Netherlands energy security is a likely cause for concern by 2030

18 March 2019 (Last Updated March 18th, 2019 16:52)

The Dutch need to effectively balance their retiring power generation fleet with the proper baseload capacity.

Netherlands energy security is a likely cause for concern by 2030

In 2018, 55% of power generated in the Netherlands came from gas and even though it is projected to decline at 2.51% compound annual growth rate (CAGR) by 2030, gas will dominate power generation with over 30% share.

In 2030, solar photovoltaic (PV) and wind are expected to have a cumulative share of over 60% of the total capacity, while coal power generation is expected to be phased out by 2028, according to GlobalData, a leading data and analytics company.

GlobalData’s latest report, ‘The Netherlands Power Market Outlook to 2030, Update 2019’, reveals that between 2019-2030 renewable capacity is set to reach 40.20 GW in 2030 from 11.15 GW in 2019 at a similar CAGR of 12.4%, while solar PV and wind are expected to increase at 13% and 12% CAGR respectively over the projected time scale.

Future of Energy in The Netherlands: phasing out coal and gas

According to the report, the Dutch government’s decision to completely phase out both coal power generation and Groningen gas field in 2030 is expected to result in massive renewable capacity addition in the Dutch energy mix by 2030.

As of 2018, Netherlands was heavily dependent on thermal power accounting for over 70% of the country’s installed capacity followed by wind and solar with 13% and 11% respectively. Gas-based power generation will continue to support the baseload capacity accounting for over 30% of total installed capacity in 2030, while around 60% of capacity will comprise of solar and wind.

Though the transition to renewable is beyond doubt a noble and environmentally friendly idea, total dependency on gas for baseload power may lead to energy security concerns, given the price volatility of natural gas in the international market coupled with future diplomatic relations with other gas supplying countries.

The massive renewable capacity addition by the next decade can be attributed to conducive government policies introduced in recent years to boost renewable energy projects in the country. The carbon fee on emissions expected to be introduced in 2020 will increase the wholesale power prices in the Netherlands making coal-based generation unviable.

Future of Energy in The Netherlands: the cost of electricity

Though this will increase the profitability of renewable energy projects rendering government subsidies irrelevant, it would be worth noticing as to how the Dutch society and economy respond to this hike in electricity prices and whether it is likely to die down in the long term

GlobalData’s report also finds the Netherlands to be a net importer of electricity, with an average power import slightly over 24TWh from 2000 to 2018 while average power export over the above mentioned period stood at 11TWh.

The Netherlands is expected to transform into a net exporter of electricity from an importer in a decade’s time. The likely transformation can be attributed to massive renewable capacity addition to the tune of over 40 GW by 2030, along with the presence of high voltage interconnections with Germany, Denmark, Norway, Belgium and England facilitating excess power transfer to the neighbouring countries. The transformation is more likely in the event of the nuclear phase-out in Germany and the UK in the next five and 10 years respectively.

Even though there have been fluctuations in economic growth trajectory from 2008 to 2018, the annual power consumption over the given time-period has remained steady with an average decline of only 0.37%, while the same is expected to increase at 0.5% CAGR in the next five years.

The steady power consumption is a reflection of vibrant economic activity with industries running at full steam and unemployment rate at 4% in 2018 compared to 5.2% in advanced economies resulting in the increased income level of households and increase in power consumption. Moreover, the service sector with its highest contribution to the country’s economy is expected to dominate the electricity consumption in the near future, followed by industry and agriculture.

Future of Energy in The Netherlands: developmental challenges

Therefore, the ambitious targets of phasing out coal-fired plants and Groningen gas field by 2030 are likely to pose developmental challenges for the Dutch government. As of 2018, 55% of power generated in the Netherlands came from gas and even though it is projected to decline at 2.51% CAGR by 2030, gas will dominate power generation with over 30% share.

In this context, the decline in domestic gas production is a concern, especially as Groningen gas field is cutting down its production every year since 2013 before finally shutting down in 2030 resulting in the country becoming a net importer of gas in 2017.

Therefore as a matter of energy security, Netherlands need to secure a steady supply of gas into the country as it will dominate the power generation till 2030. Furthermore, the government’s plan to shut down all coal-fired plants by 2030 if not met by alternate base-load capacity in time, may lead to a power deficit in the country.

Therefore, the country needs to effectively balance its retiring power generation fleet with the proper baseload capacity to continue uninterrupted power generation along with securing a steady supply of gas for power generation in the future.