Denmark

Denmark

Depressing signals from new government -- Denmark still in limbo

Denmark's domestic wind power market remains in a holding bay for the third year running, still waiting for the introduction of green credit trading as outlined in the country's electricity market reform in 2000. The change of government in November from centre left to centre right has not helped. It saw the demise of the entire energy ministry and announcements of drastic cutbacks in the renewable energy budget. Just 135 MW was erected last year, compared with 603 MW in 2000 and 315 MW in 1999.

Not anxious to see more wind plant on land, the new Danish government is reducing the fixed wind tariff. But rules to stimulate replacement of hundreds of old and outdated turbines are on the way, as are tenders for offshore wind farms

Denmark's domestic wind power market remains in a holding bay for the third year running, still waiting for the introduction of green credit trading as outlined in the country's electricity market reform in 2000. The change of government in November from centre left to centre right has not helped. It saw the demise of the entire energy ministry, now absorbed into the finance ministry, and announcements of drastic cutbacks in the renewable energy budget.

Proposals put forward by the new government for yet another interim arrangement for wind power -- supposedly until green credit trading starts -- closely follow those announced by the previous Social Democratic government, when Svend Auken was still at the helm of a combined environment and energy ministry (Windpower Monthly, November 2001). Under his nine year rule wind power development flourished in Denmark thanks to a long term program which obliged utilities to buy all the output from privately owned wind plant at a fixed average price of DKK 0.60/kWh. That program, however, came to an end for new turbines in 2000 and the promised new market framework -- an obligation on all consumers to buy a specified proportion of their electricity from renewable sources of energy facilitated by trade in green credits -- has yet to materialise.

The result has been a sharp decline in the number of wind turbines installed in Denmark. Just 135 MW was erected last year, compared with 603 MW in 2000 and 315 MW in 1999. A market stimulus program to encourage a nationwide repowering of old wind plant (many have been running for more than 15 years) with new state-of-the-art technology has so far been a dismal failure.

The new centre-right government's proposals for a wind market framework are currently the subject of intense negotiation. But since they are based on proposals put forward by the previous government they are not a partisan issue and are thus expected to win cross-party support from a firm parliamentary majority. The finance ministry's proposals rest on five main pillars.

offshore out to tender

First, the obligation on Denmark's utilities to build five offshore wind farms is being reduced to the two projects now being developed at Horns Rev and Rødsand. The three remaining projects, off the island of Læsø in the northern Kattegat Sea, on Ømo Stålgrund in the Great Belt between the main islands of Zealand and Funen, and at Gedser in the Baltic Sea off south eastern Denmark, are to be put out to public tender.

Although removal of the offshore obligation was presented by the general press, both at home and abroad, as a halt to offshore wind development in Denmark, the alternative tender approach has long been a suggestion of the Danish wind industry. It was announced by Auken as far back as October (Windpower Monthly, November 2001). Significantly, although utility Elsam has been freed of its obligation, the company has nonetheless been among the first to express its interest in tendering for one or more of the three offshore projects.

Second, new fixed prices payable by utilities are being discussed for the around 2000 of Denmark's more than 6000 wind turbines which will no longer qualify for subsidies due to their age. It is proposed that their remuneration drop from DKK 0.43/kWh to a maximum of DKK 0.385/kWh. Under the market reform legislation, all turbines installed before January 1, 2000, continue to receive DKK 0.60/kWh for their output, but up to a limit of 12,000 full load hours of operation. Once that threshold is passed the buying price drops to DKK 0.43/kWh until the turbine has reached its tenth birthday, after which the price drops again -- to the maximum DKK 0.385/kWh under discussion. The price proposal for new turbines, including the first two offshore plant, is DKK 0.43/kWh for 22,000 full load hours.

Third, the long awaited green credit trading market, the foundations of which are to rest on an obligation on all electricity consumers to prove through the ownership of green credits that a fixed proportion of their electricity consumption had been bought from wind plant, is to be postponed. When the system is eventually introduced, wind turbines will only be eligible for green certificates for a maximum of 20 years. The wind lobby in Denmark has fiercely objected to the structure of the green market currently proposed, pointing out that as planned it will most likely push the price of wind power to beyond the level of the current fixed prices.

Fourth, the negotiating parties are discussing the pros and cons of removing the obligation on Denmark's utilities to buy output from wind plant. This could lead to a demand that wind power pay its share of keeping supply of electricity in balance with demand, a cost currently set at DKK 0.03/kWh.

The fifth proposal is for an extension of the fledgling repowering market, a strong demand of the wind lobby as it has barely had a chance to get under way. It encourages the owners of older and smaller turbines to reinvest in state-of-the-art technology by offering them a higher rate of remuneration for output from their new turbines.

On coming to power the centre right government of Anders Fogh Rasmussen immediately said it would drastically cut wind power subsidies, apparently in a bid to score political points with electricity consumers. During the election campaign -- and prior to it -- consumers had repeatedly been told that wind power was largely to blame for steadily rising electricity bills. Since the government's first announcement of cuts, however, it has admitted that as a party to the electricity market reform in 2000 it also agreed to the current wind regulations. As such it has put its name to a price policy set for ten years. Only when turbines have passed both their allotted number of full load hours and tenth birthday do they leave the transitional market.

That will be the case, however, for 2000 turbines on January 1, 2003. It was this group which saw its remuneration drop from DKK 0.60/kWh to DKK 0.43/kWh after the market reform in 2000. The next step will be into the open market at the start of next year, although they will qualify for a bonus of DKK 0.10/kWh in lieu of the fixed minimum income that would have come from sale of green credits had that market gone live. The current NordPool spot price is DKK 0.15/kWh. Together with the bonus, the resulting payment amounts to DKK 0.25/kWh.

If turbine owners have no choice but to accept this relatively low rate, and if some go bankrupt as a result, then so be it, says the new government. Along with its hard line on limiting price subsidies, the government has also removed state support for a series of advisory committees and institutions within the field of renewable energy and the environment, wind power groups included.

TWENTY BILLION TURNOVER

Both Denmark's publicly traded wind turbine manufacturers, Vestas and NEG Micon, are not due to publish their annual accounts until this month. The expectation, however, is that the Danish wind industry, which includes privately owned Bonus and the Danish manufacturing arm of German Nordex, will have sold turbines for around DKK 20 billion (EUR 2.69 billion) in 2001, compared with DKK 12.22 billion (EUR 1.64 billion) in 2000.

Fully 90% of this turnover is accounted for by exports, with the Danish industry continuing to hold its share of a booming market. Global market growth, however, is expected to slow this year owing to a severe contraction of the US market arising from the failure of Congress to extend the federal Production Tax Credit for wind, an effective price subsidy.

In Denmark most of the 135 MW of wind development last year was either undertaken by the utility sector or in the form of repowering of old projects. Indeed, the replacement of older wind turbines with newer and much larger machines could lead to a fall in the number of turbines on Danish soil for the first time in 25 years, though wind power production capacity will continue to grow.

The wind blew less in Denmark in 2001 than in any other previously recorded year. This meant that the country's wind plant only met 12-13% of overall electricity consumption instead of the expected 16-17%. The government is justifying its decision to remove the offshore obligation on utilities by pointing out that Denmark will already exceed its aim of meeting 20% of consumption with wind power in 2003. By next year the expectation is that renewable energy will meet 27% of demand, with 21% coming from wind and 6% from biomass.

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