Heat transition: an update on Dutch heat legislation

Wcw

On 15 November 2023, the Minister of Climate and Energy submitted the Collective Heat Bill (Wet collectieve warmte; Wcw) to the Council of State (Raad van State; RvS) for advice.

The Wcw aims to promote the heat transition (especially the built environment) while better safeguarding the public interests of sustainability, security of supply and affordability. According to the proposed Explanatory Memorandum, the bill has the following goals:

1. Increase public control in the realization and operation of collective heat. Among other things, the bill proposes that the Municipal Executive may designate a heat company in which a majority interest (more than 50%) is held by one or more public parties.
2. Develop collective heat that emits zero greenhouse gases by 2050. The bill requires heat companies to meet a minimum achievable level of sustainability by setting a performance standard for maximum greenhouse gas emissions.
3. Tighten consumer protection rules and better ensure security of supply of collective heat.
4. Introduction of transparent and cost-based tariff regulation (replacing the gas reference price) for captive customers of collective heat.

The RvS adopted its opinion on the Wcw on 17 April 2024. The RvS indicates that it understands the government’s desire to give municipalities the direction to manage the heat transition. The requirement that one or more public parties be given a majority stake in heat companies, according to the RvS, needs more explanation given EU law, including why a public majority stake is necessary to protect consumers. The government should also better explain the effectiveness of a majority stake.

The Wcw proposes (see also above) new tariff regulation. The current tariff regulation is based on the gas reference price (the ‘no more than usual’ principle (NMDA)) and will be replaced by cost-based tariff regulation. The RvS recommends that the explanatory memorandum to the bill pay more attention to how the proposal contributes to socially acceptable tariffs.

Wgiw

In addition to the Wcw, the bill “Municipal Instruments for Heat Transition Act” (Wgiw) was introduced on 29 June 2023. This act introduces instruments that allow municipalities to establish (local) rules to implement the heat transition in the built environment from natural gas to sustainable alternatives.

Under the Wgiw, municipalities are given the power to designate areas (neighborhoods) that will transition from natural gas to a sustainable alternative by a certain date. The designation of the areas will be laid down in an environmental plan. The Wgiw provides the frameworks for municipalities to implement a neighborhood-based approach.

On 23 April 2024, along with several amendments and motions, the Wgiw was passed by the Tweede Kamer (the Dutch House of Representatives). Briefly, a motion is used to adopt a position or policy change, while an amendment is used to make specific changes to the text of the law.

The vote on the Wgiw included more than 40 motions and amendments, such as:

• Making a neighborhood sustainable can have major consequences. An AMvB (a governmental decree) will stipulate that residents will be given a reasonable period of at least 8 years to switch to sustainability.
• Emphasizing the need to ensure that the transition from natural gas to sustainable alternatives in a neighborhood must be financially feasible for residents. In an AMvB to be determined, instruction rules must be set regarding the affordability of the transition from natural gas to a more sustainable alternative. For example, before a neighborhood is designated for sustainability, it must be verified that it is affordable according to the established instructions at the AMvB level. Also, investments in sustainability for residents must generally be recoverable within a reasonable period of time.
• The heat program will set the lines for whether or not neighborhoods will be designated to go off the gas. The Environment Act establishes that heat programs will focus on making the heat supply more sustainable efficiently and feasible and affordable for owners and tenants.
• The Wcw proposed a new tariff regulation that will be introduced in stages. The Wgiw anticipates this. The ACM will be given powers under the current Heat Act that will allow the ACM (the Netherlands Authority for Consumers & Markets) to prepare for a cost-based tariff system. This will allow the ACM to gather intelligence and data on supplier returns and the costs and revenues per type of heat network. This power of the ACM already enters the Warmtewet (Heating Supply Act) via the parliamentary treatment of the Wgiw (and thus not only with the entry into force of the Wcw), because this information is necessary for the preparation of the introduction of cost-based tariff regulation under the Wcw.
• The amendment on compensation to individual households whose transition to heat supply does not properly comply with the NMDA principle was not adopted. It was not clear from the amendment by whom compensation should then be provided. The amendment for (bringing forward) the step-by-step implementation of the cost-based tariff system was also not adopted. The introduction of the cost-based tariff system is (except for the aforementioned power of the ACM to collect information) still part of the Wcw.
• However, a motion was passed on conducting research (to be carried out by the government together with heat companies and corporations) on establishing a fund to guarantee the NMDA principle individually. The discussion in the House of Representatives does not yet show how this research or fund should be implemented.

The Eerste Kamer (the Dutch Senate) has yet to vote on the Wgiw. The intention is that the Wgiw will come into force on 1 January 2025.

Timeline

On 16 April 2024, the Minister of Climate and Energy sent a letter to the House of Representatives outlining a timeline of the entry into force of the Wcw and Wgiw, among other things.

Following the advice of the RvS, the minister expects to send the bill, adjusted where necessary, to the House of Representatives before the summer recess. Meeting the entry into force by 1 January 2025, the minister calls “challenging,” but “given the urgency, I will continue to speed up this as much as possible,” he said.

For more information or if you have questions regarding this topic or other energy related matters, please contact Van Doorne’s Energy, Industry & Renewables-team.