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Denmark

Denmark

Zero income from exports a myth -- Danish sales of excess wind

Claims that Denmark's wind turbines are a costly drain on society because their excess production is sold at dumping prices to neighbouring countries are no more than an enduring myth, say two researchers who have studied the issue. It has long been claimed by detractors of wind energy that in windy periods of low demand, Denmark, with far more wind capacity per head of population than any other country, has been dumping its overspill electricity on neighbouring networks to the north and south at prices than can drop to zero.

But new research has established that Denmark's five thousand wind turbines, which meet 20% of national electricity demand over a year, are in fact a gilt-edged business for the country. Each time Denmark exports power to a neighbour with higher electricity prices, the Danish system operator, Energinet.dk, shares the price difference with the operator buying the power. If electricity is exported at the much discussed zero rate to a country where the market price is EUR 33/MWh at that time, the difference is shared 50-50 between the two system operators.

Poul Erik Morthorst, a wind economics researcher at the Danish national laboratory at Risø, has already verified that Denmark's wind power production applies downward pressure on electricity market prices, with considerable consumer savings resulting (Windpower Monthly, December 2006). He stresses that the hours a year when excess electricity is exported at zero prices are few. But it cannot be avoided for a couple of hundred hours a year when all 3000 MW of wind capacity is in production; the wind fleet can deliver up to 600 GWh a year. Over the course of a year, and presuming a market price in the purchasing country of EUR 33/MWh, state-owned Energinet.dk can typically expect to share around EUR 20 million with the purchaser.

From Ea Energianalyse, Hans Henrik Lindboe points out that the financial rewards are not restricted to periods when overspill power is being sold at zero prices. The rewards are reaped each time electricity generated in Denmark is sold to an overseas buyer in an area where the market price is higher than in Denmark. Danish market prices were marginally lower than in Sweden and Norway to the north over the whole of 2006. As a result, Denmark's "bottleneck income" could be close to EUR 130 million, estimates Lindboe, who is conducting a close analysis of the sums involved.

Misunderstanding

"It is a function of the way the market works, so it is a misunderstanding when export of electricity at zero prices is presented in the public debate as problem for society," says Lindboe. "First, it only happens for a few hours a year. Second, while the power is sold for zero cents a kilowatt hour, the transmission companies, on the Danish side Energinet.dk, sell it on at market prices in the purchase area and share the profit with the buyer."

Since Energinet.dk is owned by the state, society as a whole -- and Danish electricity consumers -- continuously benefit from the market mechanism. The generators, in this case the wind turbine owners, are the losers, just as they are when increasing volumes of wind production push down market prices, reducing their earnings from sale of electricity in the process.

Consumers savings from lower electricity prices, which were more than EUR 130 million in 2005, were expected in 2006 to be greater than the total contribution paid by consumers to the Public Service Obligation levy (PSO), revenues from which fund wind power subsidies. Together with income from "bottleneck" sales, wind power is a profitable business for Denmark, growing at the same rate that profits for wind turbine owners fall.

The losers

Owners of wind turbines in Denmark, which due to their age no longer receive power purchase subsidies, sell their power on the open market through their own company, Vindenergi Danmark. The company's Nils Dupont says that on occasion wind power is indeed sold for nothing. The reason for the bottleneck problem, he adds, is lack of sufficient transmission capacity, which hampers trade of electricity with Denmark's neighbours.

"If the wires were reinforced within the Nordic countries, it could become one single trading area and the price differences would disappear. So you can say that Energinet.dk profits from the lack of transmission for electricity trade -- or that it should use some of its profit to increase transmission capacity," says Dupont.

From Energinet.dk, Klaus Thostrup says these profits will indeed be put towards more transmission capacity. All "bottleneck income" banked by system operators in the entire NordPool area up until September 1 last year is to be pooled and shared equally among the three countries, with the trading exchange facilitating fair pay for all. Final details of the annual share-out of EUR 67-107 million are currently being negotiated. Energinet.dk used to receive one-third of the total, says Thostrup. Plans are for this money to be used for reinforcement of the wires to Norway to the north and for the first high voltage connection linking wind western Denmark with the east of the country, which is already connected to Sweden.

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