The Walloon government’s recent political agreement outlines a comprehensive vision for the region’s energy future. While this agreement is provisional and will be implemented through various legislative acts, it provides a clear indication of the government’s intentions in the coming years.
Expected changes
1. Towards a Single Distribution Operator
The Walloon energy sector is on the brink of a significant transformation. Currently characterised by a fragmented distribution network with five distribution system operators (DSOs): AIEG, AIESH, ORES, RESA, and RESEAU D’ENERGIES DE WAVRE, the Region is poised to introduce a single distribution network operator. This is according to the political agreement sealed between the Mouvement Réformateur et the Engagés as part of the formation of the new government.
This new organisation aims to optimise the management of electricity, gas, heat, hydrogen, and CO2 networks, while accelerating the energy transition towards carbon neutrality by 2050.
Before diving into the proposed changes, it’s essential to understand the existing structure of the Walloon electricity market. As regulated by the Directive 2019/344, the European electricity system involves several key players: producers, transmission System Operators (TSOs – in Belgium this role is played by Elia); distribution System Operators (DSOs) and, finally, suppliers.
Given their central and monopolistic position in the Walloon electricity and gas markets, electricity and gas distribution system operators and their subsidiaries are subject to strict regulatory oversight.
These rules ensure their governance, independence, and focus on their core business of managing distribution networks. The regulations cover aspects such as their legal form, their shareholder base, their activities (including a prohibition from engaging in certain activities, such as generation (except for their own installations), supply to end customers (except in specific cases), and holding shares in producers, suppliers, or intermediaries) or confidentiality.
These regulations aim to prevent discrimination in access to networks and the risk of cross-subsidisation between the monopolistic activity of managing the distribution network and other activities subject to competition.
According to the political agreement, by consolidating distribution operations under a single entity, the region aims to (i) improve efficiency: Streamline processes and reduce operational costs; (ii) enhance reliability: Ensure a more robust and resilient energy infrastructure; (iii) stimulate innovation: Create a more conducive environment for the development and deployment of new technologies, such as renewable energy sources and smart grids; (iv) facilitate consumer engagement: Empower consumers to play a more active role in the energy market.
2. Environmental permit
The government will reform environmental permit legislation to streamline processes and align with sustainable development goals, including those outlined in the United Nations’ Sustainable Development Goals (SDGs). A fast-track procedure will be introduced for priority economic sectors, such as renewable energy projects and energy efficiency initiatives. No further details have been provided at this stage. This change would need to be further examined as this would impact the development of energy projects in Wallonia.
3. Supporting renewable energy sources
The Walloon government wishes to introduce a more targeted approach to supporting renewable energy sources. This includes:
- Accelerated deployment of renewable energy sources: The government will focus on supporting emerging renewable energy sectors such as biogas, renewable heat, hydrogen, and carbon-neutral fuels.
- Simplified frameworks for energy sharing: The regulatory, tariff, and administrative frameworks for energy sharing initiatives, such as energy communities, will be streamlined to fully exploit their potential.
- Strategic development of hydrogen and CO2 infrastructure: The government will invest in the development of hydrogen and CO2 transportation and distribution infrastructure to decarbonise the Walloon industrial and economic fabric.
- Grid stability and flexibility: Measures will be implemented to prevent grid instability issues, such as voltage fluctuations caused as a result of the proliferation of renewable energy sources. These measures include:
- Enhanced grid monitoring and forecasting.
- Prioritised investments in grid infrastructure.
- Incentives for local flexibility solutions and energy storage.
- Compensation mechanisms for consumers affected by grid instability.
- Funding schemes: The government will phase out green certificates, a previous support mechanism for renewable energy projects, as these projects become more financially viable. New funding schemes, such as contracts for difference and power purchase agreements, will be introduced to provide long-term price stability for renewable energy producers.
Implications for the Walloon Energy Sector
The implementation of these policies is likely to have significant implications for the Walloon energy sector. Key areas of impact include:
- Increased efficiency and cost-effectiveness: The consolidation of the distribution network and the streamlining of regulatory processes are expected to lead to improved efficiency and reduced operational costs for both consumers and businesses.
- Accelerated transition to renewable energy: The new funding schemes and simplified frameworks for energy sharing will facilitate the deployment of renewable energy projects, contributing to the region’s decarbonisation goals.
- Improved environmental performance: The reforms to environmental permits and the focus on sustainability will contribute to a more environmentally friendly energy sector, reducing greenhouse gas emissions and protecting biodiversity.
- Enhanced grid stability: The measures to prevent grid instability and promote flexibility will ensure a reliable and resilient energy system, benefiting both consumers and businesses.
- (Potential) increased use of power purchase agreements (PPAs): PPAs provide long-term contracts for the purchase of renewable energy at a fixed price, offering greater price certainty for both producers and consumers. A clear regulatory landscape can further encourage the use of PPAs, providing a stable market for renewable energy projects and attracting investment.
PPAs can offer several advantages, including:
- Reduced price risk: PPAs provide a hedge against fluctuating electricity prices, offering both producers and consumers more certainty.
- Increased investment in renewable energy: PPAs can provide a stable revenue stream for renewable energy project developers, encouraging investment in new projects.
- Enhanced corporate social responsibility: PPAs can help companies demonstrate their commitment to sustainability and reduce their carbon footprint.
By creating a favorable regulatory environment for PPAs, the Walloon government can further incentivise the development of renewable energy projects and contribute to the region’s energy transition goals.
Conclusion
The Walloon government’s political agreement sets a clear path for the region’s energy future. By focusing on efficiency, sustainability, and innovation, the government aims to position Wallonia as a leader in the energy transition. As these policies are implemented, we can expect to see significant changes in the Walloon energy landscape, including increased renewable energy generation, improved grid reliability, and reduced environmental impact.
For further information, please contact:
Kevin Munungu Lungungu Bird & Bird
kevin.munungu@twobirds.com
