By Paul Homewood
Will Britain be next?
For many, the decision taken by the government at the end of March to stop extracting natural gas at Groningen was monumental. After years of damage-causing earthquakes, the government said it was no longer socially responsible to keep drilling in the area. Though the decision came sooner and was stated more firmly than was generally expected, it plays into the government’s long-standing aim to stop producing natural gas by 2030. This is a precursor to the firm commitment made in the Paris Climate Agreement to make the Netherlands entirely free of natural gas by 2050.
Of course, the gas tap cannot simply be switched off tomorrow. Out of 8 million Dutch households, 7 million are currently connected to the gas network in Groningen – a figure which hints at the vast amount of work it will take to make the complete switch from natural gas to alternative sources of energy. Eric Wiebes, the Minister for Economic Affairs and Climate, though recognising the extent of the decision, has laid out a plan to ensure gas reduction through various measures. These steps include ensuring all newly constructed buildings are gas-free, a promise that was cemented by MPs who voted to prevent the choice for homes to have the option to use gas from 1 July this year. Wiebes has also promised to remove natural gas from the existing districts that currently rely on it. This will be done through a gradual transition of around 30,000 to 50,000 homes per year until 2022, from which date the process will be accelerated to 200,000 homes a year. The government currently has around €90 million available in subsidies to start make the first districts gasfree in 2018.
Wiebes is also encouraging the purchase of small-scale sustainable installations via the Investment Subsidy for Renewable Energy (ISDE), a subsidy for the purchase of small, gas-free appliances. These include solar boilers, biomass boilers, and pellet stoves – which can be used to heat homes incredibly efficiently. This allows residents to produce their own sustainable energy in their home or business. He is also pushing for households to replace gas cookers and ovens with electrical alternatives, and to gradually phase out gas-fired heating installations. Of course, it is unlikely that in practice the process will be quite as simple as Wiebes has suggested with his gas-reducing measures. Commenting on the discussion about making homes gas-free in January of this year, the ING bank’s economic office weighed in on the other side of the debate. ING economist Gerben Hieminga pointed out that not all Dutch households are immediately eligible for gas-free alternatives. For a flat on the canals of Amsterdam, he suggested, alternative energy sources such as a heat pump simply will not work. He also warned that heat pumps and geothermal energy are now much more expensive than a central heating boiler, and that since the installation sector already has a staff shortage, it will be a huge effort to complete the job by 2050.
But whether this represents simple caution or active opposition to the plans, most sectors have come on board with the environmental plans to make the Netherlands entirely gas-free. “We want to accelerate by only developing gas-free homes,” Onno Dwars, commercial director at project development company Ballast Nedam Development has said. “According to the Paris Climate Agreement, the entire Dutch housing stock must be climate-neutral by 2050. Since the average lifespan of a gas grid is 40 years, building new homes with a gas connection amounts to destruction of capital. The new law strengthens our commitment to finally get rid of gas.’’ Milieudefensie, the Dutch branch of Friends of the Earth, has welcomed the commitment. It has been calling for a long time for gas production in Groningen to be halted and to discontinue the use of natural gas in homes. It is aware, however, of the challenges of going completely gas-free and has published a guide for the residential sector to help with the transition. In the first place it advocates for clear rules and objectives from the government. Knowing exactly how many cubic metres of gas must be saved per municipality is crucial to guarantee an effective response. Municipalities must also be given the space and financial means to realise these aims. The group is not only keeping pressure on the government, however. Milieudefensie says that municipalities must communicate and advise their residents from day one. It says that there are question marks regarding older buildings about who will pay for the transition and how it will be carried out; an effective dialogue must be set up to deal with this. ‘One size does not fit all’ has also become a crucial tagline for campaigners discussing the alternatives to gas. There are benefits to district heating networks in that they can be used on a larger scale, and do not require drastic adjustment to homes. But sufficient district heating is not available everywhere and more than half of the homes in the Netherlands will depend on a heat pump. Insulation of homes is a crucial first step to make the heat pump an effective option. Where good insulation is not realistic, for instance in older neighbourhoods, the focus should be on the use of geothermal energy.
Milieudefensie has also pointed out problems with the funding model established by the government. Citizens’ objections to the cost of the transition are not necessarily unjustified, considering that – according to research carried out by Ecorys for the campaign group – the costs are unevenly distributed and hit those with lower incomes the most. It recognises that the treasury cannot foot the entire bill of the transition, but has called for government funds to be directed to those who cannot afford the switch, or for owners of houses which are particularly hard to transition. Despite the cautions about the process, Milieudefensie is hopeful about the switch to gas-free. Research by the Dutch Climate Agency shows that most citizens want to get rid of natural gas, so it is hoped that people will be keen for the sustainable move. There has been some concern over new builds in the east of the Netherlands, which have apparently been fitted with gas pipes. Alliander, the grid operator that handles the distribution of much of the energy in the Netherlands, has been arguing for alternatives to the thousands of homes in Gelderland and hundreds in Flevoland that were fitted with gas connections. Peter Hofland of Alliander said: “It varies per neighbourhood which alternative is best for gas. If houses are located near a farm, biogas may be used. Is there a waste processor in the area? Then you may be able to create a heating network, in which the residual heat of the company keeps the houses warm. There are also places where you can do everything with electricity.”
We have already followed the Dutch by announcing the ban on gas boilers in new houses, albeit to take effect from 2025. However, at current house build rates, this will make little difference to domestic gas consumption for decades to come.
To meet decarbonisation targets, the UK government will have little choice but to follow the Dutch example and either cut off gas supplies to whole districts, ban the sale of gas boilers and cookers or tax gas out of existence.
The Dutch propose to cut off gas to 200,000 homes a year by 2022, a number that would be equivalent to about 800,000 here.
And, of course, the implications are huge. The unlucky householders affected will need to find maybe £10000 or more, simply to replace their boilers with non-gas alternatives. They will then be faced with much higher energy bills as well, thanks to the fact that electricity is more expensive than gas. [Electricity prices are about double those of gas in the Netherlands, according to the EU. However, about half of the gas price is made up of taxes. Whether consumers or government stand the cost of the switch from gas remains to be seen]
Moreover, electricity prices will continue to rise in future, as the grid switches to more renewable sources.
As even Milieudefensie, the Dutch branch of Friends of the Earth, admit, the costs are real and cannot be ignored. It seems certain that government will have to provide some funding, given that the costs are unevenly distributed and hit those with lower incomes the most. But as they also accept, the bill is simply too huge for the government to bear.
If we translate into UK terms, to convert all of the homes on the gas grid, in the region of 25m, would cost £250 billion, at £10,000 a time.
It is interesting, by the way, to note that about half of the article is devoted to what Milieudefensie had to say, as if their contribution was at all relevant.
The Dutch decision, although clearly motivated by the Paris Agreement, is also linked to the rundown of the Groningen gas field. However, this is a bit of a red herring.
As Timera Energy have recently reported, European and Asian spot gas prices have halved across the last six months as the current wave of new LNG supply (2016-21) is starting to outstrip demand growth.
Looking further ahead, they say:
But from the middle of next decade a new wave of supply is starting to take shape. 34 mtpa of new projects have now been FID’d across the last 12 months. And there is a much larger volume of credible supply options queueing behind this
As is always the case with oil and gas, the markets run in cycles – low prices discourage new investment, thus leading to a tightening of the market, triggering higher prices and renewed investment.
Nevertheless what is clear is that there will be abundant supplies of LNG on the world market for a long time to come, and at affordable prices.
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March 22, 2019 at 06:42AM
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