The Dutch SDE++ (Stimulation of Sustainable Energy Production and Climate Transition) is a technology-neutral subsidy scheme designed to accelerate CO₂ reduction by supporting renewable energy and low-carbon technology projects, including heat production. While SDE++ has been effective for scaling up renewable electricity, its impact on sustainable heat has been more limited. One of the main reasons is that from aquathermal systems, heat pumps and e-boilers to geothermal and biomass, each technology has its own cost structure and operational profile, which are analysed in the report. The report identifies six main challenges with regards to incentivising sustainable heat production: 1) Uncertain income due to variable heat delivery, 2) Reference technology mismatch, 3) Investment cost risks, 4) Operational cost risks, 5) Distorted incentives for flexible operation and 6) Rigid subsidy categories. However, no single policy fix can address all these challenges and the report reviews several options to improve the existing subsidy scheme as well as alternative financial support mechanisms such as fixed subsidies and financial guarantees. The report found that every solution introduces new risks, often shifting them between market actors and the government.
Three main recommendations followed from the report to further investigate:
1. Revising technology categories to better reflect the diversity of heat sources and applications.
2. Partial fixed subsidies for technologies with high fixed costs.
3. Targeted subsidy corrections for changes in cost changes that are difficult to predict and/or mitigate such as changes in network tariffs and taxes.
Find the report here
Categories: Energy, Energy Policy, Energy Policy Regulation and Markets, Renewable and Low-carbon Energy