How does the SDE++ subsidy work?

Since 2011, the Dutch government has been promoting renewable energy through a subsidy program known as the Renewable Energy Production Incentive Scheme (SDE++). This scheme operates through an auction in which various energy sources compete on a technology-neutral basis to promote CO2 reduction. The SDE++ provides certainty for investments in subsidized projects and flexible premiums that are adjusted to market prices. In addition, maximum support percentages have been set for each technology.

In the Netherlands, the SDE++ is subject to annual changes, which are primarily driven by market developments. In other European countries, this scheme is much more static. We will therefore discuss the basics of the SDE++ system. The program is administered by the Netherlands Enterprise Agency (RVO), which, as the competent government body, awards subsidies for 8, 12, or 15 years.

Key Points of the SDE++

1. A common framework for all energy sources
2. Subsidies will be disbursed in phases.
3. A maximum basic subsidy entitlement for each generation facility
4. A “free” financing category

Who is this for?

Producers of electricity from renewable energy sources, gas from renewable sources, and operators of combined heat and power plants fueled by renewable energy sources may submit an application. A recent example of a market-driven change is the inclusion of projects for underground CO2 storage. After all, the goal of the program is to reduce CO2 emissions. Funding is available to all businesses, individuals, and nonprofit organizations, with the exception of the government.

Funding

The RvO holds two auctions annually for all energy sources. In the Netherlands, the terms and conditions are therefore adjusted to the market situation as well as to the utilization of subsidies. In these two auction rounds, operators bid on a subsidy amount in cents per kilowatt-hour. Each round is divided into three phases, in which a fixed portion of the total funding is allocated with a maximum funding amount per kilowatt-hour.
This amount increases with each phase; in the first phase, the energy sources with the lowest electricity production costs are considered. The less profitable energy sources are considered in the next two phases, up to those sources where only the operating costs of the installation are covered by the subsidy amount. There is also a so-called open category in which participants can submit bids up to maximum funding amounts for their energy source. Here, subsidy rates can be individually set at up to one-tenth of a percent per kilowatt-hour, based on the operator’s business case.

Mechanism of the regulation

The amount of the subsidy therefore depends on the energy source, but the basic principle remains the same. The SDE++ subsidy covers the difference between the actual production costs and the market price. This makes it possible to generate renewable energy at market-based prices.When the price of electricity rises, the subsidy amount decreases; when the price of electricity falls, the subsidy amount increases. With rising energy prices, it is therefore becoming increasingly common for renewable energy sources to no longer require subsidies.