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SDE++, new possibilities in 2020
Climate Accord blog series
This year the subsidy program Stimulating Sustainable Energy Production (SDE+) is being expanded. The current SDE+ program focuses on the generation of sustainable energy. This can be renewable electricity, green gas or heat. However, the new SDE++ program focuses on CO2 reduction instead of the production of renewable energy. This means that technologies compete on the basis of "avoided CO2" instead of "generated sustainable energy". In addition, new technologies that can also qualify for the SDE++ program are added. Here we explain what you need to know about the new SDE++ program.
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What is SDE++?
The Dutch government has set a 49% reduction target for CO2 emissions in 2030 compared to 1990. The Climate Agreement includes agreements made to achieve this reduction target in various sectors. The new SDE++ program stimulates emission reduction technologies. This new regulation can therefore make an important contribution to the climate targets of the different sectors.
The aim of this program is to achieve as much emission reduction as possible in a cost-effective manner. All applications compete with each other for cost effectiveness, with the cheapest techniques receiving the subsidy.
How does it work?
The elements that make the current SDE+ instrument a success are not changed. These elements are the same for the SDE++ program. For example, subsidizing the unprofitable top, a phased opening based on subsidy intensity and competition between the various techniques.
The SDE++ only subsidizes the "unprofitable top". This is the difference between the cost price of the technique (the "basic amount") and the market value of the product that the technique delivers (the "correction amount"). The basic amount does not change during the subsidy period. The correction amount is determined annually and fluctuates. The moment the market value rises, the unprofitable top decreases and therefore the subsidy to be received.
The first phase will open on September 29th. The opening budget is € 5 billion for the 2020 round and is opened in phases. During the first phase, only projects with a subsidy requirement up to a certain subsidy amount / tonne of CO2 can submit. The SDE++ is then opened step by step to the more expensive projects. Applicants always have the option of submitting their projects for a subsidy amount lower than the established maximum for the technology in question. In this way, market parties are encouraged to submit their projects for a lower amount and thus increase the chance of a subsidy. The ranking is based on subsidy intensity (€ / tCO2). This is the subsidy requirement divided by the net emission factor.
Maximum subsidy amount
The maximum subsidy intensity in SDE++ is set at € 300 per tonne of CO2. This means that the entire unprofitable top is not reimbursed for the expensive techniques. Investors can conclude that with a lower subsidy amount they are nevertheless able to realize a project.
An integral budget ceiling
The SDE++ system has one integral budget ceiling for all categories (without sub-ceilings). This is to guarantee the cost-effectiveness and feasibility of the program.
It follows from the above that it is important to weigh the subsidy amount you wish to submit. Success may depend on this. After all, the budget may have run out in a later phase.
New elements in SDE++
So what elements differ from the initial SDE+ program? There are a few. For example it is currently being examined whether it is possible to correct the unprofitable top for avoided costs related to the European Trade System (ETS) or revenues from the sale of ETS rights.
In addition, the value of guarantees of origin for sun and wind is included in the calculation of the unprofitable top. The value of these has increased in recent years. This value will be determined annually and included in the correction amount. A maximum of € 7 / MWh is used for the entire duration of the decision. It is therefore possible that the net grant amount will decrease.
In 2020, a good number of new technologies will be included in the SDE++. For example:
- The inclusion of the aquathermy category, where heat is extracted from surface or waste water. This new technology can make an additional contribution to making the residential areas more sustainable.
- The industry can also take major steps towards sustainability through the technology ‘Carbon Capture and Storage’ (CCS). This technology focuses on the capture and storage of CO2 and has various possible applications in both industry and electricity production.
- Heat pumps must also contribute to making the industry more sustainable.
- The biggest surprise is the fact that hydrogen is subsidized by the SDE++. The Ministry had previously taken the position that the production of green hydrogen from electricity does not yet generate CO2 reduction and should therefore not receive a subsidy. A number of parties involved in green hydrogen projects wrote a letter to the Ministry. This resulted in the fact that hydrogen will nevertheless be subsidized by the SDE++.
Role of Deloitte
Global Investment and Innovation Incentives (Gi3), our global team of scientists, engineers and tax/grants experts, support companies in obtaining cash for their past and future activities. The SDE++ has yet to be approved by the European Commission, but Gi3 has been actively involved in the consultation of the SDE++ program. Deloitte provided input on the tendering method, the costs of various technologies and the valuation of the Guarantees of Origin (GVO’s).
Given this expertise, Deloitte can support companies in the entire SDE++ application process. Deloitte is already involved with several clients regarding flagship projects (innovative EUR 300M+ investment projects). The exact ‘mechanics’ of the new SDE++ program and its interaction with other incentives will play a decisive role in the actual realization of this type of flagship projects.
A number of steps still need to be taken prior to the opening of SDE ++ in the autumn of 2020. For example, the European Commission still has to approve the changes, especially for the new technologies. The Ministry strives to publish the program in the spring at the latest. In addition, it is being investigated whether more technologies can be added to the program. This is for the benefit of the regulation in 2021.
Do you want to have a personal discussion about the 'SDE++ program' or do you have any questions? Feel free to reach out to our expert below.
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