New law sparks hope but for a serious flaw -- Denmark still dormant

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Denmark's wind industry is hoping that a new cross-party political agreement, which includes development of wind power on land and offshore, will bring a long dormant market for turbine sales back to life. Little development activity has been seen since 2001, when the government dismantled a long existing market structure based on mandated power purchase prices for wind power.

High electricity prices in Denmark over the past year, driven up by steep oil prices, also drove up purchase rates for wind power, sparking new interest from commercial wind project developers, landowners and local citizens in turbine ownership. Electricity from newly installed wind turbines is sold at market prices, plus an incentive payment in recognition of its environmental benefits of DKK 0.25 (EUR 0.034/kWh). The incentive is payable on electricity produced for the first 22,000 hours of operation at the equivalent of full load, or about 12 years on a site with average winds in Denmark. The maximum period for which the incentive is payable is 20 years.

That market structure, however, lacks the stability required for more than sporadic investment. Although electricity prices soared over the past year as oil prices peaked, at one point driving up revenues for wind plant owners to the double of what they were in 2007, they have since dropped back to less than DKK 0.033/kWh (EUR 0.044/kWh).

Proposed new projects have no problem finding potential investors in a country where citizen ownership of turbines has been the norm. About 5% of all households owned shares in wind plant in the 1980s. The new law now offers financial support for project start ups, a right of purchase for nearby residents of 20% of any project, and support for local authorities hosting new wind turbines in their areas -- all with the purpose of rekindling local involvement in wind power development.

But a highly controversial ruling on compensation for neighbours to new wind turbines can effectively prevent turbines being installed. The compensation rule became part of the political agreement despite massive protest, not only from the Danish wind lobby but also from the broad energy and agricultural industries and many legal experts. They argued that compensating neighbours to wind turbines sets a dangerous precedent that could hinder the development of all other essential infrastructure and agricultural installations.

Some repowering

Wind power capacity increased from 3124 MW to 3180 MW during 2008, development that was nearly all undertaken under a five-year program to encourage the repowering of Denmark's aging wind turbine fleet with new technology. The capacity increase reduced the total number of turbines in the country from 5212 to 5179 as small machines were replaced with new and bigger turbines. The replaced turbines are often renovated and sold to developing markets, particularly in eastern Europe. Removal of old turbines gives the right to install double the former capacity and provides access to an extra bonus of DKK 0.08/kWh (EUR 0.01/kWh) for each kilowatt hour produced.

Most recently, large Swedish utility Vattenfall, one of Denmark's main wind plant owners, removed 77 turbines that were up to 20 years old, with rated capacities of 130-300 kW. They are to be replaced by 13 Siemens 2.3 MW turbines.

For existing turbines that are more than ten years old and no longer receiving premium payments, the total price paid is capped at DKK 0.36/kWh (EUR 0.048/kWh). Whenever market prices reach the cap, no incentive bonus is paid. When prices were high last year, many wind plant owners managed to agree long-term power purchase contracts with electricity retailers for several years forward.

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