Confidence in Dutch market shattered -- Parliament fights to save axed renewables subsidy

In a shock decision which left the wind industry reeling, Dutch minister for economic affairs Joop Wijn cancelled the Milieukwaliteit ElektriciteitsProductie (MEP) subsidy underpinning the entire renewable energy market in the Netherlands on August 18, with immediate effect. The ensuing political uproar led to a series of parliamentary debates still ongoing late last month, with a vote scheduled for early October on whether to reinstate the MEP or institute a transition arrangement until a new energy policy is mapped out.

While the wind industry knew the MEP was under review, no one had expected it would be stopped in its tracks. But the Netherlands faces a general election in November and most in the industry have their suspicions that the Dutch government's decision to drop the MEP is a cost-saving exercise it can offer up as a sweetener to the wider general electorate in the run up to the elections.

Expected to last

Meaning "Electricity Generation Environmental Quality," the MEP was introduced on July 1, 2003, and expected to last for at least ten years. It applies to all renewable energy generation. The level of subsidy per kWh is set by the government and laid down in the Ministerial MEP Grant Scheme Regulation, which is implemented by EnerQ, a government agency.

In stopping the MEP in its tracks late in the afternoon of Friday August 18, Wijn cited EnerQ statistics demonstrating that the 9% renewables target for 2010 will be reached by projects built or on the way. By 2010, 10.5 TWh will be produced by projects awarded the MEP subsidy and 1.2 TWh from projects that do not get the subsidy. "That was the target, there is no reason to continue," said Wijn, arguing the budget has been totally used and there is no more money.

The MEP subsidy will have cost EUR 685 million in 2006 and will decline to EUR 640 million in 2010. Renewable energy production increased from 3.3% in 2003 to 6% in 2005, indicating the success of the MEP-driven market. Now it is up to the next cabinet to decide how to proceed and if there should be higher targets, says Wijn.

Calls for compensation

The Dutch parliament is calling for adequate compensation for withdrawal of the subsidy. Currently Wijn is offering EUR 70 million to cover the losses of anybody who has actually started a wind project in expectation of the MEP subsidy. He also proposes separate smaller fund of EUR 27 million available for ten years for household renewable projects, excluding wind. Parliament also wants this sum increased and the timeline extended. Unless more money is included or flexibility, parliament vows to vote against Wijn's proposals.

Reaction to Wijn's peremptory decision to axe the MEP has been fierce. A "surprised and shocked" Netherlands Wind Energy Association (NWEA) says the decision, if not reversed, means that 2500 MW of wind development will be lost. The Interprovinciaal Overleg, or Inter-province Organisation (IPO), states that scrapping the subsidy is a violation of agreements with local government authorities, each of which has set targets for wind power development under the national government's 2010 BLOW target. But it was always understood that the 1500 MW was a minimum aim for the councils.

The IPO says "permanent damage" to renewable energy development will be caused by Wijn's peremptory axing of the MEP. Provinces had made huge efforts to find locations and change local plans, with the result that more than 1700 MW was due to come online by 2010 (Windpower Monthly, March 2006). It was never suggested that once the target was reached the subsidy would stop. The Dutch government is dropping a great chance to continue a highly successful mechanism, adds the IPO. The province of Groningen in the far north says it is an "accountant action without vision."

Severe loss

NWEA describes the decision as a "slap in the face" and a "severe loss" for the many companies that have been developing wind projects. Moreover, the minister's lack of vision is robbing the Netherlands of the opportunity to avoid the future high cost of energy.

Diederick Samsom, renewables spokesman for the Dutch Labour party PvDA, argues that it is not true that targets have been met and even if it was true, it is no reason to axe the MEP. The BLOW target had always been modest, he argues. The decision is unfair to the companies and farmers that have already invested in gaining site permits and other development work. Some have even gone as far as pouring the concrete for foundations. "There is no way investors are coming back any time soon," he warns.

Wearing two hats, Mathieu Kortenoever from project developer E-Connection and from PAWEX, the association of independent wind turbine developers, points out that both NWEA and PAWEX were in discussions with the government up to the announcement. "There was no hint of a suspension of MEP." He says they knew it was being reviewed but thought that they were having "constructive and open discussions with the ministry." A few days later the subsidy was suspended.

The ministry of economic affairs had previously stressed the importance of a stable and consistent investment climate, he points out. "I do not know how this suspension is supposed to be a stable investment climate." In addition, there are many projects going through the siting appeals process. If the government says that 1500 MW is sufficient, the councils are not likely to grant licenses for any new wind farms, he adds. Although too early to see the direct impact, Kortenoever estimates that at least 500 MW will be heavily delayed.

"The government could have said that it was an option and asked us about the consequences for the industry. Our confidence in the government as a solid partner for renewable energy is shattered."

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