The economic consequences of the energy transition for Royal FloraHolland

The economic consequences of the energy

transition for Royal FloraHolland

Name: Robert Bloemendal Student Number: 10810358

Date: June 26, 2018 Supervisor: dhr. V. Nelidov

BSc Economie & Bedrijfskunde, specialization Economics & Finance Faculty of Economics and Business, University of Amsterdam

Statement of Originality

This document is written by Robert Bloemendal, who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the content.

Abstract

Nowadays climate change plays an important role in our society. To decrease greenhouse gas emissions and contribute to climate goals, fossil energy sources need to be replaced by green energy sources. This transition might have economic consequences for a company. The energy strategy of a company should change to contribute to a better world. To study the economic consequences of an energy transition, different scenarios for Royal FloraHolland are investigated. In these different scenarios energy costs are estimated and each scenario is tested on factors as reliability, safety, affordability, solvency, competitive advantage and the contribution on climate goals. In the conclusion, the best energy strategy for Royal FloraHolland is determined. Apparently, a change in the energy strategy seems necessary and a combination between different scenarios might be the best option.

Content

1. Introduction………..5

2. Literature review 2.1 Energy market ………7

2.2 Government policy………...8

2.3 Alternative energy sources………...9

3. Methodology ………..13

4. Data collection and analysis 4.1 Royal FloraHolland ………15

4.2 Scenario I - Passive Attitude ………..16

4.3 Scenario II - All Green by sourcing ………...17

4.4 Scenario III – All Green by self-sufficiency ………..19

4.5 Overview of the scenarios………...20

5. Discussion, conclusion and limitations………...21

6. References ………..23

1. Introduction

The energy market in the Netherlands is traditionally organized in energy producers (oil industry, gas industry, electrical power and nuclear power industry) and energy consumers (companies and household consumers). Energy, like gas and electricity, is offered through a safe and secure infrastructure to consumers. An increasing climate awareness has led to European regulations about greenhouse gas (GHG) emission reductions. This process has become more urgent since in March 2018 the Dutch Government announced that the winning of gas from the Groningen gas field must end in 2030 and delivery to large industries must stop in 2022 (Het Financieele Dagblad, 2018). This rather abrupt change of policy will completely change the energy market with significant economic consequences for the government, households and companies. An energy transition means a switch from an economic system dependent on one or multiple energy sources and technologies to another (Fouquet & Pearson, 2012). Dutch industrial companies have a key role to play in repositioning the Netherlands to thrive in a low-carbon future (de Pee et al., 2017).

This thesis will focus on the energy transition for Royal FloraHolland (RFH), a cooperation of various growers in the floriculture. Being an auction platform where suppliers of floriculture, the growers, sell their products to customers, heating and cooling is substantial. In 2017 their energy consumption was 10,5 million m³ gas and 121.078 MWh electricity with only 0,23% renewable energy. Total energy costs in 2017 are about € 8 million, (18 cent per m³; 0,05 cent per Mwh). CO2 emissions are calculated at 73.457 ton in 2017, being 27% gas and 73% electricity (from: www.floraholland.com). RFH is fully committed to make its own energy system more sustainable, aiming at a carbon neutral situation in 2025.

There are many uncertainties, which make it difficult for RFH to decide on the best energy strategy for the future. Many of the new, or yet to be developed, technologies may be expensive or difficult to implement. When assessing decarbonization options, the industry needs to understand their technical feasibility, effectiveness, costs, and benefits, and do this amid uncertainty about factors like the future prices of different forms of energy (de Pee et al., 2017).

Dutch government regulation is another variable factor to take into consideration. Which new technologies will be subsidized on the long run and how will CO2 taxes on fossil energy be implemented. Werner et al. states in 2017 that the development of renewable and sustainable

energy is advanced by public financial support. Policy uncertainty makes investors shy away from making real investments (Scholtens & Werner, 2017).

This thesis will research the economic consequences of the energy transition for Royal FloraHolland (RFH). What will be their best energy roadmap? Must they act quickly by investing in own energy production or should they opt for a more passive energy strategy? The methodology used is scenario planning. Being a powerful tool to broaden perspectives and to explore the universe of possibilities for the future. It helps to raise questions, challenge conventional thinking and encourage debate (Antunes et al., 2005). Three different scenarios will give RFH insight in the economic consequences of the energy transition.

Section 2 reviews literature and its main findings. Section 3 describes the methodology of scenario building. Section 4 presents the different scenarios and their financial consequences. In section 5 the conclusion is drawn and this is further interpreted in the discussion together with recommendations for further research.

2. Literature review

This literature review contains the main findings of literature research concerning the three main variables within the energy transition: 2.1) How do we expect the energy market to develop, 2.2) What will be the energy policy of the Dutch government in terms of subsidies and taxes and 2.3) What are the pros and cons of the alternative energy sources.

2.1 Energy market

The energy market in the Netherlands is traditionally organized in energy producers (oil industry, gas industry, electrical power and nuclear power industry) and energy consumers (companies and household consumers). Energy is offered through a safe grid and supply is guaranteed. Reliability, safety and affordability have always been the pillars of our energy system, and the Netherlands has a very reliable system, with targeted energy markets. Two factors are very important for a reliable energy system. The demand and supply are always in balance and sufficient capacity exists to transport the electricity to where it is needed (Donker et al., 2015).

It is shown by the German Energiewende1 _{that a transition from fossil fuel to renewables will}

change the market considerably. Once dominated by utilities owning and operating 88,1% of the energy market, energy is now delivered by many different suppliers. Financially strong investors have entered the renewable energy market, as large-scale renewable energy projects offer relatively stable returns. On the other hand, private users of small-scale renewable energy systems, such as solar photovoltaic (PV), have become a noticeable source of electricity generation as well. Production has changed from rather central towards decentral. Prices and supply might fluctuate (Richter, 2013).

The demand side must be prepared for the consequences of this energy transition. It might be expected that the demand for green energy will increase rapidly and will exceed the supply. Energy consuming companies may face the risk of not be able to acquire (enough) green energy, resulting in higher energy costs. This could be caused by a dramatic rise of carbon dioxide (CO2) tax on fossil energy in the coming years.

Until now, most companies have considered energy merely as a cost to be managed. For the first time in history, companies must implement an energy strategy in order to have the best

1 _{The German Energiewende is a long-term strategy to fundamentally transform}

Germany’s power sector by phasing out nuclear and coal in favor of renewable energy (Pescia, 2017).

possible mix which is reliable, safe, affordable and meets their CO2 targets (Favaloro, Healy & Winston, 2017). If not managed correctly, business performance will deteriorate. Fouquet (2010) stated that, based on past experiences, a complete transition to a low carbon economy is likely to be very slow.

2.2 Government policy

With only 6,6% of total Dutch energy consumption in 2017 being renewable (CBS), The Netherlands is lagging behind to meet the carbon reduction goals set by the European Union. The Netherlands has reduced greenhouse gas emissions by only 11% since 1990, compared with a 2030 reduction target of 40 percent imposed on EU member states (Tijs, 2017). The new Dutch government, which has been installed at the end of 2017 has pursued a rigorous climate policy to reduce greenhouse gases by 49 percent in 2030 versus 1990 through a large-scale transformation of energy supply (Tijs, 2017). On top of this decision, on March 29th

2018, the Ministry of Economic Affairs of the Netherlands announced that the winning of gas from the Groningen gas field must end in 2030 and delivery to large industries must stop in 2022. (Het Financieele Dagblad, 2018).

Based on energy transitions in the past, we can conclude that government regulation plays a crucial role (Fouquet, 2016). On the one hand to stimulate research and investment in new technologies by offering subsidies, on the other hand by taxing fossil fuels (CO2 tax). Without a tax on carbon or a subsidy on renewables, renewable sources tend to be uncompetitive. Both effects reduce carbon emissions (Poelhekke, 2013).

One of the key success factors from the German Energiewende is that it has been supported by feed-in tariffs. Ensured investment security and financial support made it more attractive to all kind of people (private investors, consumers, companies) to invest in renewable projects (Kuittinen & Velte, 2018). It is crucial that the government provides specific and long-lasting support for innovative developments in the first phase of application, because in this first phase most lessons are learned and a technique might become more affordable. This is necessary in order to ultimately arrive at an efficient and affordable alternative technical system in which users have confidence (Ros, 2016). In the Netherlands this is currently arranged by the SDE + scheme, being an operating subsidy: investors in renewable energy receive a subsidy on the energy produced, such as electricity, heat and/or green gas. The SDE + scheme reimburses the unprofitable top of renewable energy projects, making investments in these technologies profitable (Ros, 2016). Another regulating instrument is CO2 tax. During the last years CO2 tax fluctuated between €5 and €9 per ton, but the new coalition

agreement ‘Confidence in the future’ has mentioned a minimum price on CO2 of €43 per ton in 2030. Final prices are still uncertain and will be presented in the Dutch Climate Agreement at the end of 2018. Poelhekke (2013) states in a De Nederlandsche Bank (DNB) paper that a price of $77 per metric ton of carbon is defensible if we give 95% weight to damages occurring two generations (or 50 years) from now but higher if we want to further reduce the risk of catastrophic change (Poelhekke, 2013). A high CO2 tax on fossil fuels might worsen companies’ competitive position, especially in a situation where there is no sufficient renewable energy available. Another uncertain fact is the future subsidy policy on renewable technologies. Among the key components of the success of the Energiewende is the fact that it did not prioritize one kind of renewable technology over another, but rather provided a general direction, without specifying objectives for different renewable energy technologies (Kuittinen & Velte, 2018). Another factor of a successful energy transition is to conduct a persistent, continuous policy. The German government has drawn up a strategy to which it will stick for years. Even a change of government does not change their energy strategy. In the Netherlands, a change of government might cause a change in energy policy due to the fact that The Netherlands has a more liberal market economy than Germany (Lehmann, 2016).

2.3 Alternative energy sources

Foreign gas

An option to replace Groningen gas is to import foreign gas. If foreign gas is imported, companies do not have to change their strategy and a constant supply of energy is guaranteed. However, foreign gas is different than Groningen gas. Foreign gas is high caloric and Groningen gas is low caloric, so when foreign gas is imported it needs transformation. This transformation takes place in a nitrogen factory and is an extra cost factor (Straver, 2016) Furthermore, it creates dependency on Russia, which means uncertain and fluctuating gas prices and political risks. Importing foreign gas might not be economically profitable either with stricter regulations concerning fossil fuels in the future. Finally, it does not contribute to climate goals.

Geothermal Energy

Another source to potentially replace Groningen gas is geothermal energy. Hereby the warmth that is stored deep in the earth is utilized. The deeper you go into the planet, the hotter the water gets. The technique is to locate and drill into the hot water sources and pump the

steam or hot water to the surface. Consequently, the heat can be used directly or converted into electricity (Herzog, Lipman & Kammen, 2001). Thereafter, the cooled off water is pumped back down and heated again. This happens in a continuous cycle. Geothermal energy is a stable source. The power output can be measured accurately and has massive potential (Maehlum, 2018). Furthermore, it is excellent for heating and cooling, important factors in the floricultural business.

The deep soil in the Netherlands is however not equally suitable everywhere and drilling for geothermal heat asks for huge investments. Total costs for a geothermal power plant are between €1,5 million and €6 million per MW (Maehlum, 2018). The Dutch government developed policy instruments, which facilitate the rapid development. An example is a public database that holds all subsurface data, which eliminates the needs for exploration drilling and therefore decreases risk (Richter, 2016). There is always a chance that despite the careful research the well yields less than expected. On the other hand, once the grid is there, geothermal energy is a cheap source of energy. The soil provides the heat for free. And except for pump energy, there are no CO2 emissions. To utilize geothermal energy in a cost-effective manner, new technologies or subsidies are needed.

Wind power

Wind has considerable potential as a global clean energy source, being both widely available and producing no pollution during power generation (Herzog, Lipman & Kammen, 2001). It is also the world’s fastest growing energy. (Bilgili, Simsek & Yasar, 2011). Also, according to Herzog, Lipman & Kammen (2001) improving technology brings down wind power costs and further cost declines are expected. A downside of wind energy is that it depends on weather conditions. If there is no wind, there is no energy. As a result, relying solely on wind energy seems impossible.

There are different alternatives for wind energy such as onshore and offshore (Bilgili, Simsek & Yasar, 2011). The increasing public resistance against onshore wind farms shifts the focus of Dutch government towards offshore wind farms (Herzog, Lipman & Kammen, 2001).

Solar power

In the last years solar power developed to an interesting option because of improving technologies and the rising cost of traditional energy sources (Lorenz, Pinner & Seitz, 2008). The technical and economic driving forces that favor the use of solar power will be the durability, high efficiency, quiet operation, and lack of moving parts that these systems offer,

providing a power source with minimum maintenance and unmatched reliability (Herzog, Lipman & Kammen, 2001).

On the other hand, as with wind energy, solar energy requires sunlight and access to sunlight is limited at certain times and storage technologies like batteries are expensive.

Lorenz, Pinner & Seitz (2008) stated that solar power can certainly help to satisfy the desire for more electricity and lower carbon emissions, but it is just one piece of the puzzle. Also, it requires a lot of space. Rooftops should be used to install installations.

In recent years the costs of wind and solar PV energy technologies have dropped dramatically due to technological progress and economies of scale. Especially solar PV experienced an 80 % cost decline between 2005 and 2015. Wind energy and solar PV are now competitive with conventional energy sources (Pescia, 2017).

Biomass

Burning organic materials generates energy from biomass. It is the number one source of renewable energy in the Netherlands (https://www.milieucentraal.nl/klimaat-en-aarde/energiebronnen/biomassa/). Examples of biomass are wood residues and sludge from sewers. Biomass can be converted into useful energy as heat and electricity and is projected to play a major role in future global energy supply (Herzog, Lipman & Kammen, 2001). Biomass is not dependent on factors like the weather. From this point of view its supply is more stable. Potentially, it is an option to solve the energy shortage if there is no wind or sun available. Also biomass is a residue and if converted to energy, both waste disposal and energy demand is solved. If wastes and residues are available and new technologies help reduce the costs of bio energy, the use of biomass could be competitive (Herzog, Lipman & Kammen, 2001). To compete with fossil fuels, conversion systems of biomass need to improve for better efficiency. Another barrier is the discussion if biomass is actually CO2 neutral.

Tidal Energy

Tidal energy is a form of ocean energy, which harnesses energy from the tides and has the potential to contribute significantly to sustainable energy solutions in certain coastal regions, thereby reducing carbon emissions and fighting climate change worldwide. Activities surrounding tidal energy have grown substantially over the last 10 years in Europe as well as in the Netherlands, however the technology is diffusing slowly (Van Zuijlen, 2018). At to date only a handful of Commercial Ocean energy projects have been delivered, reflecting the

current immaturity and high costs of these technologies, as well as the challenging market environment in which they operate (World energy council 2016). Looking forward we find that the costs of tidal energy technology remain a significant barrier to deployment. Innovation will be key to reduce costs and efforts are needed to address various socio- economic, infrastructural and environmental barriers such as delivering facilitative infrastructure providing grid connection, growing supply chains and mitigating against associated environmental and ecological impacts (World energy council 2016).

Next to these alternative sources for gas there are some energy saving technologies:

Heat/cold units

Heat and cold units can be useful in businesses where cooling and heating is substantial. Heated water in the summer is pumped into the ground to use in the winter. Vice versa, cooled water in the winter is used in the summer. This could be an effective way to reduce the demand for gas used for cooling and heating. However, it requires investments and it is uncertain if the costs are worth the investment.

Electrification

Processes that are currently heated by gas will be generated by electricity. When this is done by renewable sources like wind or solar power, electrification is a CO2 neutral heating solution.

Residual heat

Some industrial processes create residual heat. Residual heat can be generated internally, for example from cooling systems, or externally, from companies in the neighborhood. Challenge for this energy source is to create an infrastructure to transport the energy to the place where it is needed. It requires investments in pipelines to get this energy from A to B.

3. Methodology

As shown in the literature review, the Dutch energy transition is facing a lot of uncertainties. To predict the consequences of an energy transition as accurately as possible, scenario planning will be used. Scenario building is used as an exploration of the possible unfolding of events based on current social, economic and environmental drivers and is a powerful tool to broaden perspectives and to explore the universe of possibilities for the future (Antunes et al., 2005). Within these scenarios costs will be estimated and insight in the speed of the transition is provided. Furthermore each scenario will be tested on reliability, safety, affordability and whether it accomplishes climate goals.

In this paper three scenarios are investigated. These scenarios are different ways in which RFH could deal with an energy transition. In the first scenario, the passive scenario, RFH does not change its policy. The same amount of fossil fuels will be used as before. In the second scenario RFH phases out all fossil fuels by sourcing, which implies a new contract is signed with a supplier of green energy. The last scenario is a situation where RFH becomes self-sufficient in generating all necessary energy. In each scenario we look at the costs of fossil and ‘green’ heating, fossil and ‘green’ electricity and carbon emission costs until 2030.

To make these calculations, the following assumptions are made: - Energy reduction plans are already applied

- The current RFH contract price of fossil gas is €0,18 per m3 and electricity is €0,05 per KWh. This contract expires in 2020. The assumption is made that new contract price of fossil Groningen gas will be 11% higher. 4% increase is due to increasing gas transaction price. This is based on average gas prices from the last ten years - period 2007-2017 (CBS). The other 7% price increase is due to expected energy tax increase of 75% on fossil gas. From currently €0,01265 per m3 _{to € 0,022 per m}3

(Belastingdienst, 2018). Based on CBS statistics, electricity prices are assumed constant.

- Groningen gas is not available per 2023; importing foreign gas will be 10% more expensive than the gas price in 2022.

- Sourcing green energy from a utility company is 20 percent more expensive than the current fossil energy contract of RFH. This is caused by the fact that demand for green energy will exceed the supply, resulting in higher energy costs.

- Current level of CO2 emissions RFH: 0,443 ton CO2 per MWh electricity and 0,0019 ton CO2 per m3 gas (info from annual report RFH 2017)

- The tax on CO2 is €13 per ton in 2018 and grows with €2,50 per ton per year. - Renewable energy sources are carbon neutral.

- Investment and lifespan of all renewable sources are based on the financial information of solar energy. These numbers are provided by RFH. With investment costs and the life span of the sources, the depreciation costs have been calculated. - Maintenance costs are estimated at 1,5% of total investment

4. Data Collection and analysis 4.1 Royal FloraHolland

Royal FloraHolland (RFH) is a cooperation in the floriculture industry that is owned by 4.100 growers. Growers offer their products together to dealers in one place, the auction, with the objective of obtaining a better price for their flowers and plants. The member growers determine the direction of the company, including energy investments, and the Management Board is responsible for implementing the policy. The company has five locations (Aalsmeer, Naaldwijk, Rijnsberg, Eelde and Rhein-Maas) with an annual turnover of € 4,7 bn. in 2017. In 2017 the energy consumption of these five auction buildings was 10,5 million m³ gas and 121.078 MWh electricity with only 0,23% being ‘green’. Total energy costs in 2017 are about € 8 mln, (18 cents per m³; 5 cents per MWh). The current energy contract will end in 2020. CO2 emissions are calculated at 73.457 ton in 2017, being 27% gas and 73% electricity. RFH has a separate division for sustainability as it is seen as a license to operate in the floricultural sector in the future. Energy transition strategy as such is not mentioned as one of their strategic pillars in their annual report. Despite this RFH is fully committed to make its own energy system more sustainable and is aiming at a carbon neutral situation in 2025. In recent years RFH carried out significant energy saving programs, consisting of a number of combined actions (both technical and organizational ones). RFH is currently exploring the possibilities for solar energy. With a total surface of 2.6 million m2, the five auction buildings might offer great possibilities for solar rooftop. Since a couple of years, RFH is, together with partner Trias Westland (a consortium of 49 companies) researching the application of geothermal energy. In theory, this could become an interesting source, being able to sustain 20% of the current RFH gas consumption in future. This research is complex, risky and time consuming.

4.2 Scenario I - Passive Attitude

This scenario assumes that RFH does not change its current energy strategy, as it is not part of their core business. In 2020 their current energy contract expires. In the new contract, fossil gas is assumed to be 11% more expensive. This increase is based on average gas price of the last 10 years plus an expected increase in energy tax due to new government policy. Electricity price stays constant. From 2023 the Groningen Gas will be replaced by foreign gas of which the calculated price is 10% higher due to conversion costs (from high caloric to low caloric). The usage of gas is 10.515.906 m3 _{each year. With gas cost of € 0,18 per m}3_,

total heating costs are 10.515.906*0,18 = € 1.892.863,08 per year from 2017. From 2020, gas has a price of €0,18*1,11 = € 0,20/m3. _{Consequently, annual heating costs will be}

10.515.906*0,20 = € 2.103.181 in 2021 and 2022. For foreign gas the price is € 0,22 per m3_.

From 2023 total heating costs are 10.515.906*0,22 = € 2.313.499 per year. The use and costs of electricity stays constant over the years. With a usage of 121.078 MWh and a price of € 0,05 per KWh this amounts to 121.078*0,05*1000 = € 6.053.900. Within this scenario, CO2 emissions remain at 73.457 tons until 2030. In 2018, CO2 emission costs are 73457*13 = € 954.941. As CO2 tax increases with € 2,50 each year, CO2 emission costs rise with 73.457*2,50 = € 183.642,50 each year. In 2030, CO2 tax is over € 3 million, being 28% of total energy costs.

0 2000000 4000000 6000000 8000000 10000000 12000000 14000000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 € Year

Total energy costs

Costs CO2 Costs fossil electricity Costs fossil heating

In this scenario, energy supply is safe and secure. Fossil gas is a reliable energy source that has a continuous supply. Moreover, no investments are required.

There are however some disadvantages. As CO2 taxes are continuously increasing, total costs of energy will rise considerably. These taxes might even become higher than assumed in this case. Another threat is posed by the dependency of foreign gas from Norway or especially Russia. Their gas price is determined by (state) companies and is expected to become more and more related to the highly fluctuating oil price. Apart from insecure prices, Russian gas could also pose a threat from a strategic, geo-political point of view, like reliability of delivery. But probably the biggest disadvantage is the fact that RFH does not comply with the Paris Climate Agreement. This will damage the company’s reputation, which might negatively impact their competitive advantage.

4.3 Scenario II - All green by sourcing

The second scenario is following the ambition of RFH to phase out all fossil fuels in 2025 and replace them by renewable energy. The current energy contract expires by the end of 2019. A new contract will be concluded per January 2020 with a utility company providing 100% green energy (gas and electricity). We assume that both gas and electricity will be twenty percent more expensive than the current fossil prices, so total energy costs will rise. As from 2020 CO2 emissions are reduced to zero and consequently no CO2 tax has to be paid. From 2020, total (green) energy costs are at a constant yearly level of € 9,5 million. These costs

0 2000000 4000000 6000000 8000000 10000000 12000000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 € Year

Total Energy Costs

Costs CO2 emissions Costs green heating Costs fossil heating Costs green electricity Costs fossil electricity

consist of (green) heating and electricity costs. Because of the assumption that a green energy contract is 20 percent more expensive than a fossil contract, the prices of heating and electricity are respectively € 0,216 per m3 _{and € 0,06 per KWh. Total (green) heating costs are}

10.515.906*0,216=€ 2.271.435,70 and total (green) electricity costs are 121.078*0,06*1000 = € 7.264.680, which make a total of € 9.536.115,70

This scenario is financially more attractive on the longer term than the passive scenario (I). From 2022 total energy costs will be lower and the price gap becomes more positive every year. Energy supply is safe and secure as it is the responsibility of the utility company to offer a continuous supply. Moreover, no investments are required. RFH complies with the Paris agreement by reducing their emissions to zero, which positively impacts their competitive advantage. There are however some disadvantages to consider. Possible price changes are not taken into account, which makes RFH dependent on the energy supplier. The utility companies are at the moment unable to supply 100% biogas. Currently about 90% of green gas sold is CO2 compensated gas which means that utility companies purchase CO2 certificates guaranteeing that exactly the same volume of CO2 generated during the combustion is invested in a range of climate protection projects all over the world. Consequently, CO2 certificates do not stimulate the production of renewable energy in the Netherlands.

4.4 Scenario III – All green by self-sufficiency

In the last scenario, RFH phases out fossil fuels by producing their own energy. This is realized by installing a mix of renewable energy sources from 2019, being a combination of solar panels on top of their buildings, windmills, heat-and cold units, geothermal energy and residual heat. The total investment costs of these renewable energy projects are around € 100 million. This is calculated with numbers attained from RFH research on a solar panel project. The investment costs of solar panels with 9MW power are € 7 million and its estimated lifespan is 16 years. These solar panels produce 15554 MWh per year. The usage of electricity is 121078 MWh per year and the usage of gas is 10515906 m3_{, which equals}

102734 MWh. Therefore, RFH consumes 223812 MWh in total. The costs to produce 223812 MWh are 223812/15554*7 = € 100,7 million. With a lifespan of 16 years, depreciation costs are 100,7/16 = € 6,29 million per year, as shown in the graph. These renewable energy sources require yearly maintenance. These costs are estimated at 1,5% of the total investment, being €1,5 million per year, as shown in the graph. From 2019, total annual energy costs are € 7,79 million per year. It is questionable if this is a realistic scenario, because investment costs are huge. Most renewable heating energy sources are in the early stage of development. It is highly uncertain if RFH can produce their own energy demand in the short term. Consequently, reliability of supply is low to medium. As this scenario is a hundred percent green, it will accomplish climate goals.

0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 8000000 9000000 10000000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 € Year

Total energy costs

Personnel & maintenance costs CO2 emission costs Depreciation costs Costs fossil heating Costs fossil electricity

4.5 Overview of the scenarios

SAFE RELIABLE AFFORDABLE SOLVENCY SUSTAINABLE COMPETITIVE

ADVANTAGE SCENARIO I Passive attitude

++

(proven technology)

+

(foreign gas less reliable)

--

(high CO2 tax)

++

(no investments)

--

(100% fossil)

--

(higher costprice, not sustainable) SCENARIO II All green Sourcing

++

(responsibil ity at supplier)

++

(responsibility at supplier)

+-

(dependent on supplier)

++

(no investments)

++

(CO2 neutral)

+

(sustainable but certificates do not stimulate Dutch production of renewables) SCENARIO III All green Self-sufficient

+-

(new technologie s not yet proven)

+-

(dependency on weather and new technologies still in adoption phase)

++

(energy from sun, wind, earth is for free after depreciation of investments)

--

(high investments)

++

(CO2 neutral)

++

(Dutch flowers grown by Dutch sun, wind and earth, lower cost price on long term)

5. Discussion and conclusion

Discussion

This research was conducted to answer the question what the economic consequences of the energy transition will be for Royal FloraHolland (RFH). What will be the best energy strategy and roadmap? Must they act quickly by investing in own energy production or should they opt for a more passive energy strategy?

To be able to answer these questions, a literature research has been done to review the three main subjects that influence the decision-making process: the development of the energy market, the expected government energy policy concerning subsidies and taxes and the availability and pros and cons of the different alternative energy sources.

As stated in the literature review, the energy transition consists of uncertainty due to several factors. Scenario planning is used to predict the outcome of the economic consequences for RFH.

From the three scenarios it appears that the faster the switch to renewable sources is made, the lower the energy costs will be. If a transition towards renewable energy is not made fast, energy costs will rise each year due to exponentially increasing carbon taxes. Climate goals will not be accomplished, which will deteriorate competitive advantage.

In scenario II and III, CO2 targets will be met, even before 2025. In scenario II energy is sourced by concluding a contract with a supplier of green energy. This contract will be more expensive than the current ‘fossil’ contract, but due to the elimination of carbon emissions carbon taxes are avoided and energy costs eventually become lower than in the ‘passive’ scenario. Eventually, scenario III offers the lowest energy costs by generating own energy need. In order to reach this low energy costs in the future, huge investments have to be made which could threaten RFH’s solvency. Furthermore, in the first years, the reliability of alternative sources is uncertain. Wind and solar energy are dependent on the weather and the other alternative sources, such as geothermal energy, are still in the early stage of development.

Conclusion

It seems favorable for RFH to become its own energy supplier. For the near future this leads to high investments. For the long run, however, this could lead to more control over energy costs, increased profitability, reduction of their carbon footprint and genuine competitive advantage. It is recommended that RFH concludes a new ‘green’ energy contract as soon as possible and in the meantime gradually starts to generate its own energy with proven

techniques like solar panels on the roofs of its own buildings or wind mills on its own property. Investments must be done gradually to maintain a solvency ratio of at least 35%. During the same period, it is recommended to further research the possibilities of heat pumps, geothermal energy systems and the use of residue heat. It is crucial to research all options carefully and to create the best possible roadmap towards a green energy future. Subsidies, provided by the government can help to speed up investigation and implementation of these new sources. It is clear that the energy transition has economic consequences for RFH. Every decision they make will have a different impact on reliability delivery, safety, affordability, solvency, sustainability and RFH’s competitive advantage. It is therefore advised to make energy strategy an integrated part of RFH strategic company plans.

Limitations

The scenarios and therefore conclusions are based on many assumptions. Most publications about energy transition are concentrated on green electricity options like sun and wind. Information on new energy sources for heating is rather poor. It is not yet certain whether all mentioned options, like for instance geothermal energy, will be adequate. More research is needed to provide better insights in investment costs, ways of transportation, safety and security of the renewable sources. Moreover, government energy policy on CO2 tax levels and subsidies is not yet decided. It is for instance not sure whether the government will subsidize all new renewables or only a few. Further research should be conducted to gain better insights in the best renewable energy mix and to take away uncertainties.

6. References

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