The Dutch wind community has had two years to acclimatise to deregulation. In 1995 the government's 30% subsidies of investment in wind energy were scrapped and replaced with a series of fiscal measures intended to reward environmentally friendly use of capital and patterns of consumption. The jury is still out on the full impact of this shift in policy, but the changes of the recent past are as nothing compared to those in the pipeline.
In November, economics affairs minister Hans Wijers presented the Dutch parliament with a timetable for the phased liberalisation of the energy sector, which will put it far ahead of the schedule imposed by the European Union. At present major Dutch electricity users (more than 50 gigawatts a year) are free to buy from the electricity producer of their choice. This option will be extended to users of more than 10 GW from early next year. European legislation stipulates that major users (40 GW and more) be free to shop around for power from 2000, with the next batch (20 GW) joining the free market from 2003.
To consolidate the Netherlands' early lead in the race to deregulate, Wijers proposes setting up an electricity exchange open to national and international players from 1998. Although similar exchanges already exist in the UK and Scandinavia, Wijers believes the Netherlands' position at the hub of a well maintained international grid will secure it a central role in a future European market. Anticipating that Dutch producers will face stiff competition from abroad in an open market, Wijers is encouraging the merger of the four regional electricity generating companies into one large scale generating concern (GPB) which will be responsible for the production of some 80% of all electricity in the Netherlands.
However, with rumours of disagreement occasionally surfacing in the press, it is still uncertain when, and in what form, these proposals will finally take shape. True to its credo of liberalisation, the government has limited itself to an advisory role. A ministry spokesperson insists: "It is up to the energy sector itself to put these proposals into action." Thus, while the future of the energy sector is debated behind closed doors, the wind industry can only wait to see on what terms it will be expected to conduct business as it enters the next century.
Meanwhile, the government has published detailed proposals for ensuring the continued development of renewables. Outlining government plans to ensure that the Netherlands increases its percentage of power generated from renewable resources from a current 1% to 3% by 2000 and an eventual 10% by 2020, the "Renewable Energy on the March" report identifies a number of key areas where government action will make green energy more competitive on an open market.
These include boosting the price to performance ratio of renewable energy through improved technology. In the period 1990 to 1995 the price of wind energy from coastal sites dropped to NLG 0.18/kWh from NLG 0.25/kWh. In the five years from 1994 to 2000 the government is looking for a further 30% price reduction, to be achieved primarily through improved technology. To finance this "technology push" , some NLG 95 million will be made available annually from 1997 onwards for research, development and demonstration projects.
An early beneficiary of this largesse is likely to be an offshore wind farm project currently being researched by government agency Novem (Windpower Monthly, April 1997). In addition to financing government initiatives such as this, the report also proposes extending support to companies developing renewable energy technology.
A second range of measures is aimed at increasing the market penetration of energy generated from renewable resources. Alongside the current range of fiscal instruments aimed at closing the price gap between fossil fuels and renewable energy, the government is set to reduce the rate of Value Added Tax on green energy to 6% later this year, compared to the normal rate of 17.5% for conventional electricity.
Existing export regulations will also be amended in favour of renewable energy products in the belief that increased foreign sales will stimulate the domestic market by reducing unit costs. In particular, the wind sector stands to benefit from a financial support package to be introduced this year which aims to improve Dutch wind turbine manufacturers' access to the world market.
To co-ordinate these various initiatives, a new "Project Bureau" for sustainable energy will be set up later this year. A public-private initiative financed jointly by government and the energy sector, it will function as a point of first enquiry, expertise centre, project broker, and promotional body whose first hand knowledge of developments on the ground will be fed back into the policy making process.
Green power exchange
But perhaps the most radical measures put forward in "Renewable Energy on the March" are the proposals for tradable "green power" certificates. Under the plans, electricity distribution companies must show that 3% of the electricity they sell has been generated from renewable resources. Proof of compliance will come in the form of green electricity certificates issued by an independent sector watchdog. It will certify that within a specified period the bearer has supplied a given amount of "electricity generated from renewable resources via the grid to a Netherlands based supplier or consumer."
Should the distribution companies fail to meet the 3% target, provision will be made in next year's Electricity Bill to make it a statutory obligation from 2001. Effectively this will result in the creation of a secondary market for green electricity as distribution companies seek to make up any shortfalls in their own production by buying in clean power from other sources on a green electricity exchange.
This market is likely to prove of great interest to the many private wind turbine owners in the Netherlands who are currently negotiating rates with their local electricity distribution companies. Moreover, the report goes on to suggest that users who meet their own energy needs from renewable resources will also receive green power certificates, which, depending on the amount of power generated, will also be tradable on the green power bourse.
With Arnhem-based utility NUON already buying in green electricity from outside its distribution area, it looks certain that some form of green market will emerge in the short rather than the long term.
Impact on price
The report makes no attempt to forecast the likely impact on the market of the government's outlined proposals, other than to note that increased demand for renewable energy will exert upward pressure on electricity prices. However, for independent wind energy producers free to trade in a national market where demand will likely exceed supply, particularly at first, the prospects must appear rosy.
Ernst van Zuylen, former president of Dutch wind turbine owners' association PAWEX welcomes the advent of trade in green power certificates. In principle, the resulting demand for green electricity could lead to sites being developed which are currently considered too logistically difficult or insufficiently profitable.
"If [development becomes] necessary to satisfy market demand, then those sites will become financially viable," he says. This would result in a healthy level of price differentiation, he believes. "The first [green power] contracts would be for cheap electricity from the best locations, after which the price would go up as the cost of production increases," he says. "That kind of price mechanism would be ideal."
But Van Zuylen warns that significant obstacles remain." The great risk lies in the fact that the targets are not fixed. What we have seen in the Netherlands in the past is a continual revision of targets: 1000 MW by 2000 becomes 400 MW in 1995, becomes 100 MW per year and so on." Although utilities are already dealing in the rights to future projects, Van Zuylen warns that this offers no guarantee that the planned kilowatt hours will actually come on-stream in the year 2000. "The problems always come at the implementation stage," he says. Given this inclination to move the green energy goal posts, Van Zuylen says he can imagine a situation in which the utilities refuse to adhere to a fixed renewable energy percentage on the grounds that the government has failed to do enough to ensure a competitive price.
For the time being, however, he remains cautiously optimistic: "PAWEX has always said that it sees many positive aspects to this idea. It would solve many problems, but on the other hand it would be very naive to rely solely on this as the rules of the game must be very clearly defined. It has to be a real free market, based on real demand." Van Zuylen envisages a market with different degrees of liberalisation. "We might see the emergence of a truly free trade in green energy -- which would be ideal -- or the utilities might combine to form a single purchasing entity which would then sell on its green electricity internally." Alternatively, one large supplier might monopolise the trade, but in either case a dominant operator would clearly be less desirable.
Mirjan Tillens of the Organisation for Renewable Energy (ODE) shares Van Zuylen's reservations. While welcoming the prospect of a free market for green electricity, she regards an agreement on a national minimum tariff as an essential short term measure. "The proposals are too vague," she says, "and there is no indication of when the free market will actually come into effect or how free it will turn out to be."
Clearing the way
Tillens considers the most important element of the renewables report to be the section dealing with administrative problems in the development of renewable energy, the third of the priority areas identified for government action. The report concludes that a 1991 covenant between central government and provincial authorities in the seven windiest provinces failed to address the problem of co-operation between provincial authorities and local town and city planners in zoning for new wind farm developments. The report suggests the covenant should be beefed up by a number of complementary measures to ensure it remains a viable instrument for reaching the original target of 1000 MW installed wind capacity from renewable resources by the year 2000.
Where it was originally assumed, this target could be met from small scale (20 MW) developments. Further research has since shown the necessity of developing larger sites (50 MW). In principle there is land available in the Netherlands for the generation of some 800 MW on large scale sites if existing environmental and planning regulations are modified. These modifications are acceptable, the report argues, because wind turbines have a more limited impact on birds and wildlife than originally supposed.
Amended planning regulations would make qualitatively better coastal sites available for development. The study also recommends that regulations on turbine height be relaxed in order to make inland sites financially viable. Finally it proposes the large scale development of offshore locations from the year 2000.
Tillens welcomes these proposals with enthusiasm, but insists on the need for positive short term action." The report shows good intentions but the government could give a rather stronger signal by saying there should be a fixed tariff [for renewable electricity] or at the very least a minimum tariff," she argues.
Instead, the report concludes with a promise that progress will be closely monitored and that statutory minimum percentages of renewable energy use will be posted in the annual energy report for the period 2001 to 2005. Whether these measures will be sufficient to secure the future of wind will only become apparent when trading begins in 1998.