Developments within society and the energy market
Various developments affect Stedin Group. We describe the principal influences and trends that play a part in our strategic choices and business operations.
Climate Agreement signed
The Netherlands signed the Climate Agreement this year. Through the Climate Agreement, we are seeking to implement the international goal of limiting global warming to below 2 degrees. For the Netherlands, the 2-degrees goal means that emissions of greenhouse gases must have been reduced by at least 49% by 2030 compared with 1990. Together with the other grid managers, Stedin also signed the Climate Agreement. In doing so, we officially signalled our commitment to joining many other companies and public authorities within the Netherlands in switching to sustainable energy.
With increased sustainable energy generation already having consequences for the energy grid, grid managers had measures included in the Agreement which enable them to anticipate developments quickly. Grid managers want to be capable of reinforcing and increasing the capacity of the electricity grid in good time as well as making smarter use of the existing grid. Stedin has high hopes of the agreements on the district-oriented approach in the built environment, since it increases the manageability and predictability of the activities as well as the necessary materials.
The gathering momentum of the energy transition in the Netherlands has brought a number of bottlenecks to light. Several times in 2019, grid managers had difficulties in connecting a large number of solar farms within the legally prescribed term. It is becoming increasingly clear that current energy legislation is not sufficiently adapted to this new phase in the energy transition. At present, energy legislation does not make sufficient provision for new roles and tasks in the energy system of the future. In addition, current energy legislation offers little scope for investing proactively in a future-proof energy infrastructure for the industry. Without proactive investments in a sustainable energy infrastructure, efforts to make the industry more sustainable will fail. In addition, the process of adopting this new legislation needs to be accelerated. The energy transition has reached a critical phase and it is regrettable if it were to be hampered by unresponsive legislation.
Market regulation of heat grids
Collective heating supply (heat grid) has become established as a key element of the energy transition in recent years. In the service area of Stedin especially, large-scale heat grids are a realistic vision for the future. Stedin foresees an increasing convergence of vital infrastructures in the longer term, which makes the construction and management of heat grids logical tasks for a network group as well. A public party such as Stedin Group is often a logical party for municipalities and provinces, given its considerable experience with infrastructures and comparable public interests. As a trusted party with this experience and background, we can add value in scaling up heat grids. Our financial return requirements, which are generally lower than those of commercial parties, contribute to a reasonable level of social cost. We also ensure that a project contribution from public funds remains in the public domain.
Heat grids are primarily provided for in the Heating Supply Act (Warmtewet). A potential role for grid operators is still under discussion in the national debate on scaling up the heat supply.
A combination of the new Heating Supply Act and EU regulations would seem to render a role for grid operators in heat virtually impossible. Grid operators would effectively be excluded at a time when multiple local authorities are actually calling for the grid operators to play a far greater role. Stedin Group would also like to play a role in heat as a key element of the energy transition. This desire prompted us to open a dialogue with the Ministry of Economic Affairs and Climate Policy, resulting in a letter to parliament from Minister of Economic Affairs and Climate Policy Eric Wiebes, in which he confirms his intention not to exclude any parties for the heating market and to examine how the grid companies can best fill their role.
Within Stedin Group, NetVerder is currently responsible for realising our strategic ambition: to develop heat projects with the aim of gaining experience in the market for heat. A successful example is our heat project in Delft, where a heat grid is being developed with an independent grid management role (similar in part to our role in electricity and gas). In addition, Stedin Group is anticipating various future scenarios to be certain that good market conditions for heat are created and to ensure that Stedin Group can play a significant role within this area in the future. Further work will therefore be undertaken in 2020 to develop the cooperation with the Ministry of Economic Affairs and Climate Policy as well as contacts with local, regional and national politicians.
Regulatory model creates pressure
The energy transition calls for additionalinvestments to be made by the grid managers. These additional investments cannot be factored into their tariffs until a new regulatory period (2022). As a result, grid managers will suffer delays in recouping their investments and will incur an additional need for capital. In conjunction with the government, we must develop a model that provides the grid managers with sufficient financial resources to make the necessary investments while at the same time ensuring that the energy transition remains affordable. We are in dialogue with one another in this respect.
Developments in the field of solar energy and electric cars are advancing rapidly. These trends calls for additional investments to be made in our electricity grids. At the same time, new technology as well as the installation of roughly 2,000 Smart Grid Terminals in the energy grid also enable us
to track the energy flowing through the grid in real time and hence improve our grid management.
Reducing environmental impact
Care and attention to a valuable natural environment have increased in recent years. The focus is directed not just at the climate but also at people's immediate living environment. Stedin Group is therefore investing as well in reducing the environmental impact of its business operations; for example, by electrifying its vehicle fleet and preventing environmental as well as health risks by increasing employees' knowledge and understanding of hazardous materials through environmental workshops.