Netherlands faces rising electricity costs as grid upgrades take center stage

Swapping a petrol car for an electric one, installing solar panels on your house rooftop, or switching from a gas-powered stove to an induction one. These are three of the most common examples of how our society is electrifying more and more, driven by the surge in renewable energy. At the same time, the ever-pressing topic of grid congestion–  although it can partly be solved with smarted grid solutions – calls for fresh funding for the electricity infrastructure. 

Yet, these investments will come with costs. Electricity network rates in the Netherlands are poised to grow annually from 4.8% to  6.7% by 2040. This rise in costs is driven by the necessity to strengthen and expand the electricity grid in a period when electricity demand is expected to triple, and energy production will shift towards renewables.

This is the main conclusion of the Financial Impact Energy Transition for Network Operators (FIEN+) report conducted by Pwc and strategy& on behalf of Netbeeher Nederland, the Dutch grid operators' association. The investments needed to accommodate the country’s electrification and energy transition result in higher transporting electricity costs. The forecasted rise in rates—which excludes inflation—is a source of worry for the operators. 

The rise in electricity grid investments

“The investments in the energy system are crucial for the future. At the same time, we are concerned about the rising costs. It is important that we can keep the total social costs of the energy system as low as possible,” stated the general manager of Netbeheer Nederland Hans-Peter Oskam. 

These changes entail greater pressure on the electricity network, which needs to be upgraded to cope with such demand. In 2024, grid operators spent €8.4 billion on the electricity grid. In 2040, this expenditure is expected to soar by around 80% to €15.1 billion. 

Investments result in higher costs for consumers 

These investments will come with further costs on consumers' bills. Overall, the research estimates that annual costs for grid management will hike to €22 billion—in 2024, these amounted to €9 billion. Consequently, grid tariffs for consumers will soar annually by 5.2% to 8%, doubling to tripling the amount by 2040. According to the report, in 2024, a household paid an average of €390 in grid management costs per year. Considering a base cost growth path of 6.7%, the same household would pay €1,103 in 2040.  

If households are heavily affected, price spikes will not affect companies as much. This is because their tariffs are influenced more by transport capacity and consumption. Similarly, the rise in gas rates will be more contained as the number of connections and total costs are poised to drop by 2040. 

Swapping gas for electricity

If, in the past, natural gas was three to four times more important than electricity for the Dutch energy supply, roles would invert in the coming years. Primary energy consumption—the total energy demand of a country—of natural gas is forecasted to be near zero in 2050, while electricity will have the lion’s share by then, as shown in the chart below. 

As a result, the generation installed capacity will triple, as more renewable energy plants will be online. In 2040, the FIEN+ analysis sees 168 GWh of capacity installed. Parallel to that, electricity consumption is set to grow by more than double  one of 2024. 

The right decisions for the energy transition

In underlining the necessity for these investments—with the Dutch electricity grid previously being slammed as ‘unprepared’ for the energy transition—Netbeheer Nederland is calling on the government to make the right decisions. To this extent, The Hague’s interdepartementaal beleidsonderzoek (interdepartmental policy research, IBO) is working to get a more precise overview of the size of the investments needed up to 2040. 

Representatives from environmental and economic bureaus will release the research results in February. The final document will contain viable policy options to establish a solid electricity network while keeping it affordable. Grid operators are also contributing to the research. They will also publish an update to the FIEN+ report focusing on the total energy bill. 

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Who is footing the bill? 

Netbeheer Nederland previously advocated for the distribution of grid costs. Specifically, the organization indicated several steps that can be taken. First and foremost, it called on reducing the demand for transport capacity, preventing unnecessary investments by getting the most out of existing and planned infrastructure. This means improving supply and demand flexibility and thorough planning by all the stakeholders involved. 

Second, all users should pay, as only final consumers incur costs now, which is not true for energy generators. Ensuring a level European playing field for energy costs and tariffs on energy exports—with neighboring countries bearing part of the costs for the electricity produced in the Netherlands they use. 

Grid operators, energy companies, and the government are all aligned on transitioning to a greener economy and on the critical role played by the electricity grid in doing so. It is time for rational planning and fair cost distribution to make the energy transition possible for everyone.