Developments within society and the energy market

The energy transition is visibly accelerating, and the Climate Agreement is being implemented in the form of Regional Energy Strategies (RES), Cluster Energy Strategies (CES), transition visions for heat and other plans. This is still not progressing fast enough, however, and politicians and policymakers confirmed that view at the climate conference in Glasgow last November. The European Union revised its goals upwards in 2021 and is now aiming for a 55% net reduction in greenhouse gas emissions by 2030 compared with 1990. The European Commission presented its Fit for 55 package of measures for that purpose. The Dutch government likewise formulated more ambitious goals in the coalition agreement. A 55% reduction is included as a goal in the Climate Act, and policy is based on a 60% reduction.

The sector

We are seeing large-scale sustainable generation being initiated both offshore and onshore. Offshore wind farms are being developed with ‘landfall points’ for the high-voltage grid. We are also seeing onshore wind & solar farms in the RES. Total capacity of solar panels on the roofs of residential properties, for example, grew by 28% in 2021. The built environment is and remains a complex playing field, given the diversity of buildings and stakeholders, as well as the often high costs of enhancing sustainability. While a large majority of the municipalities in the area of operations of Stedin and Enduris have a transition vision for heat, they have often not yet taken the step towards its actual implementation in projects. A successful example is provided by the Implementation programme RES 1.0 in the province of Zeeland. In this programme, we cooperated with municipalities, small and medium-sized businesses in Zeeland, the province, civil-society organisations and the water authority to define priorities. This implementation plan describes the goals and projects that will be committed to for at least the next two to three years in order to achieve the climate goals by 2030. On the industrial side, we are involved in the CES of Rotterdam-Moerdijk and Terneuzen, among others. There are plans for both, with concrete projects that will be executed in the next five to seven years. Their impact relates principally to TenneT's high-voltage grid. The part that relates to Stedin does not go beyond, for the time being, the boundaries of the scenarios that we had anticipated. It remains to be seen what impact the coalition agreement might have on this.

The increase in electric transport is clearly visible. The charging infrastructure is growing rapidly, and in several locations we are successfully utilising smart charging to avoid or at least postpone grid reinforcements. We are also seeing that the electrification of public and other bus transport is being increasingly implemented.

Grid capacity and voltage quality

Congestion occurred in 2021 in the Middelharnis region, at business parks in Dordrecht and in Utrecht. The latter was attributable to the transmission cap that TenneT imposes on us owing to the capacity shortage in the high-voltage grid. Further problems regarding our transmission capacity and voltage quality may occur. We therefore actively took part in the process of drawing up the RESs and performed calculations to indicate where we expect capacity issues. We are investing in grid reinforcement at present and in the future to facilitate the plans in the region.

We are also seeing that many municipalities are committing to utilising rooftop surfaces in order to install solar panels there. In our opinion, a number of actions are required to ensure that the situation remains manageable in the years ahead. On the one hand, it is necessary at a central government level to programme and prioritise sustainability developments, so as to remain in control of infrastructure. On the other hand, it is essential for grid managers’ capital position to be strengthened so as to be able to continue financing investments. It is also important for system costs and infrastructure costs to be included at the start of sustainability projects. This can be taken into account in the Sustainable Energy Generation Incentive (SDE++) scheme, for instance.

Laws and regulations & Politics

Both at the EU level and at the national level, the goals and policy directions must continue to be made more specific in the next few years. The Ministry of Energy & Climate Policy (formerly Economic Affairs and Climate Policy) has drawn up the Energy Act 1.0, in which the Electricity Act and the Gas Act are also combined, at the same time, for this new legislation. This is still under development after formal consultation. An impact analysis of the Energy Act 1.0 has confirmed that this piece of legislation impacts, to a greater or lesser extent, virtually all the processes undertaken by grid managers. Implementation will take place in the coming years.

The Collective Heat Supply Act (Wet Collectieve Warmtevoorziening, WCW) is an adjacent bill that is still undergoing drafting. Collective heating supply in the form of heat grids is a key element of the energy transition. In the service area of Stedin Group especially, large-scale heat grids are a realistic vision for the future. They are high on the agenda of several municipalities and can contribute to remedying the electricity shortages that are affecting a number of regions. The decision to build a heat transmission pipeline between Rotterdam and The Hague is also providing an impetus to heat grids.

It is very busy below ground in the Netherlands in terms of infrastructure, and this is increasingly playing a part in societal considerations in the energy transition. This can lead to relocation and/or replacement of existing infrastructure. Stedin accordingly foresees an increasing convergence of the critical infrastructures for electricity, gas and heat in the long term, which makes the construction and management of heat grids logical tasks for a network group as well. Municipalities are seeking expansion of the possibilities and a model with independent public grid management. We endorse that model: it is a good option that preselects the right lane towards a future in which energy carriers converge.

There is still a great deal of uncertainty regarding laws and regulations. On the one hand, both the EU and the central government are pushing targets further upwards, on the other, there is much uncertainty about specific implementation. Examples include the allocation of the costs of the transition and the exact tasks and responsibilities concerning heat grids. This has a considerable strategic impact on Stedin Group. We take account of differing scenarios in our strategy, and this influences our investment plans.

The completion timelines of projects are too long, partly owing to permit procedures. Around 70% of the completion time is taken up by decision-making procedures. This impacts the pace at which we can make the energy transition possible. Netbeheer Nederland has repeatedly raised this issue and in 2020 called for this time for procedures to be halved. In June 2021, the grid managers appealed to the parties engaged in coalition talks to adapt laws and regulations in order to accelerate the overhaul of the electricity grid. In October, they proposed a ‘fast lane’ to expedite handling of procedures. In June 2021, Ed Nijpels, chair of the Climate Agreement, advocated for ‘emergency legislation’. In July 2021, a motion was submitted in the House of Representatives to accelerate completion times.

Socioeconomic aspects

We experienced in 2021 how a combination of geopolitical factors, the discontinuation of gas production in Groningen and the lagging pace of enhancing sustainability exposed a vulnerability. The affordability of energy has come under pressure, partly owing to the reduced availability of natural gas, and the market was also disrupted by insolvencies. Private individuals were faced with disconnection by insolvent suppliers or owing to energy shortages. The higher energy costs also pushed up the costs for our network losses. The purchasing strategy for network losses was adapted in the past year, sharply reducing this risk, as a result of which it ceased to form a strategic impediment.

We are also seeing that the challenge entailed by the ageing and scarcity of technical staff is and remains undiminished. That applies not just to us but to numerous sectors and is therefore a nationwide problem we must work on jointly with all partners. This means cooperating with parties such as the central government, vocational education and parties within the sector. This challenge now appears to be as significant for the transition as the financing challenge.

Grid managers are currently having to contend with a scarcity of materials. If we are short of materials, this may hamper our ability to carry out grid modifications and customer requests without delays, making us a limiting factor in the energy transition. Steel prices have risen by around 70% in the past year, owing to uncertainty about the continued survival of a number of steel plants and growing demand for steel throughout the world. Copper prices are likewise expected to rise because of growing demand driven by the energy transition and a supply gap as a result of limited new mine openings. As a consequence of those high prices, we are seeing sharp cost increases on our projects ranging from 5% to sometimes as much as 80%. Stedin continues to monitor these worldwide shortages of various raw materials We are focusing in this connection on reciprocal knowledge sharing with the sector and other market parties in order to counteract potential materials shortages in advance. Stedin is at present not yet impacted substantially by the materials scarcity, but maximum efforts are required to counteract it.

COVID-19 continued to have an impact in 2021, and we expect this to persist in 2022. On the one hand, the strategic impact of the virus is indirect: transmission demand and the pace of the energy transition are largely determined by economic growth and the impact the virus has on it. On the other hand, the impact is direct, and we have adapted our way of working accordingly. For office staff, working 50% from home is the new normal, and Stedin has implemented this ‘hybrid way of working' in Stedin@work. This policy makes it possible to ‘move in sync’ with the dynamics of the virus and any temporary tightening of nationwide measures. In addition, the virus has consequences for our work outdoors and at customers, such as the 1.5 metres social distancing requirement when carrying out work and visiting customers. We have adapted our business processes and protocols to this. COVID-19 also entailed staffing challenges. This did not hamper our operational performance in 2021 on a recurring basis.

Technology+

We are seeing that various technologies are maturing and slowly but surely becoming more viable for consumers and businesses in terms of pricing. Examples include solar panels, electric vehicles, hybrid and other heat pumps and smart devices in the home (domotica). The availability of reliable data is becoming increasingly important to ensure that technologies operate effectively and to make new transactions possible. This requires

additional investments in our electricity grids and real-time grid management. The future lies in a smart-management-enabled grid and an integrated energy system. We are of course also looking ahead to upcoming innovations in the area of system integration in this connection.

Natural environment

The European Commission's Fit for 55 programme is not a luxury but a necessity. Enhancing sustainability is becoming increasingly important to private and business customers as well as our municipal shareholders and investors. We are therefore getting more questions about sustainable integration of infrastructure in a progressively busier urban environment.

Strategy recalibration

We initiated a recalibration of our sustainability strategy in 2021. We added biodiversity as a strategic theme, and climate adaptation is also playing a role in the organisation. We are specifically incorporating this in policies for enhancing the sustainability of our infrastructure, for instance. In addition, measures often help resolve technical challenges, such as heat stress.