEA is substantial, which means that the MEA plays an important role in the power industry, in particular as regard to the cross-border transmission of electricity. The MEA uses the Energy Report, published every four years, to set out the government’s medium and long-term energy policy. The Energy Report sets out guidelines for the government for the following four years regarding reliable, sustainable and efficient energy supply.
In May 2019 the Climate Act (Klimaatwet) was been adopted by Parliament, establishing a long-term legal framework for government climate policies; please also see 3.1 Principal Climate Change Laws and/or Policies.
On 20 December 2019, the Act to phase out the use of coal for generating electricity (Wet verbod op kolen bij elektriciteitsproductie) entered into force; please also see 3.2 Principal Laws and/or Policies Relating to the Early Retirement of Carbon-Based Generation.
EU Directive 2019/944 is being implemented in the Netherlands by a bill containing rules on energy markets and energy systems (the "Energy Act"). The proposal for an Energy Act was submitted for consultation on 17 December 2020. The Energy Act will replace the current Gas Act and Electricity Act 1998 and aims to provide a transparent and future-proof framework for both electricity and gas. The Energy Act has the aim of supporting the energy transition and contributing to a sustainable, low-carbon energy supply that, according to the proposal, must be spatially compatible, safe, reliable and affordable. Among other things, the bill further elaborates the frameworks for future system integration, sets preconditions for the way in which energy data is collected, aims to encourage active consumers to participate in the energy transition, and should protect consumers more.
As of 1 January 2021, all new buildings, both residential and non-residential, must meet the requirements for "nearly energy-neutral buildings" (BENG). These requirements arise from the Energy Agreement for Sustainable Growth (Energieakkoord) and the European Energy Performance of Buildings Directive (EPBD).
The Netherlands Offshore Wind Energy Act (Wet Windenergie op Zee) was implemented in 2015 to simplify and accelerate the decision-making process for the realisation of offshore wind projects. On 9 February 2021, the House of Representatives (Tweede Kamer) adopted a bill to amend the act. Pursuant to this bill, the procedures for granting licences are extended and adapted to deal with the situation in which wind energy at sea requires less or no subsidy. Moreover, a new division of powers among the relevant ministers is laid down in the bill, as well as an amendment of the Act so as to ensure that it will also be suitable for energy carriers other than electricity.
The current coalition government, which consists of four parties, has been in power since 2017. These parties have agreed to conclude a Climate Agreement (Klimaatakkoord) with relevant stakeholders. This climate agreement is part of the Dutch climate policy and was concluded and presented in June 2019. The government's central goal with the Climate Agreement is to reduce greenhouse gas emissions in the Netherlands by 49% in 2030 compared to 1990 levels. The three key issues of the Climate Agreement are:
Furthermore, as from 2013, the Energy Agreement is in place. Even though this is already in place, it includes arrangements that will impact the future of coal-based power stations. For further information, please see 1.8 Unique Aspects of the Power Industry and 3.3 Principal Laws and/or Policies to Encourage the Development of Alternative Energy Sources.
In relation hereto, the Energy Report – which lays down the government's vision for the period after the Energy Agreement up until 2050 – should also be mentioned. This has also been discussed in the Energy Dialogue, a platform organised by the government to discuss the energy transition with businesses, organisations and the public. The output from the Energy Dialogue has been used as a building block for the Energy Agenda. The Energy Agenda is based on overarching themes for the entire energy transition and describes the choices to be made and the steps that must in any event be taken to reach the long-term 2050 objectives.
On 20 December 2019, the Dutch Supreme Court (Hoge Raad) upheld the previous decisions in the so-called Urgenda climate case. As a result, the court order to the state to reduce greenhouse gas emissions in the Netherlands by 25% by the end of 2020 remains in place. Following the Urgenda decision, the Dutch Cabinet presented on 24 April 2020 additional measures to comply with the judgment. An example of these measures is to limit electricity production with coal by the end of 2020. The aim is to achieve an additional CO₂ reduction of 5–7.5 megatons (MT), while also keeping the coal-fired plants in a position to deal with any security of supply risks.
Furthermore, on 30 March 2020 the MEA issued the government's Hydrogen Vision, including medium and long-term policy objectives for the development of a green hydrogen policy. The Hydrogen Vision fits well within the framework of the Climate Agreement, which called for the launch of a national hydrogen programme by the Dutch government.
On 6 July 2020, the Social and Economic Council (Sociaal-Economische Raad) advised the Dutch government to scale down subsidies on biomass for the production of electricity and heat. This conclusion is remarkable, because it is at odds with the government's policy so far. The Social and Economic Council is an important advisory body in which employers, employees and independent experts work together to reach consensus on important social economic issues, and to advise the government accordingly.
Last but not least, two recent court cases are relevant in this context – the RWE case and the Shell case.
The RWE Case
In February 2021, the Germany-based energy company RWE initiated arbitration proceedings against the Netherlands before the International Centre for Settlement of Investment Disputes in Washington (D.C.). Under the Energy Charter Treaty, RWE claims compensation for the premature mandatory decommissioning of the hard-coal-fired Eemshaven power plant – per 2030 – pursuant to the 2019 Act to phase out the use of coal for generating electricity (ICSID Case No ARB/21/4). RWE has announced that it may also take legal action against the Dutch government before the Dutch courts.
The Shell Case
As a result of legal action brought by Friends of the Earth Netherlands (Milieudefensie), together with six other non-governmental organisations and more than 17,000 individual co-plaintiffs, the Hague District Court ruled on 26 May 2021 – in what is generally considered to be a landmark decision – that Royal Dutch Shell plc (RDS) is obliged to reduce CO₂ emissions of the Shell group's activities by a net 45% by 2030, compared to its emissions in 2019, through the Shell group's corporate policy.
This reduction obligation includes RDS' own emissions (Scope 1 emissions), but also the emissions by its energy suppliers (Scope 2 emissions), and all other indirect emissions resulting from its activities, including emissions by the end-users of its products (Scope 3 emissions). For the Scope 1 emissions, the court imposes an obligation of result, meaning that, leaving Acts of God aside, RDS can only meet this obligation by achieving the result. For Scope 2 and Scope 3 emissions, the reduction obligation is a serious best-efforts obligation, meaning that RDS is expected to take the necessary steps to eliminate or prevent the serious risks arising from these CO₂ emissions, and to use its influence to minimise any lasting effects.
The courts derives this reduction obligation from the unwritten standard of care (ongeschreven zorgvuldigheidsnorm) applicable to RDS, which the court has fleshed out using the facts, widely held insights and internationally accepted standards.
The court points to the fact that the CO₂ emissions of the Shell Group, its suppliers and consumers exceed those of many countries. They contribute to global warming, which leads to dangerous climate change and poses serious risks to human rights, such as the right to life and family integrity. It is generally accepted that companies should respect human rights.
It is the first time that a court order has been issued against a private company obliging it to reduce its total CO₂ emissions by a fixed percentage within a certain period of time.
Currently, the transition of a traditional fossil fuel-driven energy market to a renewable energy market is a hot topic in the Netherlands. This is also because of the ongoing problems pursuant to a series of earthquakes in the north-eastern part of the Netherlands where the largest natural gas field is located. As a consequence, the government has decided to stop natural gas production within the next few years, but in any event by 2030. This has led to a different pace in working towards the original target to achieve an electricity market in the Netherlands that is driven by renewable energy. This all started with the Energy Agreement in 2013.
In September 2013, the Dutch government and a number of stakeholders reached a society-wide Energy Agreement for Sustainable Growth (the "Energy Agreement"), laying out the actions needed to reach certain targets for 2020. On the basis of the Agreement and the Climate Agenda of October 2013, the country reaffirmed its ambition to reduce carbon dioxide emissions in the transport sector by 17% by 2030 and by 60% by 2050. It also supports an EU-wide reduction in greenhouse gas emissions of at least 40% by 2030 and further reductions of between 80% and 95% by 2050, in line with international commitments. The government considers this 40% goal by 2030 a minimum commitment.
The Energy Agreement unites various organisations, including the Dutch central and local government, employers’ associations, trade unions, financial institutions, environmental organisations and other civil society organisations. The Energy Agreement has the goal of aligning the interests of the various involved parties towards a more sustainable and secure energy supply, of creating additional jobs in the energy sector and lower prices for consumers. Two main targets of the Energy Agreement are to achieve an average energy consumption saving of 1.5% per year and an increase of the renewable energy share to 14% by 2020 and 16% by 2023, with as its ultimate goal a fully renewable energy generation industry by 2050.
The wholesale electricity market in the Netherlands is governed by the Electricity Act and has various aspects. Electricity can be traded or exchanged via two official electricity exchanges, APX and ICE Endex. APX is an electronic exchange for spot market trading, offering day-ahead trading and intraday trading. It is part of the pan-European energy trading platform EPEX Spot. ICE Endex facilitates the trading in electricity in the form of futures.
Electricity is also traded directly between trading parties or via a broker on the over-the-counter market. Furthermore, the TSO, TenneT, operates an imbalance market for regulating reserve capacity, assuring that the balance between electricity injected into and taken from the Dutch electricity network is preserved. On this single buyer market, parties can offer regulating or reserve capacity to TenneT.
In order to be able to supply electricity to consumers and small businesses, a licence is required from the ACM. The ACM also establishes the tariff structures and conditions for the transmission of electricity and supervises TenneT, which has primary responsibility for the transmission of electricity from producers to consumers.
Moreover, TenneT is responsible for supervising and recognising each balance responsible party (BRP, formerly also known as programme responsible party). Any party that has a connecting point to the electricity network bears balance responsibility for such connecting point. This means that the BRP is obliged to draw up programmes relating to expected electricity supply to, and expected consumption from, the electricity network. These electricity programmes have to be supplied to TenneT on a daily basis. TenneT settles the differences between the volumes agreed and the actual measured volume.
To be able to trade on APX and ICE Endex, membership is required. Each of these platforms impose their own regulations on members. Exchanges for derivatives fall under the supervision of the Financial Markets Authority since derivatives may qualify as financial products within the meaning of the Markets in Financial Instruments Directive (MiFID), which has been implemented in the Financial Supervision Act.
Finally, in this context, corporate power purchase agreements (PPAs) should be mentioned. Both direct and virtual PPAs are allowed in the Netherlands. Direct PPAs are made between an energy generator and an end user and provide for physical supply to the end user by the generator. In virtual PPAs the electricity does not necessarily come from the energy generator's own generation facility. In the Netherlands an electricity producer can sell electricity at the meter from the point of exit of the generation facility to the end user, even in the absence of a direct physical connection. The end user purchases electricity through the virtual PPA, together with the associated guarantees of origin. The latter are most times used by the end user to set them off against its own electricity consumption or to trade them on the guarantees of origin market, which is facilitated by CertiQ, the Dutch authority issuing and supervising the guarantees of origin market.
In respect of electricity, the Dutch government stimulates TenneT as TSO as well as DSOs to work cross-border, since an integrated north-west European energy market simplifies trade and enables network operators to invest elsewhere in Europe. Moreover, electricity can then be generated at the most cost-efficient location. TenneT, in its role of TSO, is responsible for the operation and construction of cross-border interconnections.
With four connections with Germany, two with Belgium, one with Norway (NorNed, 580 km long and with a capacity of 700 MW, the world’s longest high-voltage subsea direct current link) and one with the UK (BritNed, a two-way 1,000 MW high-voltage direct current connection with a length of 260 km), the Dutch electricity network forms an important link in the north European electricity grid. Moreover, TenneT and Energinet.dk – the TSO of the Danish high-voltage electricity network – have installed a high-voltage direct current submarine cable (the COBRA cable) that interconnects the electricity grids of the two countries.
TenneT is able to recoup its investment costs by auctioning off the available transmission capacity on the interconnector to the highest bidder. Capacity at the interconnectors is made available to the market through the Joint Allocation Office. This central European interconnection capacity auction office has been set up by 20 TSOs throughout Europe, including TenneT. The rules applicable to the auction have been included in the Network Code, a regulation issued by the ACM.
According to the Dutch national statistical office, Statistics Netherlands (Centraal Bureau voor de Statistiek,CBS), the following division of energy sources in the Netherlands applied in 2020:
However, the supply mix specifically for electricity is different. In February 2020, the Netherlands produced on average 10.3% of its final energy consumption in the form of renewables compared to 8% in the previous year, according to research by EnTranCe, Centre for Energy Expertise. In February 2020, power consumption, including transmission losses, has been estimated at 10.2 TWh. This resulted in the following Dutch fuel supply mix for electricity:
Next to European Union rules, the principal laws relevant for the Dutch electricity market are (i) the Competition Act (Mededingingswet), and (ii) the Electricity Act.
The principal merger control provisions are set out in Chapter 5 of the Competition Act. If a party or combination of parties have more than 40% of the market, a dominant position will generally be considered to exist. In case of a market share of more than 50%, dominance may be presumed. Undertakings with such market share must ensure they do not abuse their dominant position (the prohibition of abuse of a dominant position is laid down in Article 24 of the Competition Act).
While the prohibition of abuse of a dominant position does not provide for any exemptions, it does allow for the possibility of obtaining a waiver (Article 25 of the Competition Act). Undertakings entrusted with the supply of services of general economic interest may request such waiver.
The ACM is the authority for matters in relation to Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation). The ACM is responsible for the enforcement of the Competition Act.
If the thresholds set out in Article 29 of the Competition Act are met, the filing of a notification is mandatory. These thresholds are as follows:
Although there are further specific criteria regarding gas assets, no such further criteria exist for the Dutch electricity sector. If merger control rules are not observed, the ACM may impose an administrative fine of up to EUR900,000, or 10% of the annual turnover of an undertaking, whichever is higher. In case of an implementation of a concentration before approval or after prohibition, the same fines apply.
The principal laws are (i) the Competition Act, and (ii) the Act Establishing the ACM (Instellingswet ACM).
As mentioned in 2.4 Principal Laws Governing Market Concentration Limits, the authority responsible for the enforcement of competition rules in the Netherlands is the ACM. The ACM has investigative and enforcement powers. The ACM can perform dawn raids, either in its own name or on behalf of the European Commission. ACM officials are authorised to enter premises, ask for information, demand inspection of documents and copy data.
In addition to the administrative fines specified in 2.4 Principal Laws Governing Market Concentration Limits, the ACM may impose fines on individuals of up to EUR900,000. Finally, the ACM may also impose an order that the undertakings concerned cease or reverse the infringement. This order may be subject to periodic penalty payments.
To combat climate change, the Dutch government wants to reduce the Netherlands’ greenhouse gas emissions by 49% by 2030, compared to 1990 levels. This follows from the coalition agreement (please see 1.7 Announcements Regarding New Policies). In view thereof, the government submitted a bill for the Climate Act (Klimaatwet) to Parliament in June 2018. This Climate Act was adopted in May 2019 by Parliament, establishing a long-term legal framework for government climate policies. It calls for a 49% reduction in greenhouse gas emissions by 2030, compared to 1990 levels, and a 95% reduction by 2050. The Act intends to provide individuals and businesses in the Netherlands with more certainty about the climate goals.
The Climate Agreement (Klimaatakkoord) was concluded in June 2019 and contains agreements with industry sectors on what they will do to help achieve the climate goals. The participating sectors are: electricity, industry, built environment, traffic and transport and agriculture.
The Netherlands have also committed to several international agreements on tackling climate change, such as the 1992 UN Framework Convention on Climate Change and the Kyoto Protocol of 1997, which lays down different emission reduction targets for different countries and allows countries to trade in emissions. In 2015, the Netherlands signed up to the UN climate agreement at the Paris Climate Conference. The Dutch climate policy is based on the findings of the Intergovernmental Panel on Climate Change (IPCC).
Energy and carbon taxes in the Netherlands are levied within the framework of the 2003 EU Energy Tax Directive, which sets minimum rates for the taxation of energy products in member states. Within this framework, the main taxes on energy use in the Netherlands are the following:
The tax rates at which these taxes apply differ across fuels and different users. Fuels used to generate electricity benefit from a full refund on the tax paid, if the installation has a capacity of more than 1 MW. It is assumed all users benefit from the full refund on the tax paid on fuels used for electricity generation. The government is currently considering the introduction of a carbon tax to tackle climate change. This may affect, in particular, the energy-intensive industrial processes (metallurgic, electrolytic and chemical reduction processes), which are currently exempt from the tax on electricity output.
There are no incentives provided by the government to encourage the early retirement of carbon-based generation. However, on 18 March 2019, a bill was proposed to Parliament, subsequently adopted by the Senate on 10 December 2019, that targets the phasing out of the use of coal for generating electricity (Wet verbod op kolen bij elektriciteitsproductie). The bill, which became effective on 20 December 2019, prohibits the use of coal in power generation plants for generating electricity. Pursuant to the bill, these power stations will be prohibited as from 1 January 2025. Power stations with less than a 44% yield in generating electricity will be prohibited as from 1 January 2030.
In the explanatory memorandum to the bill, the MEA explains that the substance of the bill has been foreseeable for the owners of the relevant power stations. Therefore, in principle, the owners of the power stations will not be compensated for their stranded assets. However, compensation will be possible if the owner of the power station can demonstrate that the measures will affect it disproportionately. As explained above (see 1.7 Announcements Regarding New Policies), RWE has initiated arbitration proceedings, seeking compensation for the mandatory early decommissioning of its Eemshaven power plant.
Of the five coal-fired power plants in use in the Netherlands in 2019, the Hemweg power plant has been shut down in December 2019. The next power plant designated to close down is the Amercentrale, in 2025. The remaining three plants have to follow within five years thereafter.
Pursuant to the Energy Agreement, the Netherlands have set the targets of having in 2020 14% of the energy needed to be generated by renewable energy facilities; by 2023, this should be 16%. The Energy Agreement provides for a number of measures to scale up renewable energy generation, by means of a strong focus on onshore and offshore wind farms and the closing down of coal plants.
The Energy Agreement also provides for tax incentives for consumers to generate their own renewable energy and for insulating their houses and other incentives such as the renewable energy incentive subsidy scheme (SDE++, standing for Stimulation of Sustainable Energy Transition, previously known as the Stimulation of Sustainable Energy Production, or SDE+).
The SDE++ scheme is an operating subsidy aimed at businesses, institutions and non-profit organisations. While pursuant to the original SDE+ scheme, producers of renewable energy received financial compensation for the energy they generate (effectively neutralising the difference between the generally lower cost price of energy derived from fossil fuels and the higher cost price of energy derived from renewable resources), under the SDE++ scheme various technologies compete on the basis of amounts of carbon dioxide (CO₂) and other greenhouse gases that have been avoided. The goal of the SDE++ scheme is to reduce CO₂ and greenhouse gas emissions by 49% by 2030 (compared with 1990 levels).
The Energy Agenda is a policy document that can be considered as a follow-up on the Energy Agreement. It discusses overarching themes for the entire energy transition and describes the choices to be made to implement the energy transition from a carbon-based energy system in the Netherlands to a renewable energy-based energy system.
The offshore wind electricity policy is laid down in the Offshore Wind Energy Roadmap 2030. This policy instrument intends to maintain continuity in the realisation of offshore wind energy to meet the goals set in the Energy Agenda and the Climate Agreement, and to provide a clear policy framework regarding the realisation of offshore wind farms for the market so as to ensure the confidence of wind farm developers, which may result in cost reduction and willingness to invest.
The Energy Transition Progress Act, as discussed in 1.6 Recent Material Changes in Law or Regulation, obviously also plays a role in encouraging the development of alternative energy sources.
Regarding the construction of power plants, the Electricity Act does not impose a specific licence or permit requirement for generation facilities. Consequently, the generic permit framework applicable to construction of buildings in the Netherlands applies. This includes requirements pursuant to both planning and environmental legislation.
The National Co-ordination Regulation (Rijkscoördinatieregeling), which is laid down in the Spatial Planning Act (Wet ruimtelijke ordening) is applicable to energy construction projects. In this procedure, all rulings are to be made available for inspection at the same time. In summary:
Nowadays the focus in the Netherlands is on the construction of renewable energy generation facilities. Typically, these are wind and solar power facilities. Therefore, we will focus on these facilities only, describing the requirement for constructing an onshore wind farm, an offshore wind farm, and a solar power park, respectively.
Onshore Wind Farms
In order to be able to install an onshore wind turbine in the Netherlands, the first step is to report this to the municipal authority in charge. Typically, the applicable zoning plan must allow for wind energy facilities. Wind turbines are subject to general rules for the protection of the environment and the surroundings. Prior to starting to build an onshore wind turbine or wind farm, the initiator must have a Permit for Physical Aspects (Omgevingsvergunning). Sometimes there may also be a need for an environmental permit, as well as other permits and exemptions with respect to aspects of conservation, water management and soil protection. In addition, municipalities may have different additional requirements.
Offshore Wind Farms
Building and operating an offshore wind farm requires a licence under the Offshore Wind Energy Act. The licence application procedure is combined with the application for the SDE++ subsidy. In order to obtain a licence, the applicant must be able to demonstrate that the construction and exploitation of the wind farm is financially and technically practicable and economically feasible within the term stated in the application. Once a licence pursuant to the Offshore Wind Energy Act has been granted, there is no need to obtain other separate licences under the Nature Conservation Act, the Flora and Fauna Act and the Water Act that might otherwise be required. A licence may be granted for a maximum period of 30 years (including construction and removal). The licence is transferable, subject to MEA’s consent.
Solar Power Parks
For the building and operation of a solar power park, the following conditions apply:
In the Netherlands, a private party does not have the authority to take land by eminent domain. Moreover, a Dutch government entity can only implement an expropriation order on the basis of public interest and if compensation of the parties involved has been agreed upon. Expropriations are always preceded by amendments to, or renewal of, the applicable zoning plan.
In order to demolish or decommission a generation facility under Dutch law, it is necessary to comply with the Buildings Decree 2012 (Bouwbesluit 2012). This decree contains the technical regulations that represent the minimum requirements for all structures in the Netherlands. The requirements relate to safety, health, usability, energy efficiency and the environment. Moreover, in most cases there will be a need for a Permit for Physical Aspects (Omgevingsvergunning).
In addition, when undertaking demolition activities regarding a generation facility that result in more than 10 m³ demolition waste or if removal of asbestos is involved, a demolition notification must be submitted to the relevant authority. Normally this is the municipality where the facility is located.
Specifically, in relation to the demolition of a generation facility containing asbestos, firstly a certified asbestos abatement company must be contracted to inspect the building. Then, after submitting a demolition notice, the certified asbestos company must remove the asbestos.
If the generation facility to be demolished is a protected monument, an all-in-one Permit for Physical Aspects is needed in addition to the demolition notification.
Apart from the above, specific municipal building rules may apply, relating for example to urban planning and to how to deal with contaminated land. Such building rules may differ from one municipality to another.
The Electricity Act prescribes that the high voltage network and the interconnector networks are built, extended, operated and maintained by a network operator appointed by the MEA (ie, the TSO). As pointed out above, the Dutch TSO is TenneT. Pursuant to the Electricity Act, the TSO must have ownership of the high voltage network it operates. The TSO also needs to secure safe, reliable and efficient electricity transport, provide a connection to the network and look after the safety of the use of electric installations. The TSO is also in charge of the operation of existing and future interconnectors. This task is likely to be expanded to the construction and operation of an offshore network.
Besides the Electricity Act, the Network Code is relevant since it sets out arrangements between the TSO and connected parties in order to enable the TSO to provide transmission services. Furthermore, it sets provisions regarding the high voltage network, as well as for determination and allocation of transport capacity on cross-border connections.
New high voltage electricity transmission lines with a voltage level of 110 kV and 150 kV are, in principle, laid underground, while new transmission lines with a voltage level of 220 kV and 380 kV will be installed above ground. Quite often, a route of a new high voltage transmission line has not been included in the applicable zoning plan. In that case, the zoning plan must be either changed or deviated from by a new environmental permit. For connections from 110 kV and 150 kV, the municipality is the competent authority. The procedure as specified in 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities is applicable.
If for a new transmission network connection, the zoning plan needs to be amended; the procedure as laid down in the Spatial Planning Act (Wet ruimtelijke ordening), as specified in 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities, applies. In addition to the procedure for the amendment of the applicable zoning plan, local municipal participation rights may apply. Pursuant thereto, interested parties may have the right to present their views on the proposed change of the zoning plan.
In addition to the amendment of an applicable zoning plan, there may be a need for the TSO (or the relevant DSO in case of electricity distribution lines) to apply for a Permit for Physical Aspects (Omgevingsvergunning). Such permit application has to be submitted to the competent authority (usually the municipality). Said competent authority will have to make an assessment of the permit application against the eligible policy framework, including applicable laws, zoning plans and regulations.
For the construction of an electricity transmission line, an agreement has to be reached with all property owners concerned. However, in case parties are unable to come to such an agreement, the Minister of Infrastructure and Environment can impose upon the property owner an obligation to consent (gedoogplicht) under the Public Works Act (Belemmeringenwet Privaatrecht). Such an obligation to consent will only be imposed if the applicant that wishes to construct, (ie, the TSO, or the relevant DSO in case of electricity distribution lines) can prove that it is in the public interest to indeed have the transmission line constructed. A decision pursuant to the Public Works Act is subject to judicial review. The property owner may claim damages.
Pursuant to the Electricity Act, TenneT is responsible for the transmission of electricity in the Netherlands to large companies and DSOs, who in turn pass it on to households, businesses and non-commercial organisations. The government has decided that TenneT is the only operator that is entitled to transmit high voltage electricity. In other words, TenneT, which is a wholly state-owned enterprise, holds a monopoly in the electricity transmission market of the Netherlands.
The ACM supervises TenneT on behalf of the MEA. Its task is to ensure that TenneT does not make any unnecessary or needlessly expensive investments in the maintenance and expansion of the electricity network, and also that TenneT does not overcharge its consumers for the transmission of electricity. The ACM is also responsible for setting standards for the network’s quality and capacity.
The Minister of Finance manages TenneT as a state-owned enterprise, acting as the sole shareholder on the state’s behalf.
The Electricity Act and the Tariff Code, a regulation issued by the ACM, are the two principal sources of regulation of transmission charges, connection tariffs and service terms. The Tariff Code contains a description of the tariff structures governing connection, transmission and system services. In fixing the tariff structures and technical codes, the ACM takes into account the aim of securing a reliable, sustainable and effective electricity supply.
Pursuant to the Electricity Act, there are two regulated tariffs: the tariff for transport services and the tariff for supply services. The tariffs for the supply services have been liberalised, whereas the tariffs for transport services remain regulated.
For the regional distribution networks, a yardstick regime is applicable. Pursuant to this regime, the allowed annual change in average industry charges is restricted to equal CPI–x%, whereby "CPI" relates to changes in inflation and "x" refers to expected efficiency improvements. CPI–x is an incentive-based form of price/revenue control whereby the regulator sets a price-path for the utilities.
Changes in price or revenues of controlled goods and services are limited to: (i) the increase in a general price index – ie, the consumer price index (CPI) minus (ii) a factor (x) determined by the regulatory authority, the ACM, to reflect anticipated efficiency gains that will lower the cost of producing the regulated goods and services. The ACM determines the anticipated efficiency gains.
In addition, there is an adjustment for quality of service performance possible. Such an adjustment is again to be established by the ACM, and is referred to as the "q factor" (ie, quality factor).
The tariffs set by the ACM include an appropriate return, based on a WACC (“weighted average cost of capital”) method. This WACC gives an allowance for both the cost of debt and the cost of equity. When setting the WACC, the ACM looks at the market return instead of the actual costs that the system operators face. By looking at the market return, the ACM ensures that the return is no higher than what would be appropriate in a competitive environment. If, according to the ACM, they looked at the actual costs of a system operator, they would have an incentive to drive up the costs for debt and equity.
The WACC (real, pre-tax), for all system operators, was set at 4.3% in 2016 and 3.0% in 2021. The method takes into account embedded debt. The ACM applies the same WACC for the TSO and the DSOs, because the reference group it uses for the WACC is representative for both TSOs and DSOs.
As the TSO, TenneT has a duty to provide non-discriminatory network access to any party; this duty has been enacted in the Electricity Act. Network capacity shortage and technical reasons are the only reasons for refusing transmission and/or a network connection. When implementing the first EU Electricity Directive, the Netherlands has chosen regulated third-party access to the networks.
The technical terms and conditions to ensure regulated third-party access to the electricity transmission and distribution networks are laid down in the specific codes – ie, the Network Code, the System Code and the Metering Code. The substance of these codes can be modified by the ACM, on the basis of a joint proposal by the TSO and the DSOs.
The Network Code also provides for service level criteria for customer services to be met by the relevant network operator, for financial compensation of consumers in case of a network failure.
Under the Electricity Act the distribution networks are operated by seven regional DSOs. The Electricity Act prescribes that they only need to have economic ownership (ie, not legal ownership) of the distribution networks they operate. DSOs need to operate, maintain and extend existing distribution networks, and build new distribution networks. This duty is imposed by the Electricity Act. Moreover, the Network Code may be relevant in this context.
The procedure as specified in 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities is applicable.
Please see 5.1.3 Terms and Conditions Imposed in Approvals to Construct and Operate Transmission Facilities, which also applies to distribution.
Please see 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights, which also applies in regard to distribution.
DSOs have an exclusive right to construct and operate distribution networks in their defined geographical area. As previously pointed out, the Electricity Act prescribes that in order to be allowed to operate a distribution network, a separate company must be appointed as "electricity network operator" by the owner of the distribution network, with ministerial approval by the MEA. To further secure their independence, acquisitions of (i) distribution networks, or (ii) of shares of a DSO, by non-public entities are prohibited pursuant to the Electricity Act.
Please see 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service.
Please see 5.2.1 Principal Laws Governing the Provision of Transmission Service, Regulation of Transmission Charges and Terms of Service.
The year 2021 is likely to go down in Dutch energy history as the year of the Shell case. On 26 May 2021, the Hague District Court ordered Royal Dutch Shell (RDS), both directly and via its group companies, to limit its CO₂ emissions by at least net 45% by the end of 2030, relative to 2019 levels. After the Urgenda case, in which the Dutch Supreme Court ruled that – in accordance with the European Court of Human Rights (ECHR) – the Dutch government should take appropriate measures to contribute in reducing greenhouse gas emissions in its territory; in relation to this, the District Court found that RDS is obliged to ensure through the Shell group's corporate policy that the CO₂ emissions of the Shell group, its suppliers and its customers are reduced. We will discuss this landmark case below.
The Shell Case
The Shell group is one of the world's largest producers and suppliers of fossil fuels. The CO₂ emissions of the Shell group, its suppliers and customers, exceed those of many countries. This contributes to global warming, which causes dangerous climate change and creates serious human rights risks, such as the right to life and the right to respect for private and family life. It is generally accepted that companies must respect human rights. This is an individual responsibility of companies, which is separate from states' actions. This responsibility also extends to suppliers and customers.
The Court, applying Dutch law, concluded that RDS is obliged, through the Shell group’s corporate policy, to reduce the CO₂ emissions of the Shell group’s activities. This reduction obligation follows from the (unwritten) standard of care laid down in Section 6:162 DCC (which deals with unlawful acts), which means that acting in conflict with what is generally accepted according to unwritten law is unlawful.
In its interpretation of the standard of care, the Court took into account the following circumstances:
On the basis of these circumstances, the Court concluded that RDS is obliged to reduce the CO₂ emissions of the Shell group’s activities by net 45% by the end of 2030, relative to 2019, through the Shell group’s corporate policy.
This reduction obligation is an obligation of result (resultaatsverbintenis) for the activities of the Shell group, with respect to which RDS may be expected to ensure that the CO₂ emissions of the Shell group are reduced to the aforementioned level.
The reduction obligation is a significant best-efforts obligation (inspanningsverbintenis) with respect to the business relations of the Shell group, including suppliers and end-users (“Scope 3”). According to the Court, RDS may be expected to take the necessary steps to remove or prevent the serious risks ensuing from the CO₂ emissions generated by its business relations, and to use its influence to limit any lasting consequences as much as possible.
Please note that the Court found that RDS is not presently in breach of its reduction obligation, as the claimants had argued. The Court found that RDS has enhanced the Shell group’s policy and is working it out in more detail. However, seeing as the policy is not specific enough, has many caveats and is based on monitoring social developments rather than the company’s own responsibility for achieving a CO₂ reduction, the Court held that there is an imminent breach of the reduction obligation. Therefore, the Court ordered RDS to, both directly and via the companies and legal entities it commonly includes in its consolidated annual accounts and with which it jointly forms the Shell group, limit or cause to be limited the aggregate annual volume of all CO₂ emissions into the atmosphere due to the business operations and sold energy-carrying products of the Shell group to such an extent that this volume will have reduced by at least net 45% by the end of 2030, compared to 2019 levels.
This is a ruling by the Court in first instance. It is broadly expected that Shell will appeal this ruling, but at the time of writing no information on an appeal was publicly available.
Renewable Energy Sources
Numerous sources for production of renewable energy are currently being utilised in the Netherlands. Such sources include onshore and offshore wind energy, onshore solar energy and, to a lesser extent, biomass (co-)firing, hydropower, geothermal power and heat production, and hydrogen production. As a result of specific government policies, geothermal power and heat production, and hydrogen production are rapidly gaining traction in the Netherlands.
The Netherlands borders the North Sea – a very suitable place for wind energy production due to its relatively shallow waters, favourable wind climate, and proximity to ports and industrial energy consumers. Since 2007, four large wind farms have been realised in the North Sea. Together, these offshore wind farms have a capacity of 1 GW.
In recent years, multiple additional offshore wind farm sites have been tendered and are currently being developed. Interestingly, these tenders have become increasingly competitive, which resulted in multiple sites having been tendered to consortia that submitted offers that did not rely on subsidies. Looking forward, the Dutch government plans to further increase the amount of installed capacity in the North Sea to 4.5 GW in 2023, and 11 GW in 2030.
Another large source of renewable energy in the Netherlands is solar PV projects. The installed capacity of solar PV projects amounts to about 7 GW. The vast majority of these projects have been realised on agricultural lands and rooftops. The Dutch government anticipates that about 30 TWh will be produced by solar PV in 2030.
From SDE+ to SDE++
One of the most important incentive schemes used by the Dutch government to achieve its climate objectives is the Renewable Energy Production Incentive Scheme, Stimulering Duurzame Energietransitie – the “SDE+”. The SDE+ is a subsidy scheme to stimulate renewable energy production. This subsidy will be adjusted this year. Apparently, there was not much impetus for inventing a new name as the renewed scheme is called the “SDE++”.
The SDE++ has a broader goal than its predecessor and is primarily aimed at reducing CO₂. This means that CO₂-saving technologies other than renewable energy production are also eligible for subsidy. This enables the new scheme to make an important contribution in addressing the climate challenges of different sectors.
In essence, the SDE++ is an extension of its predecessor, particularly with regard to the underlying system. Like the existing scheme, the SDE++ assumes compensation for an "operating shortfall" (ie, the difference between the cost price of the product and the market value of the product). For each technique a “base amount” will be determined in advance. The difference between the fluctuating market value of the product and the base amount will be covered by the subsidy. In order to ensure cost-efficiency, the subsidy is allocated in tranches (the cheapest techniques first, and the more expensive techniques only in so far as there are still sufficient funds remaining).
During the opening in 2020, 4,112 grant applications were submitted. A total budget of EUR6.4 billion was requested, while EUR5 billion was available for this round. The aforementioned broadening of the scheme to CO₂ reduction, is visible in the applications that have been submitted. A large part of the budget was claimed by applications (more than EUR2.1 billion) for the capture and storage of CO₂ (CCS). In addition, more than EUR1 billion has been requested for other new CO₂-reducing technologies, such as aquathermal heating, heat pumps, residual heat utilisation and electric boilers. As with previous SDE+ rounds, the category with the most applications and the largest budget claim was solar PV.
Greenhouse emission reduction in the SDE++
As mentioned, the SDE++ focuses on greenhouse gas emission reduction. Techniques are no longer ranked according to subsidy requirement alone, but according to subsidy requirement per tonne of CO₂ reduction realised through the use of the technique. The ranking enables fair competition between the various techniques. However, it also makes the new scheme relatively complex.
In order to qualify for SDE++: the technique must be sufficiently mature (ie, cost-effective); the technique must have sufficient potential to reduce CO₂ emissions; roll-out of the technique on a sufficiently large scale must be possible; the technique should have an operating shortfall compared to a known reference technique; and the best way to remunerate this operating shortfall must be by means of an operating subsidy. Examples of eligible techniques are as follows.
These techniques (and dozens of their variants), ranked according to subsidy intensity (euros per tonne of CO₂ reduction), are included in a list which states the basic amounts, bottom prices, correction amounts and full-load hours.
The maximum subsidy in 2021 for each technique is EUR300 per tonne of CO₂ reduction. Techniques with a higher subsidy intensity are entitled to the SDE++, but for these projects the entire operating shortfall may not be reimbursed.
In principle, the SDE++ system has a single integral budget ceiling. A different maximum applies to renewable electricity from sun and wind, for CCS and for CO₂-reducing techniques used in the industry.
Opening of SDE++ 2021
The opening budget of the SDE++ for 2021 amounts to EUR5 billion. The SDE++ 2021 will open on 21 September 2021, in four tranches.
In the past five to ten years, the Netherlands has experienced a significant growth in the amount of decentralised electricity production, particularly from renewable sources. On top of that, electrification of houses and transport has resulted in increased demand for transport capacity on the grid. As a consequence, system operators are increasingly facing congestion issues in various parts of their grids, particularly in scarcely populated regions, where historic consumption was relatively low. These areas, however, offer vast amounts of agricultural lands suitable for the placement of PV installations and wind turbines. However, as the local electricity grid is not equipped to provide sufficient transportation capacity, developers of renewable projects have taken into account the possibility that no transport capacity is directly available.
Apart from investing in new capacity (which can take between five and eight years to realise), system operators are working on the implementation of a new congestion management regulatory framework, and are at the same time joining forces in a congestion management tender platform on which participants can actively contribute to finding operational solutions for congested areas. Nevertheless the allocation methodology of available transport capacity is currently still an issue that is being litigated up to the Supreme Court.
The energy transition is in full motion in the Netherlands. Remarkably, however, it is the judiciary rather than the legislator that ensures that international targets are met. The Urgenda case and the Shell case demonstrate the judiciary’s willingness to hold the state and those responsible for the country’s largest emissions to their respective obligations under the Paris Agreement. This helps to create even more awareness among the public and businesses that regulations to promote and facilitate sustainability are part of an enforceable international set of rules.