At our first Round Table in Brussels last week, we brought together a diverse group of 25 participants representing energy companies, project developers, industrial off-takers, financial institutions, and the Belgian government to discuss the future of the Belgian power system.
Here, we summarise the result of that discussion and share some key insights from the event. We outline the risks and opportunities of electrification and deindustrialisation, and consider how government policies in support of industry could affect the market.
Belgian renewable energy production will not be enough to meet growing demand when nuclear phases out after 2035
Our outlook from April 2024 suggests that baseload power prices in Belgium will increase by 2030, primarily driven by a rise in the ETS and gas price. After 2035, with the phase-out of the two remaining nuclear reactors, net imports are expected to rise to nearly 40% of domestic demand, further pushing up the Belgian baseload price.
Our analysis shows that the potential for additional renewable energy in Belgium is not sufficient to meet the growing demand, which confirms the results of TSO Elia’s in their latest adequacy report: without additional generation capacity, imports will play an important role in the future Belgian power mix. During the Round Table, participants noted that Belgian stakeholders are aware of the high import dependency in the future and that it is important to view this from a European perspective.
Our analysis shows that capture prices for renewable energy projects are currently below merchant LCOEs. This means that projects need to be derisked by subsidies, self-consumption, or fixed-price Power Purchase Agreements (PPAs) to be profitable. As the costs of renewable energy technologies decrease towards 2035, and capture prices remain relatively high, a shift to merchant-based buildout of renewable energy sources becomes viable.
Electrification is the main driver of growth in power demand, but a Belgian deindustrialisation wave could undo demand growth until 2035
Decarbonising Belgian industry will require electrification and more efficient processes. However, a deindustrialisation wave in key Belgian sectors would lead to a flatlining power demand until 2035. The Belgian chemicals, metals, and non-metallic minerals sectors are identified as being at the highest risk of relocating due to concerns about the competitiveness of production in Belgium. Participants noted that industry that moves away from Belgium will likely move out of Europe, rather than to neighbouring countries, driven by lower costs of key inputs in other continents such as North America and Asia.
At Aurora, we have developed a deindustrialisation scenario for the Belgian power system, which shows that a reduction in industrial demand would lead to a decrease in the baseload price and lower annual revenues for renewable energy sources, consequently slowing down the buildout of solar and wind projects. In a poll among the audience, most of the participants indicated that they indeed expect some industry to leave Belgium in the coming years, but that industrial flight would remain below our deindustrialisation scenario.
Policy is in place to support Belgian industry, but will it be enough?
EU policies, including the ETS, CBAM, and the Net Zero Industry Act, offer some protection for Belgian industries against competition from other markets. However, the risk of industrial flight persists due to Belgium’s limited fiscal capacity to support its domestic industries and the fundamental differences in cost drivers compared to other manufacturing countries.
Cost compensation measures are in place to align Belgium’s industrial electricity prices with those of neighbouring countries, but in the future, power prices are expected to remain higher than those in other markets, including the US, Brazil, and Australia.
The outgoing Belgian government recently announced additional policy measures to bring down power prices for industrial consumers, including a PPA scheme to sell nuclear power and a reduction of transmission grid fees for large consumers. They are now developing these policy measures into concrete instruments by determining the eligible consumption profiles and setting CO2 reduction requirements and additional criteria. Industries have shown an interest in the schemes, but their success will depend on their detailed design, and to what extent they reduce prices and can be used as a hedging instrument.
It will be up to Belgium’s new government, which is being formed based on the election results of 9 June, to ensure the domestic industry has sufficient incentives to stay in Belgium. A centre-right coalition, as is currently being discussed at the Belgian federal level, would likely have support of industry as one of its priorities.
For a full overview of our research into this topic, you can download our latest Public Report, and for access to more detailed analysis, why not become a subscriber?
If you would like to stay on top of market trends, policy changes, and other factors affecting the Belgian power market, get in touch with Commercial Associate, Tim Vandenbroucke, to discuss how we can support you.
