Danish market reform falters again -- Fog of uncertainty surrounds start of green power market

Three years after the first announcement of a major reform of Denmark's wind power market -- and two years since the reform was last put on hold -- the government appears to be contemplating yet another postponement of the start to green power trading. Fears for the workability of the proposed two-part trading system for green electricity and green power credits -- due to come into force in January 2002 to replace the existing system of fixed tariffs for wind output -- are behind the latest bout of serious cold feet.

Fuelling the uncertainty, questions are being raised in parliament about the need for additional land based wind generating capacity. With more than 6000 turbines on land, wind power is meeting nearly 20% of the country's electricity needs, two years ahead of schedule. Although the aim is to secure 50% of electricity from wind power by 2030, much of this is to be achieved through offshore development and already a massive program of offshore wind plant construction is under way (page 29). Furthermore, the repowering market alone -- stimulated by a government package which rewards the replacement of existing wind turbines under 150 kW with state-of-the-art technology -- is expected to result in another 500-750 MW on shore.

Such is the level of political uncertainty about how to achieve what and when that nobody has been told how the complex green power market will work -- with just two months to go before its official start. This is exactly the situation the wind market found itself in two years ago (Windpower Monthly, December 1999). The details released so far have been fiercely criticised by the wind power lobby. Transition arrangements from the old system to the new, say critics, mean that only a limited number of credits, or green certificates, will be set loose on the market from the start, making a proper trading system impossible.

Behind closed doors, representatives from the whole range of political parties are now discussing a series of options to reduce the cost to consumers of wind power while safeguarding the investment in wind plant already made by thousands of citizens. At a first meeting on October 23, a series of potential solutions were discussed.

The options

First, introduction of green certificate trading could be postponed for two years. Instead of awarding green certificates to wind power producers emerging from the market transition arrangements, the proposal is to grant them a green bonus of DKK 0.185/kWh on top of the price they contract for their electricity on the open market. About 2000 MW of Denmark's 2400 MW of wind generation is currently covered by the transition arrangements, which guarantee a premium price for long enough to give owners a "fair opportunity" to pay off their loans: turbines with rated capacities under 600 kW receive DKK 0.60/kWh until they have operated for a theoretical 15,000 hours at full load; turbines over 600 kW get DKK 0.60/kWh for 12,000 full load hours.

Second, it is proposed that new wind turbines get a fixed price of DKK 0.43/kWh for 22,000 full load hours before being required to secure a commerical power sales contract. The DKK 0.43/kWh is instead of income from sales of green certificates plus DKK 0.33/kWh for ten years, as outlined in the existing statutory instrument.

The aim of the intended green power market, which now looks like being postponed, is to bring down the cost of wind power by introducing competitive market forces to replace Denmark's decade-old system of fixed premium tariffs. Under the system, market demand is stimulated by requiring all consumers to buy a fixed proportion of their electricity from renewable energy sources. Wind power producers sell electricity to licensed distributors for whatever price they can achieve in a sales contract, receiving green credits in relation to the amount of electricity they sell. The distribution utilities then competitively bid for the certificates on an electronic trading exchange to meet quotas fixed by government for the renewable content of the power they supply. Concern about the proper working of this exchange -- which sets a bottom limit of DKK 0.10/kWh for green certificates and caps them at DKK 0.27/kWh -- lies behind the call to postpone the reform

Repowering market

Meantime, the parliamentary energy committee is also proposing extending the repowering stimulation package by a year to 2004. Owners of turbines rated at 150 kW or less can reinvest in a turbine up to three times the capacity of their existing machine and receive DKK 0.60/kWh for 12,000 full load hours, instead of the lower rate now on offer for new turbines. The aim is to stimulate the replacement of around 2600 turbines, many of which block good sites or are poorly sited. But requirements for extensive environmental impact studies make the 2003 deadline impossible to meet. Denmark's wind turbine owners association has long called the package a "fiasco" and now welcomes the proposal for an extension.

It is far from happy, however, with a proposal from the energy ministry to limit the period for which turbine owners receive certificates to 20 years, again with the aim of encouraging the replacement of old and ineffective turbines. "There is no reasonable ground for this proposal. It might encourage owners to scrap their old turbines for lack of income, but it also appears to be an unnecessary provocation for the 150,000 families who own wind turbines or have shares in them," says association chairman, Flemming Tranæs.

Offshore change of Tack

The government is also proposing that the last three of the five offshore demonstration projects ordered from the country's utility sector instead go out to international tender. The aim of this commercialisation of Denmark's offshore wind development appears to be to cut costs and speed up construction of the three wind stations for which sites have been picked, but for which contracts have yet to be signed with technology suppliers.

One of the reasons the government cites for this change of tack is to give electricity consumers and small investors in Denmark the option for continued involvement in wind plant ownership -- despite the broad shift in policy away from local ownership of local wind power plant which the market reform entails.

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