With this decision, the cabinet is making a striking turn in its thinking about the energy market. Proponents see it as a welcome correction to the neoliberal wind that has shaped energy policy in recent decades. Leaving energy to the market would be best for consumers, was the mantra. Energy companies and investors speak with shock about an ‘expropriation’ or ‘renationalisation’ of the heat networks they own and manage.
How many heat networks are there and why are they so important?
In the Netherlands, more than half a million houses are connected to a heat network, also known as district heating. They do not have a gas connection but are supplied with hot water for their heating and showers via pipes under the street.
Within the climate agreement, the goal is to expand that number to approximately 1.2 million households by 2030. The idea is that the water can be heated with sustainable(er) energy, such as residual heat, geothermal energy, biomass and sun and wind. For example, Vattenfall is building a gigantic boiler in Amsterdam that can be heated with electricity from sun and wind when there is a surplus.
Whoever owns a heat network essentially has an important monopoly on the energy supply in a district. Now the cabinet does not only want a majority share in all new heat networks to be built by a municipality or another public shareholder. All existing heat networks, about 90 percent of which are now owned by private companies such as Vattenfall and Eneco, must also come into public hands. If the House of Representatives approves the new Heat Act, these companies will have to sell their majority interest to a public party after a transition period.
Why do municipalities want the monopoly to rest with a public owner?
Municipalities are taking the lead in operations where existing homes are taken ‘off the gas’. In recent years it has become clear that residents are not always enthusiastic about this. ‘We find it complicated that we say to citizens during these projects: we want you to switch off gas and then switch to this company that will supply you with heat,’ says Utrecht alderman Lot van Hooijdonk (GroenLinks). ‘We think that resistance will decrease when the heating company is also in public hands.’ That public owner can be a municipality, but also existing public heat companies or provinces, for example.
Van Hooijdonk, who chairs the Committee on Economy, Climate, Energy and Environment within the Association of Netherlands Municipalities (VNG), sees an even more important argument: ‘Municipalities should have as much freedom of choice as possible to shape the energy transition in their municipality.’ This freedom is increased if the municipality has the majority share in a heating company. The municipalities also expect that it will not be bad for the price of energy if the majority shareholder does not have a profit motive.
Can’t municipalities and energy companies share?
The atmosphere for such a collaboration is not very good at the moment. Vattenfall has already warned the government that in the event of ‘expropriation’, all investment decisions will be put ‘on hold’. Eneco also expressed great concern, as did the Energy Netherlands sector association and asset manager PGGM. The companies state that the choice of energy minister Rob Jetten (D66) ‘locks up’ the heat market.
The commercial parties say that they do not intend to become a minority shareholder in a heat company controlled by the government. ‘It is not feasible to contribute capital, knowledge and experience, while the control rests with a public partner.’ Also, ‘the risk is too great to expose projects with an investment horizon of 20 to 40 years to the unpredictable dynamics of local politics and organizations that have little experience with the construction, maintenance, distribution and operation of a heat network’.
Despite this warning, why does the cabinet now opt for the municipalities?
Minister Jetten ‘understands the concerns of the energy companies’ and his ministry realizes that the roll-out of heat networks may be delayed as a result. But Jetten thinks that it is better for the energy transition in the long term if local governments have as much say as possible over their heat network. Due to the transition periods he includes in the law, he expects companies to have enough time to recoup their investments.
He is also not very impressed by the warning that municipalities would not have the money to pay for the investments. According to the minister, there is great interest from pension funds, the Bank of Dutch Municipalities and Invest-NL in investing in heat networks. Jetten also says that he ‘had many discussions in both the Senate and the House of Representatives’, from which it has become clear to him that a broad political majority is in favor of public heat networks.
Is the law only about ownership?
No. There is another important part of the Heat Act, which concerns the ‘no more-than-different principle’. It is now the case that houses with a heat connection should not be more expensive than houses with a gas connection. This regularly leads to frustration, especially in the last year, when gas prices have risen sharply. Although heat is cheaper than gas, the heat price has also risen sharply.
If the legal obligation to offer heat cheaper than gas lapses, heating companies will no longer have to insure themselves at higher prices, for example. With the current high gas prices, this would mean that households would pay less for heat. In principle, however, it can also mean that heat customers will (sometimes) pay more in the future than households that are still connected to gas.