Wind farm a major part of emissions trade -- Dutch strike Kyoto Joint Implementation deal with Poland

The Dutch government is exploiting the Kyoto protocol's Joint Implementation mechanism to move forward on its strategy for reducing carbon dioxide emissions. Dutch multi-utility NUON is to join forces with Vestas and Poland's Project Service Enterprise EPA to build a 60 MW wind farm in north west Poland using 2 MW wind turbines. The Dutch government says the project demonstrates that contrary to the belief of George Bush, "it is possible to work with the Kyoto protocol without putting your competitive position at risk."

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Construction of a 60 MW wind farm in Poland is a central element of the Dutch government's strategy for reducing carbon dioxide emissions, which exploits one of the Kyoto protocol's much discussed flexible mechanisms, Joint Implementation (JI). Dutch multi-utility NUON is to join forces with Vestas and Poland's Project Service Enterprise EPA to build the wind farm at Skrobotowo in north west Poland using 2 MW wind turbines.

The deal reveals that the Dutch believe emissions trading will happen without ratification of the Kyoto protocol for a global agreement on CO2 reduction. "Joint implementation was also approved by the Rio protocol, so the non-ratification of Kyoto has no direct implications for these deals. Obviously it's not ideal, but as far as we are concerned it's business as usual," comments Egbert Liese of Senter, the government agency responsible for administering the Netherlands' CO2 reduction funds.

Generating electricity from wind energy is one of the cheapest ways of creating emission credits. The cost of mitigating one Emission Reduction Unit (1000 kg CO2 equivalent or ERU) with power from the Poland wind farm will be EUR 8.75/ERU, compared with EUR 5.0/ERU from a hydro plant in Romania, EUR 9.0/ERU for biomass in the Czech Republic and EUR 9.08/ERU for two urban cogeneration projects, again in Romania.

Showing Bush the way

Announcing the JI projects early last month, Dutch economy minister Annemarie Jorritsma was quick to score a political point against the United States. She said the move showed that US opposition to the Kyoto protocol was misplaced. "President Bush believes that the ratification of the treaty is harmful to the economy. We have demonstrated that it is indeed possible to work with the Kyoto protocol without putting your competitive position at risk," she said. Indeed the government still seems keen to pursue its full Kyoto program of buying 50 million tonnes of greenhouse emissions reductions -- 125 million tonnes of C02 credits -- from other countries. The total reduction, using 1990 as a baseline, is to be secured between 2008 and 2012, Kyoto ratification or not.

The Skrobotowo wind farm, which is tentatively scheduled to go on-line January 1, 2003, is one of a series of Dutch energy projects in central and eastern Europe which will use the JI mechanism to book domestic emissions reductions through investment in foreign projects. Alongside the wind farm, the Dutch government has signed contracts for several biomass fuelled boilers in the Czech Republic and a hydro plant and two urban heating projects in Romania. In total they will cost some NLG 79 million and should secure more than four million CO2 emissions reductions.

Under the JI mechanism, these reductions will be transferred to the Netherlands' own Kyoto account. To help reach the 50 million ton reduction target, the Dutch set up the Emission Reduction Unit Procurement Tender (ERUPT) last year as a tendering process for government to buy emissions reductions from qualifying projects. The sale of emissions reductions from renewable energy projects increases the return for renewables investors, enhancing the feasibility of the projects.

In Poland where 95% of power is generated from 20-30 year old coal plant, the government is trying to stimulate renewables demand through a quota system where utilities will have to prove that in 2001 2.4% of the electricity sold is generated from renewable sources. This percentage rises each year to 7.5% in 2010. To date, however, the number of MW installed wind capacity is negligible and consists only of small stand-alone units.

The Skrobotowo wind farm will be constructed on a turnkey basis by the Danish turbine supplier, Vestas, in collaboration with Szczecin-based project developer EPA. NUON will be main shareholder in the "special purpose company" which will develop and operate the plant. The wind farm is expected to generate about 125,000,000 kWh a year. The turbines will be installed in four groups around the village of Skrobotowo near the shores of the Baltic. Accessibility is reported to be excellent and a 110 kV power line traverses the area providing easy grid connection. Construction is tentatively scheduled for April 2002 for a finishing date in November that year.

Joint developers

During the current "pre-investment phase," which extends until February 2002, the developers will be arranging a power purchase agreement with a local utility; securing construction and work permits; conducting detailed wind and environmental impact studies; micrositing the turbines and arranging the finance.

EPA and NUON will act as joint developers to the point of financial closing. NUON will own and operate the wind farm, selling output to a local energy company at a price of at least EUR 0.06/kWh. Vestas and EPA will be responsible for maintenance and operation services. Poland's National Fund for Environmental Protection and Water Management, which supplies debt financing to environmentally beneficial projects, is also interested in taking an equity share in the venture.

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