Elia, the operator of Belgium’s high-voltage grid, wants to introduce higher grid tariffs to finance its 15,9 billion euros planned investments, increasing electricity bills for households and businesses. According to Elia, this tariff increase is essential for the vast infrastructure investments the company faces to tackle the energy transition, which is proceeding much faster than expected.

In May 2023, for example, wind farms and solar panels across the EU generated more electricity than fossil-fuel power plants for the first time in a month. But this greening of electricity production also means that the electricity grid must be more robust to handle the peaks and lows.

The development of the transmission grid of the future, driven by the European climate policy that calls for a quasi-complete decarbonization of the electricity sector by 2050, requires a different approach and, above all, many infrastructures work to be financed.

50% more electricity consumption

Massively integrating more dispersed renewable energy sources such as solar and wind instead of large coal, gas, and nuclear power plants will require adapting power grids. The electrification of the economy, think of the breakthrough of EVs and battery technology, will only increase electricity consumption.

Elia wants to avoid capacity problems like in the Netherlands. Due to the rapidly growing demand for electricity, the high-voltage grid in the Dutch provinces of North Brabant and Limburg, for example, is currently entire.

As a result, new companies there cannot get a connection to the electricity grid for the time being. To avoid this situation in Belgium, Elia wants to offer companies that switch off partly when the grid is overloaded a discount, but above all, to invest in a more robust network, which will require the necessary capital.

Nearly €8 billion of investment in Belgium

In the first half of 2023, Elia invested 299,8 million euros in the Belgian grid and 521,5 million euros in the German grid, where it operates the high-voltage grid in the northeast of the country through its subsidiary 50Hertz. The group targets 700 million euros and 1,7 billion euros for the entire year.

For 2024-2027, the group plans to invest 15,9 billion euros in Belgium and Germany, of which 7,2 billion euros in Belgium for, among other things, the construction of an energy island in the North Sea and new connections on land, such as the contested Ventilus and Boucle du Hainaut high-voltage lines, or cable connections to Denmark, Germany and the United Kingdom.

Additional capital needed

A year ago, Elia raised 590 million euros to finance those investment ambitions in Belgium and Germany. The Belgian municipalities, which own about half of Elia, also raised capital from its shareholders through their holding company Publ-T.

But since most of those municipalities are also tight on cash and do not want to give up their significant annual dividend stream via their shares in Elia, additional capital must be sought. The group had a net financial debt of 3,5 billion euros at the end of June 2022, and for the first half of the year, it reported a net profit of 162,5 million euros (+3,2%).

That capital injection must also be achieved by increasing tariffs, impacting the bills of Belgian households and companies. Specifically, Elia is asking for an increase of around 80% in its grid tariffs from 2024.

That is 1,35 billion euros levied annually from Belgian companies and households compared to the 760 million euros from 2020 to the end of this year for an average family, which indirectly amounts to about 37 to 84 euros annually.

Pressure on CREG

Elia is negotiating these new grid tariffs and a higher return for 2024-2027 with energy regulator CREG. After all, Elia raises funds on the financial markets to finance its investments. And it is the CREG that determines the return it can get from it. But due to rising interest rates, the situation has changed significantly over the past year and a half, Elia points out.

According to CFO Catherine Vandenborre, a response from CREG to Elia’s proposal is expected in September, but “at the moment, no progress can be reported”. Elia stresses that “the regulator must guarantee a fair return, which should make it possible to finance the timely implementation of investments in the grid”. If not, investments risk being delayed, with dire consequences, Elia warns.

Things are moving in Germany, where Elia is involved throughout its subsidiary 50Hertz. Federal regulator BNetzA wants to move from a fixed output to a variable tariff and a constant risk premium for new onshore investments in the coming years. This would increase returns somewhat from 2024, “a first step” toward supporting long-term investments. The arrangement would be fixed by the end of the year, according to Vandenborre.