A Belgian Interfederal Energy Pact? Fortunately, there is Europe.

In December 2017, the four ministers responsible for energy reached an agreement on the Belgian Interfederal Energy Pact. At the end of March 2018, the Federal Government eventually approved it, albeit conditionally. As the authorities in Belgium are so fragmented, it is not easy to achieve a coherent view. Therefore, the pact was encouraging and a reason for optimism, as also appeared from the first workshop, or round-table meeting, of Vlerick's Prime Foundation Partnership with KPMG. “We wanted to act as a sounding board for ideas to achieve the transition to a low-carbon energy system,” says Professor Leonardo Meeus. “By now, we have completed two successful workshops, but our focus has shifted somewhat.”

Hint of crisis

Anyone following the news must have thought that our country’s energy policy has been veering from crisis to crisis since March. An agreement was reached on the Energy Pact, but was it a real agreement? The ink had scarcely had time to dry when two months later, one of the parties questioned the nuclear power phase-out by 2025, after which the discussion flared up again. In August, the media reported that our electricity is the most expensive in Europe and a month later, the same media again raised the alarm: The lights will go out in November. Indeed, the Federal Planning Bureau warned of power shortages from November, as only one of the seven nuclear power plants will be operational.

“Allow me to qualify that report about the electricity prices,” says Leonardo. “The Eurostat statistics are only about households, not about the prices paid by industry. Moreover, a new, albeit better, method was used for the calculations. However, four countries that are usually more expensive, namely Germany, Italy, Spain, and Cyprus, were not included in the comparison because they had not yet submitted the data required for the new calculations. Admittedly, the report does not make for particularly happy reading.”

Capacity remuneration mechanism. A good idea?

“But it's not all doom and gloom,” Leonardo continues. “To return to the power shortages: Minister Marghem proposed a preliminary bill for the introduction of a capacity remuneration mechanism to ensure security of supply. The cabinet approved that proposal on 20 July. Such a capacity remuneration mechanism should ensure that electricity producers will continue to invest to keep sufficient capacity available – to replace nuclear production.”

According to Jorn De Neve, Deal Advisory Partner and Head of the Energy Sector at KPMG, this is a controversial measure: “In the first place, politicians must offer certainty about the nuclear power phase-out, so that the market can decide freely about investments to replace the nuclear power plants. However, it was precisely the closure of the power stations that was recently called into question again. A climate of uncertainty is not conducive to attracting domestic and foreign investors. We urgently need a long-term view of a sustainable energy mix in Belgium, adapted to our consumption behaviour.”

Furthermore, the mechanism itself is also open to criticism. It is difficult to implement without favouring a particular technology. “At this moment in the energy transition, we want to give all technologies a fair chance and let the free market decide,” explains Leonardo. “It appears from examples abroad that it is politically attractive to use such measures in times of crisis. However, the choices that are made to get out of the crisis in the short term are decisive for the long term.”

It has already emerged from the two workshops that it will be difficult for Belgium to choose a mechanism that will suit everyone. Fortunately, there is Europe: a member state that wants to introduce a capacity remuneration mechanism must have this approved by the European Commission, which will check whether or not it favours any particular technology. This approval procedure is still ongoing for the Belgian proposal.

Forget the pact. Europe is asking for a plan

The idea behind the Interfederal Energy Pact was to formulate a generally supported view and strategy. However, the pact has remained a dead letter for the time being. There has not been any further in-depth exploration. On 20 July, the cabinet set up a federal energy committee to evaluate the annual progress of the Energy Pact. The first report is expected next year at the earliest, but generally no crucial decisions are taken in an election year.

However, that’s without counting on the EU. The Energy Union Governance Regulation, adopted in June, stipulates that all member states must prepare a detailed national plan for 2021-2030 describing their ambitions and measures for each of the five dimensions of their energy and climate strategy: (1) security of supply, (2) development of the European energy market, (3) energy efficiency, (4) decarbonisation of the economy, and (5) research and development, innovation, and competitiveness. Every two years, they must report on their progress, and their achievements will be assessed. 

“That national plan will make the Energy Pact redundant. After all, a first draft has to be submitted by the end of this year. In the course of the second quarter of next year, the European Commission will give its feedback, and we will be able to compare our plan with those of the other member states. The final plan will have to be submitted by the end of next year.  So far, Belgium has only drawn up regional plans. Thanks to Europe, there is a renewed impetus. That feeling is also shared by the workshops' participants.”

On the agenda

The round-table meeting of 11 October was the last one this year. However, if you want to keep your finger on the pulse, you do not have to wait until 2019: on 14 November, the 8th Annual KPMG Global Power & Utilities Conference will be held in Brussels  for anyone interested in best practices and evolution in the energy sector worldwide. The next Prime Foundation Partnership workshops are scheduled for 3 April and 23 October 2019. “It has been decided to shift the focus from the Energy Pact to the national plan,” says Leonardo. “The timing is perfect. Moreover, we will go deeper into the future of the gas sector in Belgium.”

The Energy Pact was mainly about electricity – gas was barely mentioned. This is strange when you consider that gas has a much greater share in our energy consumption than electricity. However, until now – and this does not only apply to Belgium – electricity has been the main subject of debate and research. The future is electric, it was said. However, if you look at the transport sector, there are alternatives such as hydrogen and CNG. The same applies to the heating of buildings. Think of biomethane and synthetic gas – technologies that are still in their infancy today, but only ten years ago, wind and solar energy were not realistic options for large-scale energy consumption either. By 2050, renewable gas might be feasible.

Daniël Pairon, Global Lead of KPMG Asset Management, emphasises the importance of innovation in the energy transition: “Innovation is essential for the energy transition to succeed. For example, for gas to be part of the energy mix in the future, the technological and operational innovation for renewable gas must be developed. Moreover, as Jorn said, we have to create conditions for long-term investments. The second zone for offshore wind energy is a step in the right direction, but other technologies and energy sources, coupled with innovation, are indispensable.”    

A survey also revealed that, with one exception, all participants in the workshops are convinced that gas does have a future. The EU is also catching up: The Clean Energy Package only contained guidelines for electricity, but work is under way on a similar package for gas.

“These are fascinating times,” Leonardo concludes. “Energy options that we have not or hardly researched so far will now be studied.”