EXECUTIVE SUMMARY

Electrification Is Reaching A Tipping Point

Russia’s war in Ukraine and the energy crisis have crystallised the societal benefits of accelerating the energy transition. Electrification and access to renewable energy are understood to be beneficial for the climate, for offering long-term price stability and for protecting against inflation in the gas and electricity markets.

New policy measures aimed at speeding up the energy transition came into force quite recently. The expected spread of electrification across society is happening both earlier and at a faster speed than anticipated. Indeed, the first signs of this can be seen in the mobility, heating and industrial sectors. However, the speed of change is not synchronous across the electricity system, which is causing tension both on the supply and demand side.

This study outlines how, as electricity needs rise, a number of structural measures will be needed to complement the capacity remuneration mechanism (CRM) in order to maintain Belgium’s security of supply in the most efficient and effective way possible.

When growth accelerates, mass-market adoption begins

The technology adoption lifecycle of a new product typically follows the shape of an S-curve, since it involves three customer response phases: uptake, growth and mass market.

Once a product’s adoption reaches a certain tipping point, its uptake accelerates exponentially. The telecoms sector recently experienced this growth pattern; the energy service sector is due to experience the same expansion given the uptake of flexible assets in the mobility, heating and industrial sectors.

WHAT IS THE DIFFERENCE BETWEEN ADEQUACY AND FLEXBILITY?

‘Adequacy’ and ‘flexibility’ are two crucial elements for the smooth operation of the electricity system: they help to maintain security of supply. In this study, Elia quantifies Belgium’s adequacy and flexibility needs for the period 2024-2034.

‘Adequacy’ refers to the system’s ability to meet the demand for electricity at all times. It ensures that there is a sufficient and balanced supply of electricity to meet the needs of consumers, taking into account factors like increasing electrification, seasonal variations and events happening abroad. The Belgian electricity system is ‘adequate’ if the national reliability standard of less than 3 hours loss of load expectation (LOLE) is respected.

A system’s ‘flexibility’ relates to its ability to cope with fluctuations in production and consumption, which are mainly caused by the increasing variability of renewable energy sources (RES). As electrification spreads across the mobility, heating and industrial sectors, increasing opportunities for flexible consumption emerge, which contribute to an affordable, sustainable and secure electricity system.

Important Changes Compared With The Previous Study

Since the publication of our last adequacy and flexibility study in June 2021, significant policy developments have occurred in Belgium and Europe. Ambitions have been sharpened and translated into detailed targets and tangible plans, triggering fundamental changes across both the supply and demand side of the electricity system.

ON THE SUPPLY SIDE, THE FOLLOWING POLICY DEVELOPMENTS HAVE OCCURRED:

At the European level:

• Release of the EU Commission’s Fit for 55 package (July and December 2021), which carries the aim of cutting greenhouse gas emissions by 55% by 2030 compared with 1990 levels.

• Publication of the EU Commission’s REPowerEU plan (May 2022), which aims to reduce Europe’s dependence on Russian fossil fuels. One of the measures it includes is an acceleration of the deployment of renewables and associated infrastructure.

• Focus on the rapid development of the North Sea as Europe’s biggest power plant, as discussed during the international North Sea summits in Esbjerg (May 2022) and Ostend (April 2023).

• Reduced adequacy margins in neighbouring countries linked to faster electrification and coal phase-out plans.

In Belgium:

• Two new CCGT units contracted as part of the Y-4 CRM auction for the winter of 2025-26 (in October 2021). The 1.7 GW capacity (100% available) contracted to date (June 2023) will be available by the winter of 2025-26.

• Increased offshore ambitions for the Belgian Princess Elisabeth Zone (October 2021) (from +2.1 GW to +3.5 GW) alongside a revision of the commissioning timeline (+0.7 GW in 2029 instead of 2026, and +2.8 GW in 2030 instead of +1.4 GW in 2028).

• Following Russia’s war in Ukraine and the reduced availability of France’s nuclear fleet, the Belgian Federal Government decided (in March 2022) to apply the EU-SAFE approach when defining the CRM scenario, and to extend the lives of two nuclear reactors by ten years to cover the additional capacity needs and strengthen the country’s independence from fossil fuels.

• Development of Nautilus and TritonLink, two interconnectors which will link Belgium to the UK and Denmark respectively, contributing to a diversified energy supply and to Belgium’s socioeconomic prosperity.

Key Messages

Over the coming decade, extensive electrification will change the very nature of the Belgian electricity system. Based on the many calculations and different scenarios that this study explores, four key messages stand out, as outlined below. From these, a list of short-, medium- and long-term recommendations is then derived (see next chapter). Belgian society has much to gain from anticipating the upcoming changes and working on structural measures. Doing so will ensure that our energy system is able to keep pace with the speed of electrification in an efficient and affordable way.

ON THE DEMAND SIDE, THE FOLLOWING POLICY DEVELOPMENTS HAVE OCCURRED:

At the European level:

• Presentation of the EU Commission’s Green Deal Industrial Plan (February 2023), which aims to provide a more favourable environment for the scaling up of the EU’s manufacturing capacity related to net zero technologies and products.

• Discussions about the impact of the recent energy crisis and discussions about possible changes to electricity market designs.

• New climate and industrial action plans being implemented in Belgium’s neighbouring countries.

• The upcoming EU ban on the sale of new petrol and diesel cars from 2035 onwards.

In Belgium:

• New electric vehicle and heat pump targets set by the federal and regional authorities are due to cause a significant growth in electrification across the transport and heating sectors.

• Projected ban on the sales of cars running on fossil fuels by 2029 as decided by the Flemish government.

• Gradual reduction of the tax relief for internal combustion engine company cars ordered after 1 July 2023.

• Low Emission Zone introduced in Brussels banning diesel cars by 2030 and gasoline cars by 2035.

• Ban on connecting new buildings to the natural gas infrastructure from 2025 onwards in Flanders.

• Phasing out of oil-fired boilers across the whole country, as mentioned in the regional energy and climate plan updates.

• Industry’s transition to net zero preparing for acceleration; the annual industrial electricity consumption in Belgium is expected to increase by 50% by 2032 (see Elia Group’s 2022 study entitled ‘Powering Industry towards Net Zero’).

1Electrification is spreading across society both earlier and at a faster speed than predicted. The war in Ukraine and rising gas prices have resulted in new targets and action plans linked to ensuring an independent, resilient and climate-neutral energy system. This is creating additional capacity needs, which can be addressed by the CRM.

Electrification combined with the accelerated expansion of low-carbon electrons will be one of the main levers for decarbonising society over the next 10 to 20 years. The implementation of these two measures is gaining momentum in three key sectors: mobility, heating and industry. This is having a direct impact on the country’s supply and adequacy needs. The expected spread of electrification across society will create additional capacity gaps from 2027 onwards, which can be addressed by Belgium’s capacity remuneration mechanism (CRM). The rules and principles to this mechanism are governed by national and European regulations, and are rightfully aimed at avoiding over-procurement. Against the background of electrification and Belgium’s increasing electricity demand, the CRM process involves yearly adjustments to auctions and the stepwise contracting of required capacities.

2Flexible consumption has the potential to flatten consumption peaks and manage RES variability, so directly contributing to security of supply. It is an important lever for reducing capacity needs linked to Belgium’s rising electricity demand.

Until now, flexibility has mainly been used as an in-the-moment ancillary service that helps grid operators address imbalances between supply and demand. For example, it has been used to manage operational security challenges linked to the variability of RES and large-scale generation unit outages.

In the future, the intrinsic flexibility of new electrical appliances will deliver new opportunities for end users, without adversely impacting their comfort levels. By primarily consuming and storing electricity when it is abundant and re-injecting it back into the grid when needed, consumers will lower their energy bills whilst delivering benefits for the overall system: consumption peaks will be flattened, meaning flexibility will contribute to adequacy. End user flexibility is therefore an important lever for improving the efficiency and affordability of the energy transition.

3Electrification reduces primary energy consumption levels whilst maintaining consumer comfort. This significant efficiency improvement therefore delivers large benefits in terms of CO2 reduction - an effect that will become even more prominent as the share of renewable energy in the energy mix grows. In addition to important climate benefits, electrification also provides solutions to our country’s economic and geopolitical challenges.

Electrification, combined with the accelerated integration of renewable energy into the system, creates the opportunity to reduce the consumption of fossil fuels. This, in turn, leads to significant reductions in direct domestic CO2 emissions.

In addition to these climate-related benefits, electrification will deliver economic and geopolitical advantages. Indeed, industry will be given access to affordable electricity, meaning that it can be anchored in Europe, and jobs can be preserved. Moreover, the shift to an energy system with a high amount of renewables will make this system more independent and resilient.

4Any delay in unlocking flexibility or realising grid infrastructure will result in additional capacity needs. If Belgium’s security of supply is to be achieved in the most (cost-)efficient way possible, investing in accelerated digitalisation is as important as investments in the timely build-out of grid infrastructure.

Accelerated digitalisation and the timely realisation of grid infrastructure will have a major impact on the volume of new capacities that need to be contracted in future CRM auctions. Further delays in implementing these will place Belgium’s approach to electricity policy in a state of constant crisis management.

If Belgium fully harnesses industrial and residential flexibility and realises its planned grid investments*, capacity needs in 2034 will decrease by 3,000 MW compared with a situation where these key moves are delayed. See graphic on page 21 Digitalisation covers both the necessary IT infrastructure and end-to-end connectivity between assets and service providers, which are linked to an adapted market design. Successfully implementing these will make the system more resilient in the face of electrification and renewable integration, will have a significant effect on CO2 reduction, and will allow system costs to be kept under control.