What are the consequences of the Green Deal for Belgium’s energy system?

Leonardo Meeus

By Leonardo Meeus

Professor of Nonmarket Strategies

24 November 2020

“Flexibility” and “The role of hydrogen, green gas and other molecules in Belgium”: these were the topics of the two workshops or round tables organised this year as part of Vlerick’s Prime Foundation Partnership with KPMG. To conclude the three-year partnership, and in anticipation of a further collaboration, Professor Leonardo Meeus and Jorn De Neve, Partner, Head of Advisory and Head of the Energy Sector at KPMG, look back on their work. It turns out that there is a logical link between the two topics.

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More ambitious sustainability targets

The European Green Deal has an ambitious goal: carbon neutrality by 2050. In its turn, the Belgian National Energy and Climate Plan specified targets for renewable energy in general and renewable electricity production in particular. By 2030, 37.5% of the electricity we produce should be coming from renewable sources. In the light of the Green Deal, the ambitions for 2030 are now being revised. It is not just electricity production that needs to be ‘decarbonised’, but other sectors as well.

Transport, buildings and industry

The participants in the first workshop agreed that transport, buildings and industry are the three main sectors in which electricity – and renewable electricity in particular – will play a greater role. For example, electric cars will replace cars that run on fossil fuels, buildings will be heated with heat pumps rather than gas boilers, and various industrial processes that currently use natural gas as an energy source will need to convert to electricity to a greater or lesser extent.

The question then is: how can our electricity system keep up with the growing demand? What is more, how can we keep the system flexible enough to cater for the variable and unpredictable production of electricity from renewable sources and respond to increased, but likewise variable demand?

Flexible transmission system

“There are a range of flexibility options, such as dynamic demand control, flexible production, battery storage and increased interconnection between the transmission system in Belgium and that of its neighbours”, Jorn tells us. “And then there is the gas sector, which believes that it is also part of the solution,” Leonardo adds. “After all, the gas system can also provide storage and thus absorb fluctuations in production and demand.”

“But there is no single option that efficiently offers all the flexibility we need,” Jorn stresses. “Besides technical parameters such as reaction time, electrical efficiency, power and storage capacity, you absolutely have to take the investment and operational costs into account if you want to analyse the economic viability of various flexibility options. We will obtain optimal results with a combination of options that all perform well. The round table participants shared that view.”

Flexible distribution system

Flexibility is a challenge for the distribution system as well as the transmission system. After all, a large proportion of the intermittent, renewable energy being produced is directly connected to the distribution system. The same applies to intermittent demand: take electric cars, for example. What opportunities do regulatory instruments offer to ensure that the distribution system is flexible enough? What role can DSOs (distribution system operators) play in flexibility purchases and what does that mean for the relationship between TSOs (transmission system operators) and DSOs? What can you expect from distribution system rates?

“Net rates, which expose users to price signals, can be an incentive to promote efficient use,” Jorn says. “The rates should then be designed in a way that aims to reduce both the system peak and individual peaks. In that way distribution system rates would also contribute to limiting or delaying investments in systems and to solving or avoiding congestion.”

Leonardo nods. “All the participants agreed that distribution system rates could evolve in the future, but that rates alone would not be enough to ensure flexibility for DSOs. Once again, a combination of measures will be needed.”

Not everything can go electric

The topic of the first workshop, flexibility, stemmed from the question of how we should manage our electrical system as electrification increases. “But for some industrial processes, electrification is not the best option, just as electric vehicles are not the most viable alternative for transporting heavy loads over very long distances, such as those covered by ships or aircraft,” Jorn notes.

“In short,” Leonardo explains, “other forms of energy will be needed alongside electricity, such as hydrogen and renewable natural gas. We sometimes give these forms of energy the collective name ‘green molecules’. What applications are we going to use them for, and what technologies and systems will they need? That was the theme of the second round table.”

Green hydrogen

“There are different ways of producing hydrogen, and some are more environmentally friendly than others. For example, the traditional process produces ‘grey’ hydrogen by chemically converting fossil fuels. The CO2 that is released in the process goes back into the air. That’s exactly what we don’t want anymore. If you capture that CO2 and store it underground or reuse it in other processes, you get ‘blue’ hydrogen,” Leonardo tells us.

“However, you can also produce hydrogen by electrolysing water”, Jorn adds. “Then no emissions are generated and the only residue is oxygen. What is more, if the electricity used for electrolysis comes from renewable energy sources, the whole cycle of hydrogen production and consumption is completely clean, and you get what we call ‘green’ hydrogen. Green hydrogen also makes it possible to decarbonise industries that use hydrogen in their processes, such as oil refineries and the chemical industry.”

However, Leonardo believes that the choice of grey, blue or green hydrogen is not only determined by technical and sustainability considerations. It also has a political dimension: “China and the EU are currently engaged in a battle for supremacy in the field of electrolysis. China is a world leader in the production of cheap, green hydrogen using electrolysis, while the policies of European countries such as Germany, France and the Netherlands aim to support the newer electrolysis technologies with a view to export.”

Biomethane

“The advantage of biomethane or ‘green gas’ over other renewable sources is that it has the same properties as natural gas, so that it can be injected into the existing gas system and used in all the sectors that already use natural gas today,” Jorn explains. “A support mechanism exists in Wallonia to make biomethane injection possible. An equivalent still needs to be developed in Flanders.”

What about our natural gas system?

If green hydrogen makes a breakthrough, how are we going to transport it? There are currently a few local hydrogen systems owned by companies. Are we going to phase out the existing natural gas system or turn it into a hydrogen system? Will we end up with two parallel systems? In the short term the gas transmission system operators believe we will have what are known as ‘hydrogen valleys’, such as the one in the port of Antwerp. In their view, it makes sense to link these clusters at European level.

“The European gas transmission system operators are also currently studying and testing ways to convert their networks to enable hydrogen transport”, says Jorn. “In July, several gas transmission system operators published a study outlining a European hydrogen system. That report assumes that there will be a hydrogen system alongside the existing natural gas system, which will transport an ever-increasing proportion of renewable natural gas.”

No vision for policy yet

However, it is currently difficult to predict how all this will develop. There was no consensus among the participants in our workshop either.

“Germany, France and the Netherlands are committing to hydrogen. They are investing in new electrolysis technologies as part of their industrial policy. As I said, they want to compete with China, although I am not trying to imply that Belgium should do the same. Denmark, France and Italy are subsidising the development of technologies to reprocess biogas produced from agricultural waste flows into renewable natural gas. So France is hedging its bets,” Leonardo says. “On the other hand, Belgium has not yet made a clear choice, and neither have many other EU countries. All the participants agreed about that. It’s true that hydrogen is mentioned in the National Energy and Climate Plan, but there is no real vision for policy yet,” he concludes.

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Leonardo Meeus

Leonardo Meeus

Professor of Nonmarket Strategy and Corporate Affairs