Concessions won for wind in new deal

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The Danish government's proposal to push wind energy away from subsidies and into the free market is now backed by a cross party parliamentary majority, taking the framework to liberalise Denmark's electricity sector closer to forming the basis of law (Windpower Monthly, March 1999). "It is essential that the future electricity market will be in a position to utilise more competition based mechanisms that can ensure the cost effective development of renewable energy production," says the framework, agreed upon March 3.

While the fine details are still being hammered out, the deal takes into account some of the main criticisms levelled at the original proposal by the Danish wind lobby. Further concessions are being asked for by the Danish wind turbine owners association (DV), which is fighting hard to ensure that existing owners stay out of bankruptcy and that the stranded costs of wind are covered. Behind the scenes, however, the wind lobby is not as aghast at the contents of the agreement as its political lobbying would have the outside world believe.


In the framework, today's guaranteed total payment for wind generated electricity of DKK 0.43/kWh (EUR 0.06/kWh) will only continue "until a well functioning market for wind energy has been established," based on an obligation that consumers buy at least 20% of their power from renewable sources by 2003. This is expected to ensure stable demand and therefore "the even rise of renewable energy production." The exact amount from wind has not yet been established, but today's contribution is about 10%. The obligation is backed by a guaranteed market price for wind power of DKK 0.33/kWh for ten years and a system of green credit trading. Consumers, or their agents, fulfil their obligation by bidding for credits from renewables producers. Those who do not fulfil their credit quota will be fined at a rate nearly triple the minimum price of green credits. This money will then go into a fund to support the establishment of new renewable energy plants, says the document.

Meanwhile, today's DKK 0.17/kWh production incentive will be phased out, depending on the size of the machine. Large turbines over 600 kW will remain eligible for the subsidy until they have operated for 12,000 full load hours -- double the amount of the previous proposal. Most units in this size range, says DV, will thus be able to receive the subsidy for about five years. Machines from 200-600 kW in size lose the payment after the first 15,000 full load hours -- about half the amount of the original proposal -- and the subsidy stops for turbines under 200 kW after 25,000 full load hours. While these figures on the smallest machines have been adjusted in favour of "small farmers" during the transition, DV points out that most turbines of this size were set up in the mid-1980s and have reached the subsidy ceiling already.


DV argues that owners of shares in co-operatively owned wind projects will go bankrupt under the rules of the reform when it is combined with other recent tax reform laws in the country. In an analysis commissioned by DV of one existing project, returns of 13 to 15% will be diminished to -2.6 to 3.6%, "stranding" share owners in an "unfair" scheme where future uncertainty reigns.

The Danish Energy Agency (DEA) dismisses these fears. As the demand for renewables rises in order to meet the obligation for 20% of green power, the price of green certificates will rise subsequently -- resulting in good profits even for poorly placed turbines. "The goal with the coming green electricity market is to receive the same amount of green power at lower costs," says Ole Odgaard of DEA to trade newspaper, Ingeniøren.

Additionally, the DEA points to the clause in the framework that allows owners to decommission "old" machines under 100 kW and invest in units producing triple the power in order to receive a flat rate payment of DKK 0.60/kWh for the first 12,000 full load hours of production. The proposal also guarantees that the system operator will take over a wind turbine and its outstanding loans from an owner who cannot meet unpaid debts following the changes in the price subsidy. This offer, which consumes the owner's original investment without compensation, has, in particular, incensed DV.

Covering stranded costs

Central production companies will be responsible for covering stranded costs and developing new wind plant, the framework says. An independent Energy Supervisory Board will also be established, made up of a cross-professional field of experts. Further, future offshore development will be determined under a competitive bidding procedure.

Overall, the electricity reform opens the market fully by 2002, where all consumers can choose their power supplier. Business sector consumers who use more than 1 GWh of electricity a year will be free to choose supplier already before the end of next year.

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