The Kingdom of Belgium is a federation of three regions (Flanders, Wallonia and Brussels) and three national languages (Dutch, French and German); Dutch and French are predominant, with English widely spoken in the business community. The country is densely populated and heavily industrialized. Roughly the size of Maryland, Belgium has a population of 10.9 million and a GDP (2010) of EUR 343 billion (USD 469 billion). This small European nation ranks as the 18th largest market for U.S. exported goods and services. Many U.S. firms choose Belgium as a hub for their European distribution because of its highly educated workforce and excellent logistics infrastructure, which includes major port terminal facilities, including Antwerp, the second largest port in Europe. In Flanders alone, 17% of all foreign firms are U.S. companies, and most are active in the medium to high technology sectors. Domestic gross electricity consumption has grown by an average of 1.7% per year over the last 10 years, reaching 91,590 GWh in 2010. Sources of electricity are nuclear power plants (53%), fossil fuel power plants (35.3%), pumped storage (1.6%), hydroelectric installations (1.1%) and renewable energy sources (9%).
Policy instruments to develop renewable energies have been implemented over the last years, generally in the form of financial incentives. Since July 1, 2007, the liberalization of the European energy markets and imposed separation of distribution and production activities have also acted as a catalyst to reform the European energy sector through increased competition. The result is strong growth in Belgium’s renewable energy market. While European and Belgian federal policies have launched large-scale schemes, such as green-certificate trade, that target large utility companies and electricity distribution companies, the resulting financial incentives have led businesses to invest in renewable energy generation projects. Individual citizens are also encouraged, via important subsidies, to install alternative energy generators in their homes. The result is a broad demand base for renewable energy products and services on an industrial as well as a private residential scale. For the southern region of Wallonia alone, investments in alternative energy sources are estimated at EUR 850 million for the period of 2007 to 2012. Belgium delivers opportunities for U.S. firms offering energy-related products or services for industrial plants and home-based appliances alike.
Political Market Drivers
The EU agreed to the Kyoto Protocol, which calls for reductions in greenhouse gases between 1997 and 2012. By 2012, yearly emissions of CO2 should have decreased by 8%, to 1990 levels. One policy to actively pursue that goal has been the support of the development of renewable energy sources. The European Commission considers renewable energies as an opportunity to diversify the EU’s energy sources and decrease its dependence on foreign energy imports and nuclear power, while at the same time bringing environmental benefits, stimulating employment and enhancing the competitiveness of the industry. The European Commission stipulates that as long as market prices for energy produced from conventional sources do not reflect true external costs (i.e., pollution), Member States will be allowed to implement support mechanisms to encourage the development of the renewable energy sector.
Belgian Federal Level:
U.S. companies should be aware of Belgium’s federal structure, with different levels of competencies. Federal competencies have been hollowed out in recent years through regionalization.
The country recently adopted its 6th state reform in its history, after 500 days of political crisis. This reform offers the opportunity for some sectors like renewable energy to see their budget and targets reassessed. For the purpose of this report, the notable federal competencies are electricity grids above 70 kV, nuclear plants, and Belgium’s territorial waters (hence regulation of offshore wind farm developments is centralized). Relevant regional competencies include electricity grids under 70 kV, policies for energy rationalization, including renewable energies and subsidies. As a result, the support schemes are different in each of the three regions of Flanders, Wallonia and Brussels. The current trend shows a rapidly increasing interest in green energy developments and regulatory incentives. Of the four support mechanisms available (feed-in tariffs, green certificates, tendering and tax incentives), Belgium has opted for green certificates. Producers of electricity from renewable sources can sell their excess production through the electricity grid, with their production representing a certain amount of green energy quantified in certificates. These certificates can then be traded between producers of green electricity and distributors, or electricity companies, which have to meet a minimum quota of green electricity in their overall production.
Belgian Regional Level:
Support comes from the trade in green certificates, which is managed by the regional energy regulators (VREG in Flanders, CWAPE in Wallonia, IBGE in Brussels, CREG at the federal level). The minimum quota of green electricity in each producer’s overall production determines the demand for green certificates; the regional energy regulators impose this quota. By gradually increasing the quota, the demand for green certificates will rise. The desired result is to create more investments in renewable energy generation infrastructure.
In Brussels and Wallonia, a green certificate is valued in terms of its savings in CO2 output. In Flanders this applies to Combined Heat Power (CHP), but for renewable energy generation the rationale is the actually produced quantity of green electricity (one certificate represents 1 MW of green electricity). These separate weighting methods, and higher subsidies lead to different monetary values for certificates; the average trading value in Wallonia and Brussels has been EUR 92, versus EUR 110 in Flanders. Flanders does not recognize the Walloon certificates and inter-regional trade is not possible. In Wallonia, the imposed minimum quota for green electricity started at 3% of the overall electricity production for 2003, with a 1% increment each year until 2012 (for a total quota of 12%). The penalty for electricity companies is EUR 100 per missing certificate, weighted each quarter. The downside of this indirect regulatory support mechanism was that the long-term value of green certificates remained uncertain, even more so since policy makers had not made any clear commitments until recently. This has proven to be a major risk factor in green energy investments. At an average value of EUR 92 per certificate, the penalty for each missing certificate is only EUR 8 (i.e., penalty cost minus certificate purchase cost), which was unlikely to encourage long-term investment. Furthermore, utility companies simply passed on the penalty costs in end users’ electricity bills. Investment incentive has recently been created, and risk decreased, through increased competition among electricity providers and longer-term contracts for support schemes.
In Flanders, support mechanisms depend on the nature of the renewable energy: (passive) CHP on the one hand, and (active) renewable electricity generation on the other. Both have a green certificate scheme, but the support mechanism for renewable electricity generation is enhanced by the intervention of the electricity grid administrator, who has an obligation to purchase green certificates from installations connected to his network, at predetermined prices. As the prices are guaranteed for a very long period (10 years after commissioning, even 20 years, in the case of photovoltaic generation), the long-term value of green certificates is set and investment risk is entirely mitigated. Furthermore, certain mandatory buy-in prices are very high (see below “economic market drivers”), so break-even periods are short and return on capital can be very lucrative.
Economic Market Drivers
As explained above, numerous subsidy schemes co-exist in Belgium, with some being revised to increase their effectiveness.
Private companies are assessing their interest in renewable energy-related developments. Direct investment in infrastructure can be profitable by selling electricity to the grid, combined with green certificate trade, or by reaping the benefit of private electricity production for individual consumption. Industrial sites invest in combined heat power for their existing processing plants to lower energy bills and receive tax rebates.
Furthermore, installation is relatively simple and capital requirements are limited, so many enterprises, such as warehouses and logistic centers with large roof areas, are installing solar panels. Financial institutions have been stepping back from high-risk investments recently, but are very favorable to providing capital for privately developed renewable energy projects.