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Netherlands

Netherlands

First day excitement and foreboding

With Dutch wind in the doldrums it is clear that the post-subsidy market needs a major stimulus if it is to make a significant contribution to energy provision in the millennium. According to Rob van 't Hullenaar, head of utilities' umbrella organisation EnergieNed, just such a stimulus will be provided by the free market in green energy credits devised by his organisation and known as the Green Label System.

"If the energy distribution companies fulfil their quota commitments," he claims, "the next few years will see around one billion guilders invested in renewable energy." In effect this would mean an addition of some 500 MW to the Dutch renewables capacity before the year 2000, and most of it from wind.

"Because, as of today, renewable energy is now a tradeable commodity, I have every confidence that this will happen," believes Van 't Hullenaar, who last month was speaking at the official launch of the Green Label System in the National Sport Centre, Papendal, near Arnhem. His remarks opened a day of activities which included introductory and explanatory lectures, topical cabaret, a panel discussion and a chance for the audience to gain some practical experience of the labels market in a mock trading session.

For many of the 300 potential traders and other interested parties gathered in the hall, EnergieNed's congress provided the first opportunity to get acquainted with the long awaited Green Label system -- and judging from the applause that greeted an off-the-cuff remark in the cabaret, that the public always clap loudest for things they don't understand, many in the audience were primarily interested in the explanation of how the system, in effect since January 1, will work.

In principle the mechanism of the new market is fairly simple. Under the Green Label system, local power distribution companies (LDCs) pay renewable energy producers a set price made up of the current price paid for power from the central reserve (SEP), plus an ecotax (REB), which is normally remitted to the revenue service. In addition to this price, the producer is also issued with "green labels" at the rate of one for every 10,000 kWh supplied over the previous month. The producer makes his profit by selling his labels back to the Dutch distribution companies on an open market driven by the utilities' "voluntary obligation" to have secured 1.7 billion kWh of electricity generated from renewable resources by the year 2000. This they can do either through purchase or their own production of green power.

At current prices, with the SEP rate at NLG 0.08/kWh, ecotax at NLG 0.03/kWh and the cost price of wind energy generally reckoned at NLG 0.16/kWh, producers will have to sell their labels at a rate above NLG 0.05/kWh to make a profit.

In general the system was extended a warm, though cautious, reception by all the participants in the panel discussion. For the wind community, Mathieu Kortenoever of the Dutch association of private wind turbine owners (PAWEX) welcomed the system as "a substantial improvement on the previous state of affairs" although he had "one or two serious reservations." Representing the wind turbine manufacturers, Chris Wolff of NEG Micon was also enthusiastic, saying that the Dutch market had hitherto been limited by the "subsidy budget." He further noted that a recent contract between the North Brabant based utility, PNEM, and the North Holland wind farm, Kneeshoek (Windpower Monthly, December 1997) demonstrated the system's ability to facilitate projects previously frustrated by disagreement between producers and suppliers.

anxiety in the details

Notwithstanding the general consensus that things could only get better, the panel discussion soon revealed a number of anxieties about the detailed operation of the scheme. Kortenoever's first reservation was about the long term future of the market: what would happen to the market after 2000 and the utilities' day of reckoning?

Stan Dessens, director of renewable energy at the Dutch economic affairs ministry replied that although there was no official policy for post-2000, an ongoing process of government imposed quotas for renewable energy could be expected. The aim would be to continue driving the market towards the long term target of securing 10% of national energy requirements from renewable resources by the year 2020. The next two years will be a trial period for the Dutch utilities: after the millennium the legislative machinery for ensuring compliance will be in place.

Peter Blom of green investment bank, Triodos, was also worried about the long term. He foresaw that small scale developers would have difficulty securing finance for new projects if the "spot market" in green labels made utilities reluctant to enter into long term contracts. Baron van Ittersum, former head of the Amsterdam Stock Exchange and now member of EnergieNed's governing body, argued that this anxiety was likely to prove groundless as utilities would still require a portfolio of both long and short term contracts in order to meet their own obligations.

Kortenoever's second anxiety concerned sanctions and the openness of the market. At present the system proposes that distribution companies who fail to meet their quota must make good their deficit from another utilities' surplus labels at a price "higher than the current market price, but not unreasonably higher." This introduces an artificial ceiling into the market, argues Kortenoever. In a real market, the utilities would have to make good their deficit directly from the producers at a price determined by the laws of supply and demand.

Underlying Kortenoever's concern about the sanctions price was his belief that the system was operating on the tacit assumption of a cost price for wind power of NLG 0.16/kWh. This would be insufficient to stimulate enough supply to meet the demand. Later Kortenoever made it plain that he did not believe the target could be met so long as the cost price remained around NLG 0.16/kWh. "With the physical restrictions on developing new wind locations in the Netherlands the cost price will inevitably rise, and sixteen cents just isn't enough to cover those increased costs," he said.

Policing the market

Further questions focused on the transparency of the market. With EnergieNed acting as a central registration point for the sale and purchase of green labels -- and providing the market overview through its Web site (www.GroenLabelNed.nl) -- a number of delegates wanted to know who would monitor market performance. A system was needed to guard against fraud, along with safeguards to prevent a de facto utilities monopoly or price fixing cartel.

While Van 't Hullenaar admitted that policing of the market needed further study, Dessens did his best to allay fears of cartels, promising that the market would be closely monitored by the government, which would take further action if it was deemed necessary. He cautioned that the Green Label system "should be regarded as a single mechanism, not as an end in itself." The utilities could not afford to sit back and wait to see what happened in 2000, they had to "begin investing in renewable energy immediately." The clock was already running he warned. If by the end of this year it had become apparent that the Green Label system was not providing the required stimulus, further action would be taken.

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