Dutch Senate adopts fall back legislation: next steps for Dutch offshore wind

On 22 March, the Dutch Senate (Eerste Kamer) adopted the new draft act amending the Electricity Act 1998 for the expedient realisation of the Energy Agreement objectives (Wijziging van de Elektriciteitswet 1998 (tijdig realiseren doelstellingen Energieakkoord) (Amendment). The main focus of the Amendment is on the accelerated realisation of on- and offshore wind projects.

The Amendment aims to introduce the arrangements for the financing, construction, operation and management of the offshore grid and is part of the new regulatory offshore wind regime that should enable the additional development of 3500 MW of offshore wind in the Netherlands, planned to be operational ultimately in 2023. Whereas the Offshore Wind Energy Act (Wet Windenergie op zee))¹has been effective since July 2015, the legal arrangements in respect of the offshore grid have been subject to substantial delay. The below will provide a brief overview of the recent developments and next steps that need to be taken to enable an accelerated development of Dutch offshore wind projects.

Legislative process to date

The initial arrangements regarding the offshore grid were included in the draft Electricity and Gas Act (STROOM) (Energy Act) that was supposed to replace the current Electricity Act 1998 (Elektriciteitswet 1998) and Gas Act (Gaswet) in its entirety, which resulted in a draft encompassing a multitude of provisions in respect of a wide scope of topics related to both gas and electricity. One of these topics was the mandatory full ownership unbundling of integrated energy companies, which requires the effective separation of activities of energy transmission from production and supply interests. For Dutch energy companies, this unbundling obligation is already included in the currently effective Electricity Act 1998, which has since its introduction led to the unbundling of most integrated Dutch energy companies.

However, due to the Ministry of Economic Affairs’ choice to introduce an entirely new and integrated set of legislation through the Energy Act, the provisions regarding the mandatory unbundling had to be included in the Energy Act as well and, consequently, were open for debate. In the Dutch Senate (Eerste Kamer) this provision was heavily debated and resulted in the submission of a formal request (motie) to the Minister of Economic Affairs to postpone the effectiveness of the unbundling provisions in the Energy Act for the last two remaining Dutch integrated energy companies, at least until such strict ownership unbundling would be introduced in other EU Member States as well. The subsequent refusal by the Minister of Economic Affairs to act on this request led to such political disagreement that other arrangements from the Energy Act, which were considered acceptable to the Senate, disappeared to the background. The discussion regarding the mandatory unbundling provisions ultimately became the iceberg that sunk the entire Energy Act with a difference of one vote.

The Amendment: limited scope

The Amendment includes the necessary arrangements for the offshore grid and aims to provide (i) a legal basis for the appointment of TenneT TSO B.V. as the offshore grid manager, (ii) the regulatory framework in respect of tariffs and planning and the construction and operation of such grid, and (iii) the compensation mechanism for offshore grid connection delays and service interruptions. The provisions from the Amendment include substantially the same arrangements as included in the Energy Act, with some additions and necessary amendments to ensure the proper functioning of this legislation within the current Electricity Act 1998. This ‘fall back legislation’ was announced in January 2016 and aims to avoid the political discussion and controversy on the topic of ownership unbundling, which has facilitated an expedient process of discussion and adoption of the Amendment.

Tender opening and next steps

Following the adoption of the Amendment by both the House of Representatives (on 18 February) and the Senate, the Amendment will become effective on 1 April with the opening of the first tender round for two plots of 350MW scheduled for 8 April and closing on 12 May.

Although the provisions from the Amendment are substantially the same as the initial Energy Act, discussions about the Amendment do show that some issues remain outstanding and will need further detailing also after the Amendment becomes effective. Below we will highlight some of the most interesting of these outstanding issues.

The ‘EU-qualification’ of the envisaged financing of the offshore grid

Under the Amendment, the offshore grid manager will be allocated a subsidy for the development, construction, operation and maintenance of the offshore grid. The current structuring of this subsidy has led the Council of State (Raad van State) to criticise the Amendment due to doubts over whether this subsidy would qualify as state aid under European legislation. The exploratory discussions between the Ministry of Economic Affairs and the European Commission have so far not reached any (public) conclusion on this topic, which resulted in a statement by the Ministry that (further) alignment of this subsidy with state aid legislation may be necessary.

The certification of TenneT TSO BV as the offshore grid manager

The certification of the offshore grid manager is to be done by the Authority for Consumers and Market (Autoriteit Consument en Markt) (ACM) and is subject to a mandatory 2 month term for review and advice by the European Commission. TenneT has stated that, without such certification, it cannot take any final investment decisions on the purchase of the necessary hardware and the hiring of offshore installation companies for the execution of the construction activities related to the offshore grid. The formal appointment of TenneT as offshore grid manager and the subsequent certification could not be effected without the adoption of the Amendment. This process is expected to start in April. According to the Minister of Economic Affairs, the certification should not be delayed beyond 1 October 2016 to be able to meet the planned connection date of 31 August 2019 for the first two offshore wind projects to the offshore grid. The fact that TenneT does not have the ownership of the offshore grid at the time of certification, a precondition for issuing such certification, was circumvented by introducing a new provision in the Amendment stating the ACM / Minister of Economic Affairs may also issue such certification if this condition is not met.

Adoption of subordinate legislation

The Amendment refers to subordinate legislation that will detail and further elaborate on the provisions in respect of (i) the compensation regime for unavailability of the offshore grid (i.e. connection delays and service interruptions) and (ii) the subsidy allocated to offshore grid manager for the development of the offshore grid (described above). Although a draft of the general administrative order (Algemene maatregel van bestuur) for the compensation regime is available, the ministerial decree (ministeriële regeling) detailingthe model for calculating / measuring wind speed and production profile to determine the volumes eligible for compensation in an unavailability event is not. The subordinate legislation can be made subject to further scrutiny by both the House of Representatives and the Senate.

Final remarks

With the adoption of the Amendment by the Senate the ambitious planning of the Ministry of Economic Affairs was met. This paves the way for the subsequent further detailing of the regulatory framework and introduction of subordinate legislation. Various additional steps need to be taken before the regulatory framework in respect of the offshore grid is fully completed and TenneT can undertake the actions necessary to adhere to the deadline for connecting the first two offshore wind projects. If this proves impossible due to (further) political disagreement or incompatibility with European law, the Dutch target of 14% renewable energy by 2020 could be jeopardised. However, with the main elements of the new offshore wind regime now in place, the development of large offshore wind projects is now poised for a long-awaited acceleration.

For more information, please contact Matthijs van Leeuwen.