The Netherlands has to speed up its transition efforts

April 8, 2013 | 00:00

The Netherlands has to speed up its transition efforts

With its strategic location, huge gas reserves, highly developed infrastructure and well-developed information economy, the Netherlands is a crucial link in the northwest European energy market. But due to the lack of a long term vision – combined with its economic dependence on fossil fuels – its much-needed transition to a sustainable energy supply has barely taken off. A badly managed transition could severely damage the economy, but failing to reduce the dependence on fossil fuels is both economically and environmentally unsustainable.

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That’s the nub of an extensive report presented in The Hague earlier this month on the state of the Dutch energy system. The first copy of the report was presented to Maria van der Hoeven, the former Dutch minister for economic affairs and currently director of the International Energy Agency IEA. Van der Hoeven underlined the importance of the Netherlands for European power supplies. At the same time she emphasized the need for a far-reaching overhaul of the Dutch system to make it more sustainable, so indirectly endorsing the tone of the report. Entitled “Towards a future-proof energy system”, the report is the outcome of a study conducted over several years by three prestigious Dutch research centres. In it, the independent innovations centre TNO, Utrecht University and the independent energy research centre ECN reach some hard-hitting conclusions on the sustainability of the current energy system.
Prime target for their criticism is the often muddled and piecemeal political policies that have been pursued in the past. “The Netherlands lacks a consistent transition strategy while the knowledge base required needs to be shored up”, notes the report. “That is worrying. We are insufficiently prepared for a transition that will affect vital economic interests and can yield new economic opportunities. It is precisely because the energy transition affects vital interests that a consistent strategy is needed, based on a solid, long-term vision that enjoys broad support.”

Too much depending on fossil fuels

According to the researchers, the Netherlands’ point of departure as an energy economy is basically sound. The country still boasts large natural gas reserves and a high level of expertise. Thanks to its favourable location and sea coast, the country serves as a European conduit for sizeable import and export flows of energy and commodities, such as oil and oil products. Its favourable position is further bolstered by an excellent transport network and an extensive, well-functioning gas, oil and electricity network.

But there’s a heavy dependence on fossil fuels. Compared to other European countries, the Netherlands derives just a small amount of its energy needs – a scant five percent - from renewable sources.

The Netherlands lacks a consistent transition strategy
A major turnaround is needed if the country is to meet its target of 16 percent renewables by 2020, TNO concludes. But that involves considerable economic risk, the innovations centre warns. “The Dutch system is specialised in carbon sources. The country’s economic interests are closely linked to gas production at home and the large-scale import, refining and export of oil and oil products. The Dutch state rakes in almost €16 billion annually from natural gas revenues alone, not counting the additional €12 billion or so it derives from excise duties.”

Added to this is the importance to the economy of other energy-intensive industries. Road transport, glasshouse horticulture, food manufacturing and chemicals are the principal drivers of the Dutch export economy, together generating added value of some €9 to €11 billion a year.
Total up all these revenue streams for the Dutch treasury and they amount to a bottom line of almost €50 billion in 2010. “That’s roughly a fifth of the Dutch State’s annual revenue,” the report notes.

That’s all the more reason not to lose sight of the interests of the industries that are dependent on cheap fossil fuels. As the headline to the press release accompanying the report sums up: ‘Badly managed transition to sustainable energy could have dramatic consequences’. Or to put it another way: the Netherlands simply cannot afford to kill the fossil chicken that lays the golden eggs in the name of an excessively stringent – a.k.a insufficiently thought out – implementation of sustainable energy.

But doing nothing is no longer an option, if only because of the enforced reductions in
CO2 emissions and the growing pressure exerted by foreign energy markets. TNO and its fellow writers of the report expect the growth in European energy demand to slow, but at the same time emerging economies are seen as just entering their most energy-intensive phase. As a result, world demand for energy will mushroom by 30 percent in the period to 2035. Fossil fuels are expected to continue to dominate the energy picture over the coming decades, but the drive to implement sustainable sources will also remain, the report predicts.

To avoid harming economic interests in the short term

Due to its dwindling gas production, the Netherlands will likely turn from being a net exporter to being an energy importer by 2035 or thereabouts. If this turnaround coincides with high energy prices in Europe, some energy-intensive industries will inevitably leave the country, so says Andre Faaij, scientific director at Utrecht University’s Copernicus Institute.

But that needn’t spell catastrophe for the Dutch economy, provided the country succeeds in replacing ‘old’ industries with new, sustainable successors. “Relocate polluting bulk chemicals to other countries and aim to attract clean, sustainable industry such as bio-plastics manufacture,” counsels Faaij.

The trick will be to effect the necessary transition to sustainability without harming economic interests in the short term. That will still prove to be a major challenge, so TNO says in the report.

The compilers of the report express concern over the fact that while a great deal of research has been done into future energy supply, the various scenarios differ greatly from one another as a result of the differing assumptions they take as their point of departure. For example, forecasts of future energy consumption nationally vary from 1,600 PJ to anything up to 5000 PJ by 2050. ‘These discrepancies make it difficult to identify robust transition paths,’ the researchers conclude – with some understatement.

To make the switch to sustainability, the Netherlands has to get rid of a number of weaknesses in the current system. For example, money is still being invested in existing structures geared to fossil energy sources. As long as these investments are still generating good returns in the short term, investors are less likely to make the switch to an alternative route that will only generate attractive ROI in the longer term. This is partly responsible for the ‘locked in’ situation that has arisen, the report says.

Government has failed to change this state of affairs in recent years. Although the government has developed a

A major turnaround is needed if the country is to meet its target of 16 percent renewables by 2020. But that involves considerable economic risk
multifaceted economic stimulus package to boost private investments in the development of renewables, such incentives have largely failed due to discontinuities in that same energy policy.
“Each new cabinet amends the policy goals and the instruments for achieving them, while effective incentive schemes are halted -- albeit temporarily -- when funds are exhausted”, the report says. And because CO2 prices are currently low, there are few reasons to invest in sustainable energy technologies.

And finally the Netherlands is also hampered from tapping into sustainable energy sources by other, non-financial obstacles. On the one hand there is much local innovation, but citizens can often successfully block or delay a project in their neighbourhood. This localized resistance has proven to be a severe hindrance for innovations in the area of energy and climate, the report finds.

Even so, TNO, the Copernicus Institute and ECN also see many opportunities for achieving a successful transition in the Netherlands. The country’s excellent infrastructure, its high-level information economy, its good regulatory system and the availability both of gas fields and sufficient cooling water make the country an attractive place for companies to locate their operations.

A world leader in smart grids

“The Netherlands is often referred to as the gas hub of Europe,” the report notes. “Its expertise in gas production, conversion and transport give the country a natural advantage.” Not only that, but empty gas fields could serve as a storage buffer for natural gas exported from elsewhere – Russia, for example. And carbon capture and storage underground is seen by the researchers as a promising option.

Another key factor is that the Netherlands leads the field as regards expertise in smart grids. Smart grids are necessary for the effective deployment of decentralised wind and solar energy. This creates opportunities for companies active in intelligent energy storage, transport and pricing. The Netherlands could become a world leader in the development and implementation of smart grids, the researchers believe.

On a more general level, the expertise centres see major opportunities for the Netherlands to become a leading supplier to north western Europe’s future sustainable power grid. The Dutch have lost the competitive battle over wind energy to Denmark. But the technologically advanced offshore industry around Rotterdam can claim a leading role in installing offshore wind turbines.
To do so, the Netherlands should capitalize on its own strengths and open up innovative intelligent markets. Mart van Bragt, TNO’s general director for energy, points to ASML as an example. This Dutch firm is the world’s largest maker of machines to manufacture computer chips. “So go ahead and let the Chinese produce cheap solar panels”, Van Bragt says. “As long as they buy the expensive and intelligent machinery they need from us.”

This same theory can be applied to power use and generation in built-up areas. Due to its closely built-up area and use of high-grade materials, the Netherlands is able to cut energy use by 75% through demand reduction. Taken in conjunction with the considerable potential for power generation (through residual heat) in glasshouse horticulture and other buildings, the built-up area could even evolve into a net producer of energy.

Furthermore the Netherlands should combine its acclaimed levels of expertise with another strength: that of a trading nation situated at the heart of Europe. “As a small country with an open economy and a strong position as a centre of expertise within Europe, the Netherlands is in a position to profit from innovations initiated by other countries. By adjusting the development of specific energy technologies (solar, biomass, wind) to the planned investments by Germany and other EU member states, we would utilize the opportunities for investing effectively in an optimal mix of energy options within the framework of a coherent, long term vision of the Dutch energy system as part of Europe.”

In this way the Netherlands could succeed in effecting the transition to a sustainable energy system and reap economic rewards, say TNO, Utrecht University and ECN. But the necessary break with the past will initially hurt the national economy, dependent as it is on fossil fuels.
And that’s where there’s ample room for improving on past policies. The report doesn’t mention it in so many words, but it’s a view that echoed through the lobbies when the report was presented: resist the lobby of the major players, no matter how important they might be to the national economy.

Or, as Andre Faaij of the Copernicus Institute put it: the established order has a lot to lose in the short term through a more radical implementation of sustainable energy practices. And that will be reflected in the revenue flow into treasury coffers. “And yet there is no alternative. The transition to a sustainable system is inevitable, and also offers many economic perspectives. But, other than in the past, the Netherlands must seize the opportunity.”

 

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