In 2007, the European Union (EU) released a comprehensive report on the challenges in Belgium’s energy landscape. In the report, the EU urges Belgium to provide “an energy basket that simultaneously guarantees a firm security of supply, at an acceptable cost, in an environmentally friendly way.” As AmCham Belgium examines the country’s current energy market, we find that, unfortunately, there is still much work to be done in all three areas.
Belgium’s geology is unfavorable for energy resources. Not having been blessed with primary resources, Belgium is entirely dependent on imported energy. Indeed, 100% of its oil, gas and even coal are imported. Coal was once Belgium’s main indigenous source, however supplies have mostly been exhausted and are only extractable at highly uncompetitive costs. There has been no domestic production of coal since the closure of the last mine in 1992.
As many segments of the economy are energy intensive, it is clear that rising prices will amount to a net loss for the overall economy. Given the rising global demand and competition for resources, it is of the utmost importance that Belgium develops a sustainable energy supply. The key objectives of the Belgian energy policy are security of supply, based on the diversification of energy sources,, energy efficiency, transparent and competitive energy pricing, and environmental protection.
European Energy Policy
Today, energy policy is increasingly driven at the European level. In 2007, the EU set an ambitious set of goals, known as the ‘20-20-20’ targets, to increase energy independence and mitigate the effects of climate change.
With the climate and energy package of legislation, the EU aims, by the year 2020, to:
- Reduce greenhouse gas emissions to levels 20% lower than those in 1990
- Increase the share of energy generated from renewable sources such as wind, solar and biomass to 20%
- Improve energy efficiency by 20%
An important element of the EU’s strategy in this regard is, the Emissions Trading Scheme (EU-ETS) for greenhouse gas allowances under a cap-and-trade system, which has been in place already since 2005.
In Belgium, policies related to energy and the environment have evolved appreciably in recent years, with a range of policies and measures being implemented in various areas by the regional and federal authorities. However, Belgium’s efforts do not match European aspirations.
Belgium must adhere to the new provisions of the EU Emissions Trading Scheme, agreed in 2009, which require Belgium to reduce its greenhouse gas emissions by 15% from 2005 levels by 2020. This legislation poses several challenges to Belgium, due to the country’s lack of primary resources, the nature of its energy landscape, and the government’s plan to phase out its main supply: nuclear energy.
A Nuclear History
Belgium is one of the 14 countries out of the EU28 to have nuclear reactors, opening its first plant in the 1950s. Since then, nuclear energy has dominated Belgium’s energy market. Nuclear energy provided over one-fifth of total primary energy supply and over 55% of electricity generation in 2009.
However, in 2003, the Belgian Government passed legislation banning the construction of new reactors for power generation. Under the same legislation, the existing reactors were to be phased out after a 40-year lifespan. This law was intended to lead to the closure of the seven Belgian nuclear plants between 2015 and 2025. The law can only be overruled by amending legislation or by a Royal Decree based on a recommendation from the federal Gas and Electricity Regulatory Commission (CREG) if the evolution of electricity prices negatively impacts security of supply.
Originally, the first three reactors were to be closed by 2015; however, the lifespan of the Tihange 1 reactor was prolonged to 2025. Doel 3 and Tihange 2 will close in 2022 at the end of their 40 years of service. Doel 4, Tihange 3 and Tihange 1 are set to shut down in 2025. This means that Belgium will lose an estimated 5,000 MWe of generating capacity within a three-year period. This poses serious problems for Belgium’s future security of supply.
100% renewable energy by 2050?
While the law is clearly a bold step towards renewable energy, one must ask how the government plans to fill the energy gap in such a short space of time. In 2011, the federal and regional Ministers for Energy initiated a consortium with the Federal Planning Bureau, VITO and ICEDD to explore the future of Belgium’s renewable resources. In December 2012, this consortium published a report claiming that while ambitious, they believed the country could run 100% on renewable energy by 2050.
This far-fetching claim goes well beyond EU aspirations and has been severely criticized by the Federation of Enterprises in Belgium (VBO/FEB) as the study specifically states that it does “not address competitiveness issues in the economy.” Moreover, the switch to renewable electricity, heat and transport systems would require a total investment of €300-400 billion from now until 2050. With the EU keeping a close eye on the country’s budget in order for it to meet its deficit targets, the size of this investment is clearly beyond the scope of Belgium’s current financial means. It would also have a negative impact, at least during the long investment period, on the cost of energy. The VBO/FEB believes that the study has not taken the needs of large industrial companies into account in its research.
Cost of the Nuclear Phase-Out
As Belgium therefore has no competitive renewable energy plan, and as the country has agreed to stringent greenhouse gas reductions by 2020, the European Commission has strongly recommended that the National Assembly reverse the law on the nuclear phase-out as it will undoubtedly lead to higher electricity prices and endanger Belgium’s energy security as well as its ability to meet its climate change targets.
The nuclear phase-out law prevents cheap domestic CO2 reductions, which will force Belgium to implement and/or finance reductions abroad through the purchase of emission allowances. According to the European Commission, the extra cost of a nuclear phase-out in relation to the emission trading scheme could amount to as much as €2 billion.
Moreover, the toll on business confidence must also be taken into account. By using the ‘carrot’ of operating extensions in negotiations with nuclear plant owners, the Belgian state can keep certain elements of the country’s energy market under control. This, however, does not instill much confidence for investors, as it puts the security of supply for energy-intensive industries at risk. Investors need to be able to make long-term plans and cannot feasibly do so without a clear, stable, long-term vision for the future of Belgium’s energy market.
Still, it must be said that reversing the phase-out will come at an environmental cost, as the extra nuclear waste will need to be managed.
Cost of Electricity
In addition to security of supply, access to reliable and affordable electricity is vital for business. Indeed, for energy-intensive companies, energy costs represent an important part of their production costs. A country must therefore endeavor to carefully manage the cost components of energy in order to ensure that companies within its borders maintain a competitive edge in the global markets. Here, Belgium also shows room for improvement.
In March 2013, the first benchmark study of electricity prices in Belgium and its neighboring countries revealed that the cost of electricity is significantly higher in Belgium than in France, Germany and the Netherlands. Commissioned by Febeliec, the Federation of Belgian Industrial Energy Consumers, the study by Deloitte shows that the difference varies amounts to as much as 12-45%, depending on the region and the amount of energy consumed. This is largely due to Belgium’s effort to ‘go green’, through the introduction of green certificates. Currently, these support schemes for green electricity vary between regions, which explains the price variation and which impedes the country-wide development of renewable electricity generation.
Furthermore, unlike its main trading partners, Belgium has no cap on taxes and surcharges, nor does it have a system of regressive tariffs for energy-intensive industries. As the amount consumed increases, so does the relative cost, resulting in sky high electricity bills. The price of energy is critical for the future of industry in Belgium, especially in light of the fact that Belgium has highly uncompetitive labor costs and a high nominal corporate tax rate.
Competitiveness has been kept by the EU as one of the main pillars of its new energy policy initiatives. Clearly, for a small country like Belgium without any energy resources, competitiveness is also extremely important. It is therefore imperative that the cost burden for companies is be kept in line with our trading partners, both within the EU and abroad. Having briefly touched upon the three most important issues for energy in Belgium, including the environment, security of supply and the cost of resources in our globally competitive circumstances, it is clear that Belgium is not developing its policies in a sustainable manner.
Belgium should therefore take serious steps towards harmonizing and coordinating its energy policies. This is critical for business as investors are attracted by a stable and coherent legislative and regulatory vision.
For more of our policy recommendations, please refer to our Priorities for a Prosperous Belgium.