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Most green, least traded

As well as documenting a year of great growth for wind power, our annual market status issue also reveals that 2002 was the year of the green power certificate. The principle of stripping the environmental added value from a kilowatt of power and trading it separately from the power itself is being taken up in ever more national and international renewable finance systems.

These systems range from renewables obligations on power companies, such as those introduced in the UK and Belgium, to the Dutch initiative of selling green electricity to domestic consumers on a market weighted by a carbon tax, which is now in its third year. As the UK and Dutch experiences show, at the national level green certificate trading can work wonders for wind. It is clear, however, that the real potential of certificate trade is international: in getting wind built on sites with the best wind regimes rather than the best subsidy regimes. Here wind has signally under-performed.

Last year some 13.5 TWh of green certificates were traded internationally through Europe's foremost trading system, the Renewable Energy Certification Scheme (RECS). Most of that, however, was hydro and biomass, while wind, seemingly the most attractive of renewable technologies, far from being the belle of the ball remained very much a wallflower.

The immediate explanation for wind's under-performance can be sought in the piecemeal liberalisation of the European electricity market. Holland was the first European country to create a market requiring green power imports and most of the certificates traded -- 12.5 TWh -- ended up in Dutch hands. Unfortunately the Dutch had given little thought to regulating imports before setting up the system, with the result that soaring consumer demand for green power not only led to soaring wind certificate prices (thus driving a good market for new wind generation), but also to soaring imports of green power of dubious quality.

Why, critics asked, were Dutch taxpayers paying Scandinavian hydro and biomass producers a two cents a kWh production incentive for power the producers would have produced anyway? How was the Dutch market actually stimulating the construction of new renewables capacity? Unable to answer this question and desperate to staunch the flow of tax revenue abroad, a new Dutch government hastily reformed the renewables finance package, which in turn plunged Dutch wind into a prolonged period of uncertainty (page 48). Effectively the Dutch have paid the price of leading by example, but their experience contains a number of valuable lessons for wind.

First it demonstrated the importance of establishing market regulations aimed at achieving precisely defined objectives. If, for example, the Dutch regulations had stipulated that the production incentive be paid only for power from new renewables plant, the whole Dutch debacle may have been avoided. Second it demonstrated the importance of credibility and transparency. Customers paying a premium price for green power want a cast iron guarantee that their cents are benefiting the environment, not just the balance sheet. Wind proved a key marketing tool in this respect, being used to symbolise the generic green power product and to differentiate premium brands of green electricity, like wind, from less green biomass.

PERILS AND BENEFITS

It's ironic then that wind, the more precious commodity, was the least traded internationally. Partly this was because the Dutch system effectively encouraged the purchase of cheap Scandinavian hydro and biomass, but the fact that most wind is produced under a variety of national subsidy systems raises the spectre of double payment. For wind to be traded under a certificate scheme, ideally it needs to be built under a certificate scheme. And if the Dutch experience showed the perils of international certificate trade it also showed the benefits in the wind farm built by Dutch utility Nuon on the Norwegian island of Smøla, whose power is being sold as green electricity on the Dutch market. Like other Dutch power companies, Nuon is also aggressively marketing its wares in neighbouring Belgium, where a paucity of green power and accompanying certificates means that Belgian power companies will be unable to meet consumer demand for renewables when the electricity market is liberalised in July (page 50).

What impact the Dutch import reforms will have on the infant RECS system (page 25) will become apparent this year. With 14 European countries and 173 companies participating, however, the system should be robust enough to survive and is already extending its activities into the EU accession countries.

One thing is clear. For wind, being a wallflower is no longer an option: whether it likes it or not wind will be caught up in the certificate trading beat, particularly now that the main subsidy markets have reached or are nearing maturity. Recognising the benefits of the certificate trade and using that recognition to ensure that markets and market mechanisms are established which clearly reward wind's status as a blue chip renewable technology is imperative. To this end it is vital that the wind industry lobbies nationally and internationally for market regulations and mechanisms which stimulate new investment and differentiate between the many shades of green technology. At this moment these decisions are being taken in Italy and in Belgium. In the future it could be Germany and Spain.

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