Tradeable credit theory in practice

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Ten months after its launch, the Dutch system for trading renewable energy credits, or "green labels," on an open market is attracting increasing international attention as Denmark and a number of German utilities contemplate introducing their own tradeable credits schemes. Dutch wind is currently in the doldrums, however, and the "green label" still has much to prove in the eyes of both the domestic and international wind communities. Moreover, a provision in the new electricity act that may oblige end users to buy a certain percentage of their power from renewable resources from 2002 suggests the Dutch system is undergoing a subtle shift of emphasis.

Under the green label system launched by utilities' umbrella organisation EnergieNed in January, local power distribution companies pay renewable energy producers a set price made up of the current price paid for power from the central reserve (SEP), plus an ecotax (REB), which is normally remitted to the revenue service. In addition to this price, the producer is also issued with green labels and makes his profit by selling these back to the Dutch distribution companies on an open market driven by the utilities' voluntary obligation to have secured 1.7 billion kWh of electricity generated from renewable resources by the year 2000. Distribution companies who fail to meet their quota must make good the deficit from another utilities' surplus labels at a price "higher than the current market price but not unreasonably higher."

As such the primary aim of the green label system as originally constructed is to stimulate the domestic renewables sector by adding some 500 MW capacity by the year 2000 -- and most of it from wind. Should it become clear that the system is not up to this job, the government has promised to intervene. At the time of its launch, ministry of economic affairs sources also suggested that after 2000 further targets would be imposed on the utilities, indicating that the market would continue to be quota driven.

Scepticism without grounds

Nearly a year after its launch it is unclear whether that commitment still exists and what, if any, impact the system has had on Dutch renewables in general and wind in particular. Sceptics point to the dramatic decline in the rate of wind power installation, from 102 MW added in 1995 compared to 30 MW added in 1997, as evidence that the end of subsidies has stifled growth. This is unfair. The 1995 figure was inflated by projects being rushed to completion before the end of government subsidies and the 1997 figure was depressed by the absence of any national agreement on tariffs. This year the green label system, only operative for a few months, has yet to have been in force long enough to have any impact.

The false picture of a system not working is further fuelled by the absence of any overview of what is actually happening on the labels market. The World Wide Web site set up by EnergieNed will eventually provide details of the number of green labels issued and an indication of volumes of supply and demand. Software problems, however, have delayed the site, which will only be fully operational in November. In the interim estimating the impact of the green label remains a matter of guesswork.

Mathieu Kortenoever of the Association of Independent Wind Turbine Owners (PAWEX) believes that the system is currently performing "reasonably well." The depressed state of Dutch wind, he suggests, is partly due to the uncertainties inherent in the green label system, but also due to continuing confusion over the taxable status of wind plant. The picture is further complicated by increasing public resistance to the haphazard growth of solitary turbines (traditionally the motor of the Dutch wind sector) which has led to preference being given to large projects. These have proved particularly vulnerable to the notoriously slow Dutch planning procedures.

In the hands of the consumer

Kortenoever's reservations about the green label system centre on the long term. "Uncertainties about what will happen after 2000 will mean that fewer people will be willing to invest in new projects," he predicts. The provision in the new electricity act, which shifts the "green" obligation from the utility to the end user, has important implications, he says. If consumers are obliged to buy a set quota of their electricity in the form of green power they will naturally shop around for the cheapest supplier -- in many cases buying directly from the green producer, a development from which PAWEX members stand to benefit. But should this freedom to shop be extended across borders it could also mean a fundamental change in the role of the green label system as a tool for stimulating the renewables sector nationally.

His anxieties on this score are borne out by EnergieNed's Peter Niermeijer. Like Kortenoever, Niermeijer "feels" that the system is working. For hard evidence he points to the fact that several smaller Dutch power companies who previously had no renewables interests are now active in the market. "That is a clear improvement and its logical," says Niermeijer. "Before, they couldn't invest in renewables because they didn't have the technical expertise, now they don't need expertise [in-house] to become active in the market. And that is precisely the point of this system."

Robust in his defence of green label trading, he is quick to dissociate the system's success or failure from the performance of the wind sector: "We cannot say that because wind is doing badly the system isn't working. The green label means a completely open market, and consequently different forms of renewable energy are in competition with each other. In certain circumstances it will be the case that wind is not the most cost effective choice for a utility." Moreover, Niermeijer is convinced that some variation of the green label system is "the only way forward" in a liberalised European energy market. "There is no question of a return to [tax] rebates," he says. "The issue now is what form of certification system should be employed?"

Truly green

At present, with the European energy market dominated by national monopolies, the utilities can still afford to be green "on behalf of their customers," says Niermeijer. But that situation is about to change, he believes. With the opening of the European market to international competition it seems inevitable that the driving force of the green energy movement will shift away from the utilities to the consumers, with the utilities saying "we can't afford to be green if our competitors aren't." In this situation the primary role of green energy credit systems will no longer be to stimulate national renewable sectors but to prevent fraud by ensuring energy which is marketed as green really is green.

"This is the focus of our present discussions with the Danes and Germans," says Niermeijer. On the basis of these discussions he predicts that cross-border trade in green energy certificates is imminent: "It won't be long before you hear stories of Dutch utilities buying Danish green labels. It hasn't happened yet, but it only takes one project."

If Niermeijer is correct it seems that the rest of Europe may be following the Dutch model whether they like it or not.

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