Wind project first beneficiary

As the Dutch energy sector gears up for market liberalisation on January 1 and the beginning of trade in renewable energy credits, a new wind project will be among the first to generate "green labels" as well as kilowatt hours. The new market for green electricity will be driven by a covenant under which all Dutch electricity distributors are committed to securing some 1700 MW of their combined electricity sales from renewable resources by the end of the year 2000 -- a capacity corresponding to 3% of electricity supply in the Netherlands.

Significantly, at least one utility is already bent on securing its position in the new market through wind power. In a recent deal, effectively the first under the new green label system, the North Brabant power distribution company PNEM moved outside its regional distribution area to sign a ten year contract with De Kneeshoek BV, the developers of a 4.8 MW wind park in the Anna Pauwlona district of North Holland. The plant of eight Micon 600 kW turbines in line formation is due to start operation in January and should supply some 10 million kWh a year.

According to Okko Kaan, one of the four North Holland farmers who founded De Kneeshoek, the deal was first mooted at the World Sustainable Energy Conference in Amsterdam in May this year and followed two and a half years of fruitless negotiations between the developers and local utility Energie Noord West (ENW). "Within ten days of speaking to PNEM we had an outline agreement," says Kaan, who deplores the arrogant attitude of the ENW negotiators. They seemed to think we wanted to erect the wind turbines simply for the good of the environment, rather than profit he says.

The rate agreed between Kneeshoek and PNEM has not been disclosed but is described by Kaan as "adequate." That Kaan and his associates were finally able to go ahead with the project was due in large part to the imminent liberalisation of the market and the introduction of the green label system.

Cash and credits

Under the new electricity law, local energy distribution companies (LEDCs) such as ENW are obliged to connect renewable energy producers such as Kneeshoek to the grid and to buy their power at a price determined by the current rate for electricity bought in from central reserves (NLG 0.07/kWh), plus an ecotax percentage (NLG 0.05/kWh). Although this may cover the cost of production, it leaves no margin for profit. This is realised by the producer through the green credits system.

Credits, green labels, are obtained from the LEDC. As well as buying the power, the LEDC is also obliged to issue the producer with green labels to the value of the power supplied to the grid. As of January 1, the producer will be able to realise his profit through trade of these certificates on the open market. According to Peter Niermeijer of utility association EnergieNed, this will be the favoured business option for independent renewable energy producers in the future.

Non compliance penalty

If a utility is unable to produce the requisite number of green labels on the date of audit it will be compelled to make up the deficit out of another utility's surplus at a fixed price slightly above the current market rate. In practice, Niermeijer suggests, the consequences of the utility covenant with government should be twofold. "On the one hand we are likely to see all utilities trying to build up roughly similar stocks of green labels, while at the same time trying to have slightly more than their competitors."

Further, he predicts the launch of the green label system will bring about a diversification of the renewable energy market. "Under existing Dutch law it is already possible for anybody with the necessary planning permission to open a wind farm anywhere in the Netherlands, but to date this was just not done." Now, he says, we will see it "being done with increasing frequency."

In practice, he says, utilities in inland areas with poor wind resources, such as Mega Limburg, can be expected to adopt a number of strategies in the effort to fulfil their quota commitments. They can develop their own wind farms in areas where the wind resources make it economically viable; they can take out contracts with independent producers; or they can buy green labels directly on the market. According to Niermeijer, companies will probably follow the example of PNEM and adopt a variety of options in order to "spread the risk."

Officially PNEM is down-playing the importance of the green label acquisition, saying that the deal was motivated primarily by the company's need to "satisfy demand for its green electricity scheme." In the deal between PNEM and Kneeshoek, the green labels will pass directly from ENW to PNEM. But PNEM will also be entitled to offer the contracted kilowatt hours for sale under its green pricing scheme, launched in 1995 and under which some 14,250 customers currently pay a premium price for electricity generated from renewable resources with the proceeds being ploughed back into development of clean electricity. The kilowatt hours contracted from Kneeshoek will enable an additional 3300 North Brabant households to buy clean electricity generated in North Holland.

The wind fund averages a return on investment of around 3%, Steiner says. "But given that gross returns are equal to net returns [because of the tax break on green investments] this compares with an average 6% return on investment from a normal fund, " he adds.