Focus point

Energy Transition in the Netherlands: a template for Europe?

Energy Transition in the Netherlands: a template for Europe?

The Netherlands is the first country stating specifically it wants to phase out natural gas. Similar action will ultimately be seen in other European countries as well. A look at the new Dutch government’s energy transition plans.

The Netherlands has been slow to adopt renewable energy on a large scale, but the new Dutch government aims for 49% carbon reduction by 2030, exceeding the EU target. All coal plants are to be closed in the next decade, and more offshore wind farms will be built in the North Sea. Renewables developers and power networks can benefit.

Share of energy from renewable sources in the EU member states (% final energy consumption)

Source: Eurostat

Energy transition in the Netherlands

The Netherlands is poised to make a dramatic change of course in its energy policies, embarking on a path that may become a trend for the rest of Europe. In recent years, the country has not been on track to meet the carbon reduction goals set by the European
Union and is a laggard on renewable generation. It has reduced greenhouse gas output by only 11% since 1990, compared with a 2030 reduction target of 40 percent imposed on EU member states.

The new Dutch government aims to correct the situation. The Netherlands will pursue a rigorous climate policy to reduce greenhouse gases by 49 percent in 2030 versus 1990 through a large-scale transformation of energy supply, housing and industry. A new
climate law will set out the main lines of a climate and energy agreement with power generators and other stakeholders through 2030. Important elements will be the closure of all coal-fired power plants and the use of carbon capture and storage. Improved economics should make increased offshore wind capacity possible with less subsidised financing than projected a few years ago. This Focuspoint discusses the measures planned and their potential impact.

Netherlands use of renewable energy lags behind EU

Only 6% the energy used in the Netherlands comes from renewable sources. This is the lowest percentage in the EU after Malta and Luxembourg. The lack of large-scale hydro generation partly explains the poor share of renewables in the energy mix relative to other countries. Furthermore, solar conditions are mediocre and onshore wind faces resistance given the high population density. Today the majority of renewable energy usage comes from biomass, or organic matter used as fuel for applications such as transport and home heating. For electrical power, which represents just over 20% of total energy use in the Netherlands, renewable sources accounted for 13% of generation in 2016. Among these sources, wind was biggest with 7% of total power generation, followed by biomass with 4% and solar with just over 1%. As Figure 2 shows, 92% of primary energy used in the Netherlands in 2016 came from fossil fuels. The new government plans to book major climate gains through the closure of all coal plants by 2030 and through capture and storage of much of the CO2 released by factories, power plants and waste incinerators. The plans also include more offshore wind plants, which will boost the renewable share of power generation substantially by 2030, as well as increased energy efficiency in houses, offices and factories and in the transport sector. currently installed. This capacity could triple in the decade after that.

Even without new government policies, renewable energy production should grow by 270% until 2030 and would account for 24% of total energy use and 64% of power production in 2030. Offshore wind alone is projected to generate over a third of all renewable energy in the country and more than half of all electric power by 2030. The 2023 goal is for 4,450 megawatts of offshore wind capacity, up from 1,000 megawatts currently installed. This capacity could triple in the decade after that.

Phasing out coal-fired generation; introducing carbon floor price

Greenhouse gas emissions from coal-fired generation are roughly twice as high as those for gas-fired generation. In 2016 coal plants still represented 32% of total power generation in the Netherlands. The most recent projections show this number gradually declining to 17% by 2030, by which time the new government aims to have shut down the five remaining coal plants.

To incentivise coal closures, the Dutch government plans to impose a minimum CO2 price, or carbon floor, starting in 2020. Currently the UK is the only EU country that has such a floor, which in effect amounts to a tax paid on every ton of CO2 emitted.

The floor price would include the EU’s Emissions Trading System (ETS) price, so the extra levy would depend on the ETS price in the relevant year. Final details have to be disclosed, but some indications are that the floor will be initially set at EUR 18 per metric ton and rise to €43 per ton by 2030. This would make coal-fired power generation uneconomical sometime in the next decade.

Ending subsidies to co-fire biomass in coal plants after 2024

The previous cabinet agreed to provide EUR 4 billion in subsidies for co-firing biomass in four of the five remaining coal plants until 2024. After 2024 the subsidy for co-firing biomass in the coal plants will end. Given the subsidies and exemption of biomass from carbon taxes, the co-firing of biomass might keep the plants economically viable until 2024. The first coal plant to close is likely to be the Hemweg plant in Amsterdam operated by Nuon, the Dutch unit of Swedish power company Vattenfall, as it was the only running plant that did not opt for co-firing biomass. The company has offered to close Hemweg before the end of its life-span if compensated.

Carbon stortage: the weak spot of the government plan

Carbon capture and storage (CCS) is a crucial factor in achieving the 49% emission reduction target, although the government’s projections for CCS may be overly optimistic. Some 90% of the carbon stored should come from the industrial sector and 10% from power producers. There has been significant resistance related to carbon storage projects planned in recent years. Moreover, CCS has not gained much traction internationally because of the high costs involved. A recent study by the Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving, or PBL) showed that the funding would likely be at the expense of renewable subsidies and that CCS also requires additional energy. The PBL concluded that additional government measures are needed to reach the desired emission reduction.

Phasing out natural gas

The government estimates that by 2021, new houses and other new buildings in construction areas will no longer be connected to the natural gas grid. Instead, the houses will be connected to district heating or will be all-electric. It is also targeting the conversion of 30,000 to 50,000 homes every year to make them gas-free. The previous government had already called for the phasing out of household use of natural gas by 2050, a radical change from the past. The percentage of homes heated by gas in the Netherlands is very high and the country has one if the densest gas networks in the world. This policy change is related to reduced output from the vast Slochteren gas field in the northern province of Groningen, following increasing local resistance as a result of earthquakes in recent years.

Are the targets achievable? What will be the global impact?

Significant uncertainties could affect the realisation of the 2030 carbon reduction targets and their net effects on global emissions. One is that the phase-out of natural gas for home heating would have a positive impact only if it is mostly replaced by renewable sources.

There could also be significant leakage of the positive CO2 impact of the closure of the Dutch coal plants due to changes in the import and export of power. The carbon tax will drive up Dutch power prices and could result in increased net imports, assuming other countries do not implement a similar carbon floor. If this power is generated with less efficient coal plants, the net impact of the Dutch coal plant closures on global emissions could even be negative. The net impact depends on other European countries’ policies as well as commodity prices. Figure 5 shows that in 2015, imports and exports represented 28% and 20% of power production, respectively. International trade is likely to expand further, given that interconnectivity with Germany and Belgium is expected to more than double by 2025.

Lower Dutch emissions could also depress the market-based ETS carbon price. This can drive higher power production at less carbon-efficient plants in other countries. The government has indicated it will buy permits in the market to mitigate this effect.

As already noted, the 2030 emission reduction target of 49% depends on large-scale CCS. The government has not specified how its CCS goals will be realised, and the provided funding seems insufficient to finance both CCS and the renewables build-up. Without CCS, emission reductions by 2030 will be limited to 40%. Moreover, the government has set an ambitious 49% emission reduction target by 2030 but no goal for 2020. Based on a recent government prognosis, renewables will produce only 12.4% of Dutch energy in 2020, below the 14% target agreed by the EU.

Social impact: Who will pay for the energy transition?

The Dutch homeowners’ association has calculated that annual energy taxes and levies for renewable energy will rise on average by EUR 220 per household between 2017 and 2019 because of the new policies. Taxes on energy and waste are expected to increase by approximately EUR 670 million, some EUR 500 million for citizens and the rest for companies. Taxes on gas usage are expected to rise, relative to taxes on power usage. The charge for sustainable energy on natural gas and electricity will increase significantly in the coming years. Revenue from this charge is intended for sustainability subsidies, mainly used by corporates.

After 2020, the government will reform the regime for rooftop solar installations, reducing subsidies by over EUR 600 million per year versus the current scheme ending in 2023.
The falling gas production implies that the Netherlands will become a net importer of gas over the next decade. This comes on top of imported coal, oil and electric power. Electric power from renewable resources is a means to reduce this energy dependency. A clear benefit is that the proposed plans will result in significant job creation including installation of renewables, especially offshore wind, power networks and energy efficiency measures.

International read-across and investment considerations

The ultimate impact of the unilateral carbon floor in the Netherlands depends on several factors, including energy policy in Germany and commodity prices. The net impact on companies is hard to quantify for several reasons.

One reason is that the carbon floor from 2020 and abandoning of biomass co-firing after 2024 will ultimately result in the closure of the five remaining coal plants, whose margins will decline in the meantime. This negatively impacts the owners RWE (two plants), Uniper and Engie.

The carbon floor will also result in higher power prices in the Netherlands, and to a lesser extent in Belgium and Germany. It also leads to higher load factors for gas plants and higher net power imports from Germany, Belgium and the UK. This especially favours the owners of gas and nuclear plants in the Benelux and Germany.

The sense of urgency that is now emerging in the Netherlands is an growing trend in Europe. The Dutch government aims to work with other EU countries to increase the emission reduction to 55% by 2030. One important driver of renewable energy development is that costs of renewables have come down dramatically in recent years, making them increasingly economical versus other forms of generation. In the Netherlands projections for wind generation in 2030 have been dramatically increased over the past year, as subsidies needed per megawatt-hour of power produced have fallen. The same trends are seen globally. As a result, the share of thermal generation will dramatically drop in favour of renewables, while power grids have to become smarter.

We see the following opportunities for companies:

  • Renewables developers will see ample growth opportunities, including groups like E.On, Innogy, Enel, Iberdrola, EDP and SSE. Also Orsted (formerly Dong Energy) should be a major beneficiary as the leading offshore wind developer. In the US NextEra Energy and Avangrid (controlled by Iberdrola) have strong positions.
  • Distribution utilities are likely to increase investments in their power networks to enable the energy transition. Growth in their regulated asset base will drive earnings growth. In the Netherlands this segment is state-owned, but the companies mentioned above have significant electric distribution exposure. In the US many utilities see attractive regulated asset base growth boosted by the renewables build-out, including AEP, Xcel Energy, Eversource Energy, Edison International and PG&E.
  • Energy suppliers could benefit from growth in rooftop solar, EV charging and home batteries, including the European companies mentioned above.
  • Industrial companies such as turbine manufactures Vestas and Siemens Gamesa as well as cable producers may benefit from the planned expansion of offshore wind.


The Netherlands is accelerating the pace of the transition to renewable energy. Offshore wind will be the main driver of a massive increase in the renewable share of power generation in the next decade, at the expense of coal fired generation. In the longer term, natural gas will become less important for power and for heating. Electrification of heating and ground transport will increase electricity’s share of total energy, a trend that will lead to additional investments in power grids. The beneficiaries of these developments will be electric distribution grids and renewables developers, while oil companies and gas distributors will see their shares of the Dutch energy decline. And while the Netherlands has been the first country stating specifically it wants to phase out natural gas, the trend will ultimately be seen in other European countries as well. This contrasts with countries like the US, China and India, where natural gas’s share of the energy pie is still growing.

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À propos de l'auteur

Oskar Tijs

Oskar Tijs

Senior Investment Analyst, Global Equity Research

Expérience depuis 1996

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