New Energy in ImpactCity The Hague

What do innovators in the field think of The Hague as a working and living location and city for innovation? Read a new story every week for the coming period. This week: law firm Bird & Bird.

As the energy sector is being rapidly transformed by new technologies and new regulatory frameworks, legal and financial energy specialists are undergoing their own transformation. “We are constantly faced with unexpected problems for which we have to find new solutions,” says Sophie Dingenen, Partner in the Energy and Utilities division of international law firm Bird & Bird in The Hague. As a “regulatory-driven” firm, Bird & Bird chose to have its Dutch head office in The Hague, explains Dingenen, although it has recently also opened an office in the financial centre of Amsterdam. “There is not one central energy centre anymore. The energy transition is making itself felt across the entire country and economy.”

When the venerable UK law firm Bird & Bird, founded in 1846, opened up an office in the Netherlands in 2001, as part of a rapid international expansion, it decided to set up shop in The Hague. Bird & Bird opted for a modern office building right next door to the Provincial Government, not far from the Dutch Parliament – or the Shell head office, for that matter. “We are a sector-based and therefore regulatory-driven firm,” says Sophie Dingenen, who joined the firm in 2016 and has worked in energy for over 20 years. “So we wanted to be near the policymakers and regulators.”

Dingenen explains that Bird & Bird has organised its teams around sectors, such as energy, life sciences, automotive, retail, media and technology, rather than around legal competences such as corporate law or labour legislation. “We advise across the entire value chain of projects, from beginning to end, from licensing to subsidies, land rights, financing, construction and operation. And across the entire energy sector, from solar and wind to hydrogen, storage, grids, energy management and energy efficiency projects. This means we have to be up to date about all regulations and rules.”

This is particularly true in the energy sector, which more than any other sector has been subject to ever-changing rules and regulations, says Dingenen. “Every year the energy legislation is being overhauled. For instance, the renewable energy support scheme SDE+ was based on the amount of kilowatt hours produced. The new scheme, SDE++, which will enter into force in 2020, is based on avoided CO2 emissions. An entirely different approach.”

For any investor an ever-changing regulatory climate is the worst in terms of the required certainty for their financial models, says Dingenen. “It’s not what an investor likes to see. Particularly not if you add in the rapid technological changes taking place in energy. Take offshore wind. You have to draw up contracts now for turbines that have never even been deployed yet and have no proven production record. Or solar PV, where we have moved from rooftop to solar farms and floating solar. Or the partial replacement of gas by hydrogen. Who would have thought that possible a few years ago? If the government then keeps changing the rules, you can imagine that our clients have to find solutions all the time for problems they had not foreseen.” 

The rapid regulatory changes make it essential for the legal specialists of Bird & Bird to keep their ear to the ground in the Dutch regulatory capital, The Hague. At the same time, however, in 2017 Bird & Bird decided to open an office in the Dutch financial capital, Amsterdam. “As solar and wind are becoming mainstream, the emphasis in these sectors shifts from regulatory advice to financial advice. And since Amsterdam is where most of the big banks and investors are, we wanted to be present there as well.”

Financial institutions are actually increasingly replacing regulators as the main drivers in the energy sector, notes Dingenen. “Banks and investors are more and more in the driving seat. Some of them even choose to only finance projects if they meet sustainable criteria.” Nowadays Bird & Bird is not involved in many conventional projects anymore. “Not because we don’t want to, but investors give priority to renewable projects.” According to Dingenen, there is no lack of interest from investors “There are more investors than projects.”

One key development in finance that Bird & Bird are closely involved with are corporate Power Purchase Agreements (PPAs), whereby large electricity consumers make a long-term agreement with a producer to buy electricity from a particular renewable energy project. “This is a good alternative for subsidies,” says Dingenen. “We see strong growth of PPAs in countries where subsidies are phased out.”

Dingenen expects strong growth of corporate PPAs in the Dutch market in the coming years. “For banks, the creditworthiness of the corporate buyers strongly reduces the risks of projects. For the corporates it is a way to make their production processes sustainable. For project developers it means they are able to finance their projects.”

Dingenen puts the choice of office location in perspective. “For most foreigners, Amsterdam and The Hague are actually quite close together. And Schiphol airport is in between them.” In addition, both financial and regulatory expertise will continue to be needed. “Solar and wind are still heavily subsidised markets in the Netherlands, and will remain so for a few more years.”

What is more, new regulatory challenges keep cropping up. The number one problem in the Dutch renewable energy sector at this moment is congestion in the electricity networks, which has led to tensions between project developers and grid companies. “Recent figures show that one out of 8 projects that has been built or is in the pipeline cannot be connected to the grid,” says Dingenen. “We are assisting project developers in solving this problem. We are talking to the Dutch competition authorities, the ACM in The Hague, about possible measures.”

Dingenen finds it “incomprehensible” that the network operators, especially at the distribution level, do not appear to be ready to accommodate the growing supply of renewable energy. “We have been working on the energy transition for more than ten years now. They should have seen this coming for a long time.”

The energy transition is also shifting to new technologies that will undoubtedly trigger yet more new regulations, notes Dingenen. One hot new trend is battery storage. “Operators are increasingly adding solar panels and batteries to their wind farms. In this way you get renewable plants that can provide a higher baseload. That’s a very interesting development.” Other fast growing technologies: mini-grids, electric vehicles, hydrogen. Dingenen: “In many ways the energy transition has only just kicked off. The regulatory framework will have to evolve with it.”

But the most important trend in energy, perhaps, says Dingenen, is: decentralisation. “Energy is spreading from a few centralised locations into all regions, sectors and the entire economy. Thus, for example, some banks will only finance  commercial real estate if it conforms to certain energy efficiency standards. The legal requirements for energy efficiency are also becoming demanding.  Another example: under the Dutch climate accord, all municipalities have to come up with plans to get all buildings in their region off natural gas. That has huge implications. Change will come everywhere and will affect everyone.”

Want to find out more about the experience and knowledge of Bird & Bird in relation to new energie? Click here.

Want to know more about the opportunities for technology, security and new energy in The Hague? Get in touch with account manager Martin Hulsebosch.