Netherlands

Netherlands

From policy success to market jitters

In the struggle to create a single European energy market for seamless

cross-border trade of electricity and gas, the travails of wind power are a

minor sideshow. But for the Netherlands' wind sector, the failure to introduce a framework for EU-wide trade in renewable energy certificates has killed off a thriving market. Perhaps America's lead in creating a tracking system for green tags (page 48) can give the EU some much needed inspiration

The recent issuing of some 320,500 Guarantee of Origin (GoO) certificates to Holland's renewable energy producers is the capstone of Dutch attempts at international market facilitation. The certificates guarantee that production of electricity from renewable sources of energy during January really was green. Effectively, the publication of the certificates implements the final element of the country's EU compliant renewables support package. Under the EU's renewable energy directive from 2001, all countries must introduce a mechanism for guaranteeing the origin of green power.

The Dutch GoO certificates currently have a market price of EUR 29 for each certificate, which is intended to reflect the added environmental value of one megawatt hour of renewable energy. Significantly, the certificates can be traded throughout the EU, like any other commodity, and sold to power suppliers, while under Dutch law they can be cashed in at the tax office, providing extra revenue for wind power generators. This revenue has often made the difference between a project being financially viable or not.

In practice, however, there is no border trade and the tax credit is nearing an end. The mesh of national subsidies for wind power across Europe is a barrier to certificate trade over national boundaries because of the cross subsidisation and severe market distortions that would result. And in the Netherlands, the option to turn the certificates into cash is being phased out. The Dutch tax rebate is not available from 2005.

It is an ironic fact that the introduction of GoO certificates in the Netherlands coincides with the de-facto end of the country's experiment with a market based support system for renewables, based on certificate trade. Holland is essentially reverting back to reliance on flat rate subsidies to stimulate wind power development. Its open-border market policy led to spiralling demand for green power, along with a rush of cash out of the country as consumers bought foreign green power (subsidised by Dutch tax credits) when domestic generation was sold out. According to industry commentators, the policy turn around will have subtle but far-reaching implications for Dutch wind energy producers and could bring private sector investment in the industry to a halt.

The end result is that the sole purpose of the certificates in the domestic market from 2005 will simply be for power retailers to prove their green electricity comes from validated power sources. Without that validation, the power is not eligible for marketing as green electricity.

Across borders

Renewable power producers and cross border retailers of electricity will technically be able to sell new certificates abroad and, according to Jan Voorink of CertiQ (which issues the certificates), several firms have already applied for export licenses. But there is no EU-wide market for certificate trade and many of the details of selling over national borders have yet to be worked out. "The guidelines on implementing the GoOs in the directive were minimal," says Voorink. "At the moment we are still fine tuning trading interfaces. Some countries don't distinguish between onshore and offshore wind for example, and distinguishing between different types of biomass is a real problem."

Many of the Netherlands' independent wind energy producers have already sold their certificates to electricity retailers under long term power purchase agreements (PPAs). So with a price of just EUR 0.021/kWh for the physical power they generate, the loss of the GoO value as of January 2005 will be a blow for new generators and companies with production capacity not yet sold under PPAs. Retailers will also be hit. Their green power marketing programs have been hugely successful at pulling in customers, resulting on contracts to supply some 2.2 million Dutch households with seven million megawatt hours of green electricity annually.

On current evidence, CertiQ estimates that it will issue only three million certificates to Dutch renewables producers this year -- less than half the green power contracted for. As a result, from 2005 Dutch retailers will have to buy around four million certificates abroad, or a little less if new capacity is built, to meet their contract obligations, but without the EUR 29/MWh tax rebate to finance their shopping expedition.

Unresolved

Even if agreements can be struck with other countries for purchase of that volume of certificates from foreign sources without resulting in double-subsidies to the seller, that is not the end of the problem, points out Peter Niermeijer of the Renewable Energy Certificate System, a grouping of power industry interests behind a European movement for internationally tradable green certificates.

"Most importantly, it's still not clear whether a country's renewables obligation under the directive should be based on renewables production or renewables consumption. At the moment it looks like most member states want to stick to a production target, which will discourage trade," he says. "But I wouldn't be surprised if we see bilateral agreements between countries like the Netherlands and Italy or Finland, where they agree to count imports and exports towards national totals."

Niermeijer is not holding his breath for a solution soon. "The short answer is that nobody knows what is going to happen. It's not even certain that the tax rebate will be phased out completely. Perhaps we will see it form the basis of a number of reciprocal agreements," he suggests.

According to Heddeke Heijnes of independent green electricity market monitor Green Prices, power retailers are playing their cards very close to their chests. She too does on believe abolition of the tax rebate option to be a foregone conclusion. "I think they are waiting to see what happens, whether [the rebate] will really be abolished -- there are certainly contradictory signals coming from the government in that respect. If it is abolished, I think many green consumers will switch back to grey power and the problem will be partly resolved in that way. But at the moment it's very much wait and see."

Other observers believe that Dutch power retailers may be able to find guaranteed green certificates abroad -- particularly for Austrian hydro power -- cheaply enough to maintain current prices on offer for green power.

Production subsidy

Should the Dutch government insist on abandoning its commitment to marketing the added environmental value of renewable energy separately from the physical power, the prospects for new wind power development in the Netherlands looks bleak, with the incentive for increasing the country's installed wind power capacity severely diminished, argues the wind industry.

In effect, wind power producers will be reliant on a controversial subsidy, introduced in July 2003 under the government's Environmentally Friendly Production (MEP) law, which is currently pegged at EUR 0.049/kWh for onshore wind and EUR 0.068/kWh for offshore. To compensate for the loss of the GoO certificate rebate, the subsidy will increase in January. For onshore wind it will rise to EUR 0.077/kWh, but the industry says that is insufficient to warrant new investment. The alternative -- that retailers will increase the price of green electricity to the point where customer demand is eroded -- is no solution either.

Pulling down turbines

The MEP subsidy is intended to cover the additional cost of renewables generation. As such, it is payable only for the first ten years of a wind turbine's life or its first 18,000 hours of operation at full load. The regulation, the industry claims, will bring private sector investment in Dutch wind to a grinding halt (Windpower Monthly, December 2003). "If the government persists in this course, we will see owners pulling down their wind turbines after the MEP expires," says Mathieu Kortenoever of independent turbine owner's association PAWEX. "It's quite simply not economically viable to continue operating after the MEP period. Electricity can only be sold for EUR 37.80/MWh while maintenance and insurance costs will run at EUR 39/MWh according to the government's own data."

PAWEX is lobbying for a post-MEP subsidy of EUR 30/MWh for all turbines which are no longer entitled to MEP, but which are still working efficiently. "This reflects the value-added contribution of renewable energy's environmental and social benefits," says Kortenoever. Moreover, it will save the government money, he argues. Assuming the current policy means that developers will only operate MEP eligible turbines, in a few years the government will be paying MEP for all its Dutch wind capacity -- currently at 930 MW and targeted to rise to 1500 MW onshore. Paying a post-MEP subsidy of EUR 30 MWh will reduce the total subsidy bill by keeping technically efficient non-MEP eligible turbines in operation, argues PAWEX.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in

Windpower Monthly Events


Latest Jobs