Dutch growers can't escape natural gas due to 'twists and turns' in subsidy system

Frontrunners in the Dutch greenhouse horticulture who have switched to sustainable heat are being forced by high energy prices to switch back to burning natural gas in CHPs. This is endangering sustainable projects and threatening to put the climate targets out of sight. This is caused by the linking of subsidies to the price of natural gas and, as the lobby group Glastuinbouw Nederland puts it, 'twists and turns in the subsidy methodology'. Even if a grower has switched to sustainable energy, natural gas still haunts them. The government must and can do something about this, according to Glastuinbouw Nederland, which is calling for 'urgent action'.

All the larger sustainable heat projects using geothermal heat, biomass, and solar heat are affected by the high gas prices, according to the independent, specialist consultancy BlueTerra Energy Experts. The agency mapped out the situation on behalf of Glastuinbouw Nederland. The conclusion is that projects in the greenhouse horticulture sector will fall through and households will be confronted with very steep increases in heating tariffs for district heating networks. On 27 January, CDA Members of Parliament Bontenbal and Boswijk asked parliament questions about this.

Passing on costs not possible
The amount of sustainable heat generated in greenhouse horticulture is equivalent to approximately 300 million m3 of natural gas per year. That is the annual gas consumption of 240,000 households. Heat networks with sustainable sources have been forced to raise prices substantially because of cuts in subsidies and rising operational costs. Households suffer from this. But greenhouse horticulture companies cannot pass on the higher prices, because the cost price of competitors with a natural gas CHP has not risen. Meanwhile, a lot of subsidy money, which has already been earmarked for making the Netherlands more sustainable, is disappearing into state coffers. If existing projects are already being ruined financially, the enthusiasm for new projects will also quickly fade.

Nursery Wijnen Square Crops from Egchel says: "From the bottom of my heart I say that we have to keep running, the energy price will drop eventually. But if you look at it from a business point of view, I have to shut down my plant, because the financial risk of continuing is enormous. A similar comment comes from Middenmeer, from ECW Energy: "There are serious thoughts about temporarily shutting down one or more geothermal heat sources from April."

What is going on?
The conditions in the energy markets are thus a major threat to existing renewable energy projects. The primary reason is that all larger sustainable heat projects depend on SDE subsidies. This subsidy is linked to the gas price to cover the so-called unprofitable top. Now that the gas price is so high, the subsidy threatens to become zero. Companies that can pass on the higher costs to the consumer will do so, companies that cannot do so may go bankrupt. It is important to note that the current high energy prices are having a disastrous impact on the projects, due to a number of well-known errors in the subsidy scheme. The impact of these errors was still acceptable in the past decade. Companies with a sustainable installation run a greater risk than companies that simply burn natural gas and these sustainable entrepreneurs cannot cover that risk.

Idea behind SDE subsidy
The main idea behind the Stimuleringsregeling Duurzame Energieproductie (SDE) (stimulating scheme for sustainable energy production) is that the scheme covers the unprofitable balance between the costs of green and fossil fuels. In practice, this doesn't always work for several reasons, but the most important is the fact that in projects in greenhouse horticulture, industry, and heat networks, the reference cost price of fossil fuels should be based on CHP rather than on a gas boiler. Cogeneration suffers less from the extremely high energy prices because in addition to the expensive input of gas, it also benefits from the sale of expensive electricity. This ensures that the heating price is always relatively low. However, the subsidy of sustainable projects is linked to the heat price of a gas boiler via the correction amount.

In short: in theory, the SDE subsidy covers the unprofitable balance, but in practice, this is not the case. The SDE system worked properly with energy prices in the past twenty years, but in the current energy crisis with unprecedented, extremely high energy prices, it no longer works.

High levels of uncertainty
An additional difficulty applies to projects that produce electricity as well as heat, for example wood-fired CHP and biogas plants. Whereas in the heating schemes the SDE is determined on 1 January for the coming year on the basis of the 'year ahead gas price', in the scheme where some electricity is also generated, the subsidy amount is determined afterward on the basis of the daily EPEX electricity price. Because the electricity prices are not known until afterwards, an entrepreneur cannot make timely adjustments. Nursery WS Moerman from Maasbree says: "The subsidy amount that we will receive in 2022 partly depends on the daily electricity prices during 2022. I have to decide now whether we are going to run, on 31 December we will know whether this has been the right choice."

The companies will be paid subsidy advances, but as it stands based on current energy prices, the advances for 2022 will be recovered in early 2023. Moreover, the expectation is that in 2023 little or no advance payments will be made. This could lead to acute liquidity problems and even bankruptcy in 2023.

Geothermal Heat Vierpolders, a horticultural collective of eight greenhouse horticulture entrepreneurs, says: "The increase in the gas price will only have its effect in the post-calculation of the current SDE year. As a result, at the end of an already extremely expensive energy year, the entrepreneurs are faced with a substantial repayment of SDE funds.

Source: Glastuinbouw Nederland

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