Dutch households' electricity bills could almost double within 15 years as a result of necessary investments in the power grid. This is the conclusion of an official working group commissioned by the Cabinet to study the costs of strengthening the electricity grid. According to their report, the costs for this network reinforcement amount to between 136 and 253 billion euros in the period 2024-2040. On average, that amounts to about 195 billion euros, which is equivalent to over 10,000 euros per Dutchman and about 11 billion euros per year.
The electricity grid urgently needs strengthening due to increasing grid congestion. Currently, businesses and some residential areas in almost all of the Netherlands are already experiencing restrictions or waiting times for new connections. Electricity demand is expected to double in the coming decades due to the energy transition, in which fossil fuels will be replaced by electricity. This is essential not only to achieve climate goals, but also to become less dependent on energy imports from geopolitically unstable countries.
Cost increase
The total management costs of the power grid - construction, operation and maintenance - are expected to rise from the current 7 billion to about 20 billion euros per year in 2040. By comparison, the government spends about 10 billion euros annually on infrastructure for rail, road and water traffic.
Network operators cannot finance these significant investments on their own and will pass the costs on to consumers and businesses through higher network tariffs. According to the report, this means that average annual electricity bills for households will rise from €641 in 2024 to about €1,257 in 2040. This calculation assumes unchanged electricity consumption and prices at 2024 levels, excluding inflation. The increase is entirely due to higher grid management costs.
Flexibility
According to Bram Straten of consulting firm Windkracht 5, energy costs, especially grid costs, will indeed rise sharply as a result of the energy transition. Still, he sees opportunities to limit the increase. Straten argues that by using the electricity grid more flexibly, for example through better coordination of energy storage, generation and consumption, up to 30 billion euros can be saved. This could help keep energy bills affordable for consumers and businesses.
Contracts
"Network operators can play an important role here by introducing new forms of contracts, such as group contracts and variable tariffs. They should also consider whether spare capacity can be temporarily deployed and whether certain grid components can be temporarily more heavily loaded. In addition, speeding up infrastructure projects helps resolve bottlenecks faster."
Role of government
The government can also play an active role, according to Straten, for example by encouraging large and small consumers to be more flexible with their energy use through tariff incentives and capacity management. "Subsidies for vulnerable sectors can further limit negative impacts. Cooperation between government, grid operators, regulators, consumers and market participants could lead to a decrease in grid tariffs by about 22 percent by 2040, according to Straten. This could reduce investment costs in the power grid by 10 to 30 percent, partially preventing high energy bills."
Impact
Insufficient investment in the electricity grid also entails high social costs, such as economic damage because companies have to postpone expansion or sustainability plans because of grid congestion. Housing projects are also delayed because new residential areas cannot be connected to the electricity grid in time. In addition, a sharp rise in energy costs can lead to energy poverty and economic stagnation, as businesses have to pass on their costs or can invest less.
Wind farms
Of the estimated investment of 195 billion euros, about 88 billion is for connecting offshore wind farms. The working group expects about 38 gigawatts of offshore wind capacity to be realized by 2040. This is lower than the previous Cabinet target of 50 gigawatts, which the working group says currently seems unrealistic. Replacing wind farms with nuclear power plants, by the way, does not offer any cost savings for the power grid, according to the report.
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