Adequacy risks in the Netherlands are expected to rise after 2030, driven by strong demand growth, phaseout and economic retirement of thermal assets, as well as uncertainties in flexibility uptake. 

Based on TenneT’s security of supply analysis, a capacity gap of ~1.3–1.5 GW is projected for 2033-2035. 

In this context, the Ministry of Climate Policy & Green Growth (KGG) in the Netherlands commissioned Frontier Economics and Guidehouse to assess the suitability of Capacity Remuneration Mechanisms (CRMs) for the Netherlands.  

Based on a multi-criteria assessment, we shortlisted three (out of eight) mechanisms to examine in depth: Strategic Reserve, Central CRM, and Hedging Obligation. Given the limited track record – creating uncertainty around accuracy and effectiveness – and the missing link to physical capacity, we did not take the Hedging Obligation forward into the pathways. 

Each pathway provides different opportunities, strengths and weaknesses regarding four differentiating criteria (effectivity, efficiency, timeline and flexibility). The relative importance of the criteria in the Dutch context is ultimately a political decision. 

Pathway A – Temporary Strategic Reserve:  

• As-soon-as-possible implementation of a strategic reserve to prevent premature closures and provide a buffer in the early 2030s.   

• Clear timeline for phasing out the instrument based on expectations that the adequacy gap will be temporary and timely solved by the market. 

• Best suited if priority is on timeline and flexibility. 

Pathway B – Central Capacity Mechanism:  

• As-soon-as-possible implementation of a central CRM, as a structural short- and longer-term solution in case the expectation is that the adequacy gap will persist. 

• Provision of long term investment certainty and the most accurate route to meeting reliability standards. Hence, best suited if priority is on effectivity and efficiency. 

Pathway C – Strategic Reserve first → Central CRM later:  

• The strategic reserve is used to ‘buy time’ to assess if a central CRM is necessary as structural solution and, if so, to provide more time for a tailored design of the central CRM, approvals, implementation and auction.  

• Appropriate when uncertainties in demand, technology uptake or retirements high. 

• Best suited if priority on timeline and flexibility. 

A Dutch government decision is required by mid 2026. If a capacity mechanism proves to be the best option, there are several no regret steps that can already be taken: 

• Formalise the desired reliability standard, which underpins capacity needs. 

• Improve the robustness of CRM cost and benefit assessments.   

• Start or accelerate State aid preparation, ensuring both SR and CM pathways remain viable. 

Click here to read the full report “Study on capacity remuneration mechanisms for the Netherlands”. 

For further information, please contact media@frontier-economics.com or call +44 (0) 20 7031 7000.