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Denmark

Denmark

Denmark struggles with regulations -- So far, so bad

The Danish Association of Wind Turbine Owners, fearing an unexpected drop in payments for their output, is now considering suing the state for breach of contract following its annual meeting last month. Meantime, the government has announced January 2002 as the launch date for Denmark's trading exchange for green power credits. This article gives the background and present state of the payment system and context for the association's fears.

Denmark's wind turbine owners have become pawns in a political game and fear an unexpected drop in payments for their output. The Danish Association of Wind Turbine Owners is now considering suing the state for breach of contract following its annual meeting last month. Meantime, the government has announced January 2002 as the launch date for Denmark's trading exchange for green power credits.

Responsibility for premium payments for the physical power output from wind turbines has now passed from the state to the utility sector. As part of Denmark's electricity market liberalisation, a new wind power tariff system was introduced: payment for power from existing wind turbines is split into a base tariff of DKK 0.33/kWh for a minimum of ten years, plus DKK 0.27/kWh for the first 12,000 to 25,000 "full load hours of operation," the number of hours dependent on turbine size. Once a turbine has operated for more than its allotted number of "full load hours," turbine owners receive tradable "green certificates" for kilowatt hours instead of DKK 0.27/kWh.

These certificates will be tradable on the green credit market, driven by a government obligation on all consumers to provide evidence that a fixed percentage of their electricity comes from renewable sources. By 2003 this must be 20%. Domestic consumers will be represented on this market by their electricity suppliers. The government capped the price of green credits at DKK 0.27/kWh, but guaranteed a minimum price of DKK 0.10/kWh.

This was the model announced -- also internationally -- by the government in 1999. It was accepted by Denmark's 150,000 turbine owners in the hope that the green credit market price would be closer to DKK 0.27/kWh than the floor of DKK 0.10/kWh. The high rate would bring total the kWh payment (base payment of DKK 0.33 kWh included) up to DKK 0.60/kWh -- equal to the old tariff.

On January 24, however, the energy ministry published a new interpretation of the just introduced regulations: to be eligible for green credits, an owner must choose to relinquish the guaranteed payment of DKK 0.33/kWh after ten years. Instead, the physical power has to be sold on the open electricity market and the green credits through the new trading exchange. The "full load hour" payment drops to DKK 0.10/kWh once the number-of-hours limit is reached and disappears altogether after ten years. That leaves owners the choice of managing on DKK 0.33/kWh after ten years, or chancing their arm on the market.

With spot market prices in Scandinavia today hovering around DKK 0.10-0.12/kWh, owners of turbines more than ten years old fear they are facing a future after January 2002 -- the launch date for the green credit exchange -- when their income could drop to DKK 0.20/kWh, just one-third of the DKK 0.60/kWh they would have received under the old system.

Meantime, wind turbines installed from start 2000 will receive DKK 0.33/kWh for ten years, plus income from trading green credits, so their payment will range from DKK 0.43/kWh to DKK 0.60/kWh.

Regrettable error

Responding to fierce objections from the owners association, the Danish energy agency says the first announcement of the new regulations contained a "regrettable error." The dispute is now deadlocked in political manoeuvring among the parties to the energy market accord. The ruling Social Democrats (SD) are being held to ransom on the issue by the right wing Venstre party. If SD wants to improve the lot of the wind turbine owners, Venstre is demanding an easing of the market reform regulations for the traditional utility sector. The third party in the accord, the Socialist People's Party, refuses to back Venstre.

At its annual meeting on March 18, the turbine owners association voted to investigate its basis for suing the state. Kai Worsaae of the energy agency, responsible for the first and second interpretations of the regulations, declines to comment on this turn of events. He adds, however, that he does not feel the first official announcement of the new market structure was precise enough to have exposed the state to court action.

Denmark is aiming to meet 20% of its electricity from renewable sources by 2005 and 50% by 2030. The aim of the electricity reform is to ensure a system of fast renewables growth at least cost by relying on the market to reward the most competitive players.

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