Denmark

Denmark

Trail blazing support system nears launch -- EU approves Danish law

Denmark's electricity market reform -- including legislation mandating a minimum level of wind power in the national electricity portfolio and a system of tradable green energy certificates -- passed a vital hurdle on September 20 when the EU Commission announced that it did comply with EU state aid rules. The new market mechanism will take force as soon as the regulatory details have been laid in two statutory instruments, probably in November or December.

Energy and environment minister Svend Auken says he is convinced the EU approval will allow Denmark to become a model for other countries in providing efficient support of renewable energy with the aim of meeting their greenhouse gas reduction commitments under the Kyoto protocol. The new law replaces Denmark's system of fixed premium wind power tariffs with a support framework where price is dictated by market forces and demand stimulated by government. In approving the law, the commission stressed that the "benefit" of a market based support mechanism is that it "contains an incentive for producers to reduce their production costs."

Under the new support system, about 2000 older wind turbines will become ineligible for Denmark's existing fixed wind tariff of DKK 0.60/kWh. Newer turbines, those likely to still be paying off their loans, will have a period of grace under a transitional arrangement. Brand new wind plant -- those for which a turbine purchase contract was signed after January 1, 2000 -- will receive DKK 0.33/kWh for ten years plus income from sale of green certificates from 2002. Until trade in green certificates starts, producers will also receive DKK 0.10/kWh, the lower price limit set by government for certificate sales. A cap of DKK 0.27/kWh will also apply to certificate prices.

Two free markets

After ten years producers must sell their electrical output on the open power market, but may continue to sell green certificates separately, for the highest obtainable bids. Commission approval is still awaited for the ten year period of price protection before wind producers are forced into competition with fossil fuel and nuclear plant. "These rules will be approved come the new year when the Commission expects to have its general rules for environmental state aid ready," assures Auken.

From 2002, the Danish law obliges all consumers to surrender green certificates to a central authority to demonstrate they have bought sufficient renewables power to meet the national Renewables Portfolio Standard (RPS). This standard -- a minimum level for the percentage of renewables in the national power portfolio -- will be set by government. It wants 20% of Denmark's electricity to come from renewables by the end of 2003. Household and small business consumers will be represented on the green credit market by electricity retailers. Those who do not comply will face a fine of DKK 0.27/kWh payable to the state. Fine revenues will be used to buy excess green certificates.

Transition rules

Transitional protection will be afforded to most of Denmark's 6000 existing turbines, or 2000 MW of capacity, based on the number of full load hours for which a turbine has operated. Wind turbines with rated capacities under 600 kW may continue to receive DKK 60/kWh until they have operated for 15,000 full load hours, though most units of this size are older turbines which have run for longer than this limit. The limit for turbines larger than 600 kW is 12,000 full load hours (600 kW x 12,000 = 7.2 million kWh at DKK 0.60/kWh). From that point the tariff drops to DKK 0.43/kWh until 2002, or until the turbine is ten years old. After 2002 (or a tenth birthday), the same rules apply as for new turbines after ten years of operation.

Added incentives exist to encourage the owners of about 1300 older turbines rated at 100 kW or less to scrap these machines, which often block good sites or are sited in areas not approved for wind development, and reinvest in state-of-the-art technology. These old turbines are past the 15,000 full load hours limit. By scrapping a turbine, an owner can invest in three times its capacity and receive the DKK 0.60/kWh high tariff for 12,000 full load hours. The rule, however, has given rise to speculative purchases of old turbines by commercial developers eager to exploit the "three times capacity" bonus by erecting a new turbine which is still eligible for the old high tariff.

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