In order to meet its ambitious CO2 reduction targets and minimise the country’s dependence on Russian fossil fuels, the Netherlands is now more focused than ever in the development of battery electricity storage.
Despite encouraging signs from the renewable sector, the deployment of renewable energy still faces challenges (such as grid constraints and lengthy permitting procedures) that result in long lead times for many renewable energy projects. Energy storage can play a key role in contributing to solutions for shortages of capacity on the grid. It is therefore no surprise that we have seen the appetite for large-scale battery energy storage systems growing in the Netherlands.
The following article provides an overview of the legislative framework in respect of battery storage in the Netherlands and explores the issues that should be taken into account when considering investing in energy storage in the Netherlands.
Energy law and regulatory considerations
The Electricity Act 1998 prohibits grid operators (both regional operators and the national grid operator) from owning, developing, managing and operating energy storage facilities. However, the Dutch regulatory authority, the Netherlands Authority for Consumers and Markets (ACM), can grant exemptions where electricity storage is necessary for grid operators to perform their statutory duties but where market participants are not sufficiently investing in storage capacity.
The Dutch Electricity Act 1998 does not define electricity storage. As such, the term electricity storage is more generally used to cover a combination of consumption (i.e. when batteries are charged) and generation (i.e. when electricity from batteries is fed into the grid). This lack of definition makes it difficult to delineate and regulate for the specific characteristics of storage systems. For example, the dual qualification of electricity storage as consumption and generation renders the current tariff structure problematic. Under the Electricity Act 1998, generation is exempt from the payment of transmission costs, but consumption is not. This highlights one of the main barriers to energy storage in the Netherlands, as batteries currently pay more transmission costs than polluting wholesale consumers.
The ACM recognises this issue but holds that, as a general rule, transmission tariffs should be paid by the parties charging the network. In the traditional context, this was the consumer. Depending on how they are used, batteries can relieve pressure the grid or place a heavier burden on it, which – according to the ACM – does not justify a general exemption from transmission charges for batteries. Further consideration of what tariffs or exemptions may apply to batteries is required.
Furthermore, the peak load component of the transmission-dependent consumption tariff is currently under further investigation. This component represents a large cost for electricity storage, because storage services are characterised by the need of short-term high-peak capacity and the peak load component is determined by the highest capacity used.
At the moment, electricity storage is not eligible for subsidies. Although there are calls from the market to make subsidies available for deferred supply of wind and solar power, the Minister for Climate and Energy Policy has not yet taken any action. A positive development, however, is that double taxation of battery energy storage systems (i.e. at the time of recharging and at the time of feed-into the grid) was abolished in 1 January 2022.
As a result of the Dutch net-metering scheme (salderingsregeling), home battery storage currently lags behind in development. Pursuant to this scheme, small electricity users (connection < 3x80A) can offset the electricity generated and supplied to the grid against their behind-the-meter electricity consumption. This makes it financially unattractive for parties to invest in home battery storage. The envisaged gradual phase-out of net-metering scheme, beginning in 2025, is expected to boost home battery storage in the Dutch market.
Environmental and planning law considerations
In order for certain environmentally harmful activities to be performed, Dutch law requires an environmental permit to be obtained by the developer. This applies, for example, to the storage of more than 10,000 kilograms of hazardous substances (including lithium-ion battery cells). Often, a quantitative risk analysis (QRA) must be performed to assess whether this storage is permissible from an environmental point of view. Furthermore, general duty-of-care provisions apply under environmental law for handling smaller quantities of more hazardous substances. If necessary, customised regulations may need to be imposed.
Although environmental regulations currently do not specifically address safety aspects of battery storage, a new guideline is being created in relation to lithium-ion batteries. This guideline will become part of the Public Series on Hazardous Substances (PGS number 37) that will be used by the relevant competent authorities when issuing environmental permits and enforcing environmental legislation.
In anticipation of the arrival of PGS number 37, the State Secretary of Infrastructure and Water Management issued a ministerial circular that contained recommendations for the design and installation of an energy storage system, which can be used by authorities in permitting procedures.
Property and land rights considerations
Usually, energy storage systems are located on plots of land owned by parties other than the developer. In these cases, it is essential that the developers obtain the appropriate land rights and these rights will typically include a right of superficies (see below) and will in general have a duration of 20 to 30 years.
Under Dutch law, the owner of the land in question also takes ownership of the structures and appurtenances constructed on the land (i.e. vertical accession). Since large-scale energy storage systems in most cases qualify as works with permanent foundations, which by their nature and design are intended to be permanent, they will be subject to vertical accession. This can be prevented by the obtainment of a right of superficies, which provides the party with the right of ownership over the energy storage system that is built on land owned by a third party. The right of superficies must be established by notarial deed, followed by registration in the public registers of the land registry. The deed describes the legal relationship between the superficiary and the landowner and includes the terms and conditions applicable to the right of superficies.
Under Dutch law, a right of superficies is a ‘real right’, which means that it is binding on third parties. Consequently, if the landowner is declared insolvent or bankrupt, the right of superficies will not fall away. Instead, the right continues to exist if the property is subject to an attachment order or a foreclosure and is encumbered with a mortgage right. Therefore, it provides ‘bankable’ land rights.
The right of superficies needs to be distinguished from a land lease, which provides a contractual relationship between the land owner and the lessee that does not constitute a right in rem, but a mere personal right that is not binding to third parties.
Public procurement considerations
Public procurement law can play an important role in relation to energy storage projects. Therefore, it is advisable when developing an energy storage project, to check whether the Dutch Public Procurement Act applies.
Pursuant to the Dutch Public Procurement Act, which incorporates EU procurement law, contracting authorities (i.e. central government, ministries, municipalities, provinces and water authorities) and contracting entities (i.e. public institutions such as universities and companies in specific sectors such as water companies, energy companies and public transportation companies) must organise a Europe-wide tendering procedure when purchasing goods or services.
Since so-called special sectors (i.e. sectors using a physical or virtual network (such as pipelines, electricity grids, postal infrastructure, railway lines, etc.) which is operated by parties enjoying special or exclusive rights) are characterised by a closed nature, different tender rules apply (see part 3 of the Dutch Public Procurement Act). The applicability of these tender rules is subject to certain EU thresholds being exceeded. As of 1 January 2022, the following EU threshold amounts apply:
for works/construction contracts (i.e. construction and maintenance of battery storage facility): an estimated value of EUR 5,382,000; and
for supply and service contracts (i.e. energy supply and related services): an estimated value of EUR 431,000.
For contracts below the aforementioned thresholds, a European tendering procedure is not mandatory. However, in case of work/construction contracts above this threshold, the contracting authorities and entities will be bound by the Dutch Works Procurement Regulations 2016. As a result, public procurement law also applies to works/construction contracts for energy storage projects with an estimated value below EUR 5.382 million.
Contract design and grid connection considerations
Since battery energy storage systems can serve a wide variety of applications (grid-level or customer-sided), the corporate structure and contractual framework of a storage project will likely depend on the services provided by the battery. The business case of each storage system relies on the potential stacking of several/available revenue streams. Common revenue streams are derived from the provision of
balancing services and from wholesale market trade on the Day-Ahead or Intra-Day market. Other revenues mainly come from portfolio optimization services (e.g. through ‘peak-shaving’) for balance responsible parties and/or contracts to provide local grid (congestion) management services to grid operators. With respect to the latter, in addition to bilateral contracting for congestion management, Dutch grid operators have developed a separate market platform for congestion management: GOPACS, which offers battery energy storage systems an additional way to generate revenues. Optimizing a combination of these aforementioned revenue streams will help to improve the bankability of a battery storage project.
At present, pilot projects are taking place with non-firm connection and transmission agreements for unused capacity to be allocated to batteries. Instead of contributing to the capacity shortage on the girds, this will allow battery energy storage systems to contribute to a more efficient use of the grid and a solution for capacity shortage.
Since 2018, Dutch law has allowed for cable pooling (i.e. sharing a connection for wind, solar and storage), which can also provide a solution for the current grid capacity shortage. In order to facilitate cable pooling for battery storage, a model cable pooling agreement for wind, solar and storage was recently developed.
It is expected that both non-firm connection and transmission agreements, and cable pooling will result in cost reductions for battery storage systems and will, in turn, benefit the business model for batteries.