For Tilburg alderman Oscar Dusschooten it is clear what challenge the local energy supplier faces: explain to his fellow citizens why they will pay 58 percent more for a warm house and hot water in 2022 than last year. A consequence of today’s expensive natural gas? “But those people are already doing what we would like: they are off the gas.”
Next Monday, the owner of the heat network, Ennatural, will explain to the Tilburg city council why the company announced such a sharp increase in rates for 2022. “The more transparent you are, the less suspicious people are,” says VVD member Dusschooten, responsible for housing and energy transition. “Now they think, ‘yes, it’s convenient, making good money’. That is why I said to Ennatural: make clear what the factors are, make a bar chart. For many people, paying a few bucks more can be the difference between being above or below water.”
Half a million Dutch households have a connection to one of the almost 250 heat networks
It became clear at the end of last year that energy was going to become more expensive for everyone when gas prices reached record after record. Last month, the municipality of Tilburg, housing associations and tenants’ organizations together wrote a letter to Ennatural, the operator of what used to be called district heating. An interview followed two weeks ago.
“And of course it said in it that it did not want to earn a cent extra as a result of this crisis. I am inclined to believe them, but my request is to explain it well”, says Dusschooten. “The heat in Tilburg comes from the Amercentrale, which runs for 80 percent on biomass.”
The criticism via social media has gone for a while, but according to the alderman, people are “worried behind the front door about the monthly bill”. In Breda and Tilburg, petitions against the price increase could count on tens of thousands of signatures in a short time.
‘Excellent to explain’
Earlier this month, Alderman Dusschooten Ennatural – good for 50,000 connections in West and Central Brabant – offered to contribute to the explanation of the rising energy prices. The spokesperson for the heat company: “If we can work together to inform people properly, we will certainly do so. But we are in charge of the rates ourselves and we can explain them to everyone with a dry eye. Great to do that in the city council on Monday, great if the alderman is there, but it is our responsibility.”
The rate increase for heat networks is an issue throughout the Netherlands, at all energy producers. Half a million households have a connection to one of the nearly 250 heat networks. Almost all those families were recently informed that their energy bills will increase by tens of percent in 2022. Of course people without such a heat network also have to pay more for their central heating, but there is one difference: as a customer of a heat network you cannot just switch to a competitor.
Supervisor ACM therefore warned that providers such as Eneco, Vattenfall or Ennatural should not abuse the problems in the energy market. “We are going to request information about the rate increase. Based on this, we will determine whether it is necessary to conduct further investigations,” says an ACM spokesperson.
For an average family, the rate of the heat network may increase by a maximum of 67 percent this year, the ACM has determined. This increase has everything to do with the high gas price. The Heat Act prescribes that the heat rates are determined on the basis of that gas price. The intention of this ‘nmda’ principle (no more than usual) was not to make people with a heat network pay more than people who burn gas. That gas was always considered the cheap alternative. Because attempts to modernize the legislation failed, the NMDA principle is still central.
We move up and down with the gas price. Now we see the downside of the system
Manja Thiry director heat Eneco
Apart from the statutory regulation, there are also practical explanations for why the rates are rising. First of all, gas still plays a role in many heat networks in practice. Consider, for example, heat networks that use residual heat from gas-fired power stations. In addition, all energy sources have recently become more expensive, often as a result of shortages and higher gas prices. Electricity now costs more, and that also applies to biomass and coal, for example.
Even if a network gets its heat from a sustainable source, the costs for the supplier can still rise substantially. This has to do with the way in which the government subsidy is calculated: the costs incurred by such a supplier above the gas price are (partially) reimbursed. If gas becomes more expensive, the extra costs will be less and the subsidy for sustainable energy will decrease.
Also read: Will the ‘big boys’ soon gain power in the heat market?
below cost
“I understand all the emotions and concerns about the price increase,” says Manja Thiry, director of heat at market leader Eneco. “And I also understand that we didn’t hear anyone about the prices when the gas price was very low. But what is happening now is the other side of the same coin.”
In December, ACM ‘pricked’ the price of gas for the whole of 2022, which is many times higher than in recent years. “We move up and down with the gas price. Now, with the commotion due to the high gas prices, we are clearly seeing the downside of the system,” said Thiry.
She emphasizes that she does not want to ignore the problems that people are currently facing. Eneco recently informed customers that the monthly advances could turn out to be almost half higher this year. “We saw that coming, of course, which is why we entered into discussions with aldermen and housing associations at the end of last year. We not only want to explain the current situation, create understanding, but also look at ways to prevent debt problems, for example. There are municipalities that make materials available with which people can insulate their homes themselves.”
Heat networks play an important role in the policy to make the Netherlands more sustainable. Using a joint approach, gas consumption can fall relatively quickly, especially in densely built-up neighbourhoods. For 2030, the goal of the Climate Agreement to connect a million households to a network, a doubling compared to the current situation.
The current price increases do not seem to increase the attractiveness of a heat network. “That’s not too bad,” says the Eneco director. “Don’t forget that people with an individual gas connection will also have to deal with a larger price increase. Due to the collective approach you use less energy and therefore the CO2 emissions are lower, even when the grid is still largely dependent on gas.”
The new minister for Kilmaat and Energy, Rob Jetten (D66), is responsible for the drafting of a new heat law. Previous attempts to renew the law from 2014 have failed. Everyone agrees that in the new law the heat tariff should no longer depend on the gas price. ACM then assesses how high the real costs are and what a reasonable return is. Then the regulator will no longer come up with a general maximum increase that applies to all networks, as it was now.
Every customer the same rate
Annelies Huygen, professor of the organization of energy markets at Utrecht University, applauds this change. She sees that the maximum tariffs that ACM now sets for energy companies serve as a guideline. “As long as you’re below that rate, it’s fine, that’s the system. Regardless of the real costs that you have as a heat supplier.”
Huygen, who is also affiliated with the TNO research institute as a heat specialist, points to developments in Denmark, where the price of 90 percent of the heat networks will not rise or even fall this year. The tariff increases by more than 20 percent for only 5 percent of the networks. “In Denmark, costs are transparent and rates reflect costs.”
Huygen sees that the real costs already vary widely. “In some heat networks, the costs are still closely related to gas prices, but there are also networks in the Netherlands that use residual heat from industry. And some sustainable heat networks only use some electricity. The actual costs hardly increase there.”
Now an energy company charges the same rate for all its customers, while the actual costs can differ greatly. “Like our colleagues, we use one uniform rate, based on the idea of solidarity,” confirms the spokesperson for Ennatural, which is 80 percent owned by pension provider PGGM. “It depends on the region whether a sustainable heat network is possible. For the customer, this is simply a matter of luck or bad luck. And in the event of a breakdown, there must always be the option of adding gas.” According to the spokesman, the complexity of working with different rates also plays a role.
For Tilburg alderman Dusschooten, the price increases are reason to look further into the future. “There are increasing voices here to see heat as a utility, just like water. Shouldn’t we, as joint governments, install a heat network that various suppliers can connect to?”
In particular, the lack of choice for consumers makes him think. “As governments, we once agreed to this monopoly position for energy producers. That’s why I feel extra responsibility. Heat is not sprinkles – the customer has a choice.”