IEA Commends Dutch Energy Policy and Recognises the Challenges of Gas Market Restructuring

“The Netherlands has shown great pragmatism in its energy policy, giving due attention to cost-effectiveness and the need for innovative solutions,” said Claude Mandil, Executive Director of the International Energy Agency (IEA) at the launch today in the Hague of Energy Policies of IEA Countries – the Netherlands 2004 Review. Liberalisation of electricity and gas markets has advanced and the country is pursuing active climate policies. Research and development policy has been rationalised and an initiative to achieve a sustainable energy system launched. There is a clear commitment to energy security with national oil stocks meeting the 90 days obligation.

The country still faces some challenges however, of which the most urgent is reorganising the gas market structure (Gasgebouw). The capacity of international links in both the electricity and gas networks needs to be increased: this requires intensified international co-operation. Along with other IEA member countries, the Netherlands must encourage adequate investment in the energy sector.

Natural Gas Market
While the Netherlands’ domestic natural gas reserves have made a substantial contribution to security of supply both in Europe and at home, the gradual depletion of the Groningen field, declining small field production and market liberalisation make it essential to review upstream gas policy. In particular, the Report recommends that investment in small fields be encouraged. The Gasgebouw should be reorganised in a manner that creates an open market, encourages competition and meets energy security objectives. The first step – that of establishing an independent transmission system operator (TSO) – is to take effect on 1 July 2004. The second planned step is to split Gasunie Trade and Supply into two competing companies. While this is a highly complex move, it could help to increase competition.

Access to import infrastructures, flexibility, short-term balancing and quality conversion facilities are essential if the market is to work properly. Current available contractual capacity at international network interconnections is small. It will be necessary to monitor the effectiveness of third party access regulation to gas storage, encourage investments in new storage capacity and to review the balancing rules. Since the Netherlands has both high and low calorific gas markets, it is important that suppliers will be guaranteed access to conversion facilities. This would ensure that consumers of low calorific gas can change suppliers if they wish.

Competition has developed relatively well in the Dutch gas market. However, it could be further enhanced through better transparency via the reorganisation of the Gasgebouw. The government and gas industry have made a lot of effort to ensure that the switching, measurement data and billing problems encountered in the earlier phases of market liberalisation will not be repeated when the market is fully opened on 1 July.

Electricity Market
The overall design of the Dutch electricity market is good and incorporates the necessary bodies for regulation, transmission and market operation. There is adequate unbundling and network use is based on regulated TPA. Competition has developed relatively well in the part of the market that is already open to competition and security of electricity supply has received due attention.
To make full market opening on 1 July successful, the energy sector and the government have worked hard to solve the earlier administrative problems. It has also launched a major information campaign to inform consumers about market liberalisation.

Reinforcement of interconnection capacity - important both for security of supply and effective competition - is an international problem that requires solutions at the international level. It is essential for the Dutch government and the TSO, TenneT, to continue to work closely with other European TSOs and neighbouring governments. Negotiations to establish Memoranda of Understanding for the creation of a more closely-linked market have begun between the Netherlands and its neighbours.
Investment in generation capacity, particularly peak load capacity, should be encouraged. Although there is abundant capacity at present, excess capacity may disappear in the longer-term. The progressive decline of nuclear production in Belgium and Germany – currently, important suppliers - might increase the need for domestic generation capacity. Improved demand response could reduce the need for investment in peak load capacity.

Climate Change Mitigation
The Dutch government has made great efforts to meet its Kyoto target of a 6% reduction in greenhouse gas (GHG) emissions between 1990 and the first commitment period. While the country is apparently on track to meet the Kyoto target, with GHG emissions having almost stabilised, some work still lies ahead. For example, curbing the rapid growth of energy demand in the transport sector requires strong new policies and measures.

The Netherlands is to be credited for the cost-effectiveness of its measures to reduce GHG emissions. These include Kyoto flexible mechanisms, reduction of non-carbon dioxide emissions, streamlining subsidies for renewables and combined heat and power and keeping the Borssele nuclear power plant open.

The decision to meet half of the country’s GHG emissions gap through Joint Implementation and Clean Development Mechanism projects is ambitious, yet the Netherlands has shown itself to be a leader in developing and testing the methodologies.