Introduction

2020 is the year in which the current Dutch subsidy scheme for renewable energy, the Renewable Energy Production Incentive Scheme (de stimuleringsregeling duurzame energieproductie (SDE+)), will change. From 2020 onwards, the SDE + will be broadened to achieve the target of a 49 percent reduction in CO2 emissions in the Netherlands by 2030 (or at least to keep this goal within reach). The broadened SDE+ focuses on the reduction of greenhouse gas emissions (CO2 and other greenhouse gases). This will change the focus from energy production to energy transition. The broadened subsidy scheme is therefore called the Renewable Energy Transition Incentive Scheme (SDE++).

2019 was meant to be the last year for SDE+. However, on November 1, 2019, Minister Eric Wiebes announced that an additional round of SDE + subsidies would be opened in the spring of 2020 and that for this extra round the budget would come from the leftover funds from 2019. This is the first in a series of additional measures of the government to achieve the climate goals.

Different elements of the SDE+-system enable the scheme to function well by international standards, according to Mr Wiebes in his letter of November 26, 2018. The majority of the main elements from the current scheme will therefore remain in the SDE++. The big difference between the SDE+ and the SDE++ is that technologies are no longer judged competitive on generated renewable energy but on the basis of avoided tons of CO2 emissions.

For a period there was a lack of clarity about the new broadened scheme, but on February 17, 2020, Mr Wiebes gave the House of Representatives an update about this new subsidy scheme.
In this briefing, we will provide you with an update on the latest state of affairs regarding the last round of the SDE+ and the new SDE++ subsidy scheme.

SDE+

In his letter of November 1, 2019, to the House of Representatives, Mr Wiebes expressed his expectation that there would be a number of projects in the fall round of 2019 that were in principle ready to apply for SDE +, but which had been delayed due to mainly two reasons: (i) permits that were not granted on time as a result of the ruling of the Council of State of May 29, 2019, in relation to the effects of nitrogen deposition, and (ii) a lack of grid capacity to transport the electricity produced. For the first time, in the fall 2019 SDE+ round it was required to include a positive transport indication with the application because of the grid capacity issues in various parts of the Netherlands. This is why network operators Liander and Enexis already issued hundreds of negative transport indications to project developers before mid-October.

With the extra SDE+ round, Mr Wiebes wants to give the projects that have been delayed as a result of these issues, as well as entirely new projects, the opportunity to qualify for an SDE+ subsidy. This extra round was to be funded from the unused budget of the spring and fall 2019 rounds, Mr Wiebes wrote on November 1.

Contrary to Mr Wiebes' expectations, nothing of the fall 2019 budget remained; in fact more than €9 billion in subsidies was applied for, while only €5 billion was available. It is not clear why the fall round attracted so many applications. We think it is likely that this was because it would be the last SDE+ round. Certainly at the time of the fall round, there was still a great deal of uncertainty about the new SDE++ subsidy scheme.

Just before the start of the spring 2020 round, which started on March 17, the minister announced that he would increase the budget for the spring 2020 round to €4 billion. The minister informed the House of Representatives by letter on March 4, 2020, that a large number of projects that can make a cost-effective contribution to achieving the climate goals in the short term are ready to be developed. This is apparent from the large number of projects that submitted an application in the fall. By increasing the spring 2020 budget, a larger part of the available projects with a short realization period, such as solar projects, can be completed.

SDE++

In a letter of Mr Wiebes to the House of Representatives on February 17, 2020, the minister finally provided more details about the broadened SDE++ scheme. However, a lot still remains unclear. For example, it is currently being investigated whether it is relevant for the calculation of the subsidy if the market party is participating in the emissions trading system (ETS). It is also being considered whether the CO₂ tax, which is used to tax polluting CO₂-emitting technologies, can be corrected. We will have to wait until mid-April until the new regulation will be published.

What do we know so far?

The SDE++ remains an operating subsidy for climate-friendly technologies that compensates for the difference between the cost price of the technologies (the "base amount") and the market value of the product that the technologies delivers (the "market price"). It stimulates competition between the various technologies through the continuation of the tender system, while offering long-term security for investors.

The main differences with the SDE+ are: (i) in addition to the production of renewable energy, it is now also possible to apply for a subsidy for other technologies that reduce CO₂ or other greenhouse gases;; and (ii) allowing projects to compete on the basis of (expected) subsidy requirements per avoided ton of CO₂ equivalent instead of competition on the basis of the cost price for renewable energy. This means, for example, that for solar projects it is not relevant how much renewable energy they produce but rather how much fossil fuel is not being used. When generating renewable electricity, the CO₂ reduction is calculated on the basis of replacing the average CO₂ emissions of an efficient modern gas-fired power station.

Trinomics, which has assessed the methodological principles and coherence of the SDE ++ on behalf of the minister, emphasizes that the choice to stimulate new greenhouse gas-reducing technologies in addition to producing renewable energy creates more relevant variables, assumptions and predictions than under the SDE+. This results in the effectiveness of SDE ++ becoming dependent on predictions about the emission factor in 2030 and the long-term electricity and gas prices. This increases the chance that the estimate of the subsidy requirement per ton of CO2 avoided will differ from practice.

There are four main categories of technologies that are eligible for a SDE++ subsidy, each of which has various subcategories:

1. Renewable heat: geothermal, aqua thermal, biomass and solar thermal;
2. Renewable electricity: sun, wind and water;
3. Renewable gas: fermentation and gasification;
4. Other CO2 reducing technologies: electric boiler, large-scale heat pump, industrial waste heat, hydrogen through electrolysis and carbon capture and storage (CCS)..

The technology will only be eligible if it (1) is sufficiently market-ready (cost-effective), (2) there is sufficient potential for CO2 reduction, (3) can be rolled out on a sufficient scale, (4) has an unprofitable part compared to a known reference technology, and (5) this unprofitable part can best be compensated by means of an operating subsidy, assuming that the base amount and correction amount can be calculated by the PBL Netherlands Environmental Assessment Agency (PBL).

For each technology, the "unprofitable part" to be subsidized per ton of CO₂ is calculated as the difference between the "base amount" and the "correction amount". The base amount is set for the entire subsidy period, while the correction amount is set annually. If the market value rises, the unprofitable part decreases and therefore the subsidy also decreases. For each renewable electricity category, the value of the guarantees of origin will be determined annually and will be included in the correction amount.

All technologies will compete with each other for cost effectiveness. The technologies that are able to prevent the most CO2 emissions at the lowest price will receive the subsidy. Because this means that much more projects are eligible and will therefore submit an application, it will probably be more difficult to obtain a subsidy for existing technologies such as solar PV.

The maximum subsidy intensity that technologies can claim in SDE ++ in 2020 is €300 per tonne of CO₂. Technologies with a higher subsidy intensity can apply for the SDE ++ but this may not compensate for the entire unprofitable part for these projects. The maximum subsidy intensity will be gradually reduced towards 2030 in order to give market parties an extra incentive for the required cost price reduction of the various technologies. For some subcategories of renewable electricity, the minister expects that in the short term there will no longer be an unprofitable part and these categories will no longer need a subsidy.

In principle, no budget will be determined in advance per technology or sector (technology neutrality). There will be one integrated budget ceiling for all categories (without sub-ceilings) in order to guarantee the cost-effectiveness and feasibility of the scheme. Three exceptions are likely to be made:

• An (indicative) ceiling of 7.2 megaton (million tons) for CCS in industry in 2030 and a ceiling of 3 megaton for CCS for electricity, taking into account a limited time horizon. This ensures that CCS only takes place in those sectors that do not have cost-efficient alternatives in the short term; 
• An (indicative) ceiling of 35 TWh on the eligible production of renewable electricity from solar and wind energy; 
• An (indicative) ceiling of €550 million (cash expenditure in 2030) for CO₂-reducing options in industry, other than for the generation of renewable energy. 

For the solar category, the minister is focusing on solar PV roofs, thereby sparing agriculture and nature as much as possible. A preferential order has been agreed for this, which will be used as a national assessment framework when drawing up the regional energy strategies. The government has also indicated that in the SDE++ the relative ranking of systems with their own consumption will be higher compared to systems without their own consumption. This also means that solar projects on rooftops are more likely to be eligible for subsidy than ground-mounted systems.

The five “new” technologies are less consistent with the SDE++ method. CCS and residual heat projects, for example, depend on joint infrastructure, which is not covered by the SDE++. Hydrogen production is not yet sufficiently market-ready. For all other new technologies, the starting situations within a technology differ considerably, making it more difficult to determine a representative reference project, which increases the chance of over- or under-subsidization.

The aforementioned (new) technologies are not yet the end of the broadening of the SDE scheme. Other technologies are also expected to be supported by the SDE++ scheme. The minister has asked PBL to calculate the following categories of technologies for the SDE ++ 2021:

• Recycling of plastics;
• Bio-based production (ethylene from ethanol or bionaphtha);
• Advanced renewable fuels for transport;
• CO₂ capture and delivery to greenhouse horticulture;
• Electrification on offshore production platforms.

The opening budget of SDE++ in the fall of 2020 is €5 billion. The SDE++ 2020 is open from September 29 to October 22, 2020, in four phases.

Conclusion

Although more and more information on the SDE++ scheme becomes available from time to time, a lot is also still unknown. Trinomics points out that the broadening to other CO₂-reducing technologies increases the complexity of the scheme and that in some cases the new technologies will face other obstacles than only an unprofitable part. This will all have to become clear during the subsidy rounds, and where necessary the subsidy instrument will have to be adjusted accordingly.

In his final paragraph of his letter of February 17, the minister emphasized that the SDE++ is a novelty that is also being looked at with great interest in a European context. This will entail risks at the same time. The first opening round will show to what extent unexpected or even undesirable effects occur, according to the minister.

The draft of the decision and the underlying arrangements will again provide some clarity, but much will probably only become clear during the term of the SDE++. The minister wrote in mid-February that he would strive to send the SDE decree for advice to the Council of State before the end of February so that it could be published in April. Whether the decree has already been sent to the Council of State is not clear.