Part of the cabinet's spring memorandum is the announcement of a study into the financing of the electricity infrastructure. The aim is to gain more insight into and control over the size of long-term investments and their financing. The research will start in May 2024. The working group will complete its final report by February 2025 at the latest.
Cause
Electricity forms the basis of the new energy system and for the system to function properly, a significant expansion of the electricity infrastructure is crucial. The current electricity grid has insufficient capacity, extensive investments are required for both the high-voltage grid and the medium and low-voltage grid by regional operators.
The conversion of the energy system is an enormous challenge that requires a long-term and systematic approach. Without clear direction and guidance on what the development of the energy system will look like, grid operators, companies and consumers cannot invest in time to actually realize the conversion.
The government wants to provide sufficient certainty to users to be able to take further steps in the transition, to ensure that competitive position (level playing field for energy-intensive industry) and affordability are guaranteed and to ensure that government and social expenditure remains manageable. However, this grid reinforcement will not happen overnight. The total costs of this are high, which raises questions about affordability for end users and the consequences for public finances. At the same time, choices have to be made about funding and financing, both nationally and at European level, which can influence the total energy costs and their distribution for end users and the national budget.
Electricity infrastructure research (IBO)
That is why the government is ordering an 'Interdepartmental Policy Study (IBO) on Electricity Infrastructure Funding.' The aim is to gain more insight into and control over the scale of investments in the electricity infrastructure in the long term and their financing. Both from a national and European perspective.
Required investments in energy infrastructure other than electricity (e.g. heating networks, hydrogen) are not the focus of this IBO, but are included in the context of interaction effects and the overview of the size of investments.
In addition, recommendations will pay attention to the applicability of the recommendations to other parts of the energy system.
This IBO must lead to concrete policy options that contribute to our competitive position and affordability. We present the research questions in full below.
Extent of costs
- What is the size of the investments required for the transition to 2040?
- What scenarios are there for the size and associated investment costs towards 2040?
Efficiency
- What options are there to increase the effectiveness of investments by grid operators in the Netherlands and international units or to reduce social costs?
- How are feasibility, costs and financeability of network costs (including offshore grid) taken into account in decision-making (both supply and demand stimulation) in the integrated decision-making process?
Distributional effects under current structure
- What other costs are included in the grid rates in addition to the investment costs (e.g. grid balancing costs)? And can these costs be influenced?
- On the basis of which principles has the current distribution been established (e.g. cost reflectivity principle)?
- Where do the costs of expanding and strengthening the networks fall under the current system?
- What effect do these investments have on citizens' grid rates? (What are the different archetype users and what is the impact per archetype?)
- What effect do these investments have on companies' network rates? (What are the different archetype users and what is the impact of each archetype, including on competitive relations?)
- What effect do these investments have on government finances (balance and debt) in the short and long term?
- What (desired and undesired) effects and risks are associated with the current distribution system?
Interventions
What options are there to reorganize the organization of electricity infrastructure in order to limit the costs of electricity infrastructure for society and the budget, taking into account public interests associated with energy infrastructure such as security of supply and sustainability:
- Supply and demand . What targeted measures can be taken on the supply and demand sides of electricity to increase social benefits of investments and limit investment costs?
- Funding . What policy options are there to distribute the investment costs and other costs of grid operators (electricity) differently? (explore broadly, from budget to adjustment of depreciation periods, rate differentiation, etc.).
- Regulation . Is the legal (European and Dutch) framework and the associated authority of the ACM still sufficient in this phase of the energy transition?
- Financing . What options are there to reorganize the financing structure of the grid operators, in order to limit the costs for society and the budget of electricity infrastructure? Any consequences for governance and the application of the participation policy are outlined in the pros and cons of the options.
- Conditions . Which interventions aimed at preconditions (e.g. capacity of grid operators, spatial planning/energy planning, role of local authorities) are likely to limit social costs?
Assumptions
Mapping all required investments in the electricity grid is part of the IBO. The IBO will not comment on the (un)desirability of the climate objectives or advise on the desirability of specific energy sources (offshore wind, nuclear power plants). The choices and developments as outlined in the National Energy System Plan (NPE) are the starting point. The IBO looks at first-order distribution effects for various groups of end users (households and different types of companies) and the government.
The IBO rules prescribe that at least one savings variant of ‒ 10 to ‒ 20% is developed. This IBO is an exception to this, because it has already been decided to make major investments in the electricity grid and the government also considers these necessary to cope with the climate transition. Naturally, the financial consequences of the various policy options must be mapped out. Redistribution also plays a major role in this IBO, because the investments come not only from the government, but also from private investors, companies and citizens.
Organization and steps
The working group consists of representatives of FIN, EZK, BZK and SZW. Experts from CPB and PBL are also requested to participate in the working group. ACM, TenneT and (regional) grid operators are involved as directly as possible to contribute their technical and financial knowledge. The working group is led by an independent chairman. The chairman is supported by secretaries of the ministries of FIN and EZK. The research will start in May 2024. The working group will complete its final report by February 2025 at the latest. This IBO will also include external studies on this theme. The size of the report does not exceed thirty pages plus a summary of a maximum of five pages.
Source: appendix 12 of the Spring Memorandum 2024
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