Netherlands

Netherlands

A market holding its breath

The Dutch wind sector is understandably apprehensive about the end of the country's renewable energy quota system. Theoretically it is to be replaced by consumer demand for green power certificates. But not only are these

certificates as yet non existent, there will be no obligation on anybody to

buy them as under a true Renewables Portfolio Standard. But RPS

regulation is too complicated, says the government

At midnight on December 31, 2000, the Dutch renewables market is scheduled to take a major step along the road to full liberalisation. The existing Groen Label system of renewables support, which is driven by the utilities' voluntary commitment to include a quota of renewables in their power sales, will come to an end, to be replaced by a Green Certificate system enabling the sale of green electricity directly to the consumer. From that date the market will be driven solely by the consumer's willingness to bank roll their environmental conscience.

To date more than 140,000 Dutch consumers have subscribed to green electricity sales packages -- stimulated in part by an ecotax (REB) on grey power which in some cases makes green cheaper than grey. At present they are compelled to buy their power from a license holder -- usually their local power company. Under the green certificate system they will be free to shop around among utilities and new market players. The potential demand in this newly liberalised market will be enough to secure a 5% renewables share by 2010, the government has calculated.

Three months before the witching hour, however, the ministries of finance and economics show no sign of reaching agreement on the implementation of the Green Certificate (GC) system and economics ministry sources admit that it is "most unlikely" to be in place for the January 1 deadline. "The tax authorities need to be satisfied that the new system will not be open to fraud and that it provides a secure means of administering ecotax," says a ministry source, explaining the delay.

A yawning gap

Without a system to certify the greenness of kilowatt hours produced and delivered, and hence their eligibility for ecotax exemption, the Dutch renewables market will in theory enter the new year without any support mechanism. Producers will have nothing to certify their eligibility for the NLG 0.0354 subsidy from ecotax revenues; utilities will have nothing to sell to green consumers, and green consumers will have nothing to show the tax man. While most believe the old Groen Labels will, in practice, be used as pro-forma Green Certificates to bridge the gap, there is growing concern about the wider implications of this policy hiatus for the Netherlands' infant renewables market.

According to Annemarie Goedmakers, renewables head at utility NUON, the failure to implement the GC system on time could lead to a "very, very serious crisis in trustworthiness and investment." At such times of transition it is vital to maintain market confidence, she says and "when it is unclear where we are heading, investors inevitably become very nervous." In the short term NUON and other companies looking to contract green power from independent producers are likely to be extremely circumspect. "New contracts [with producers] will have to contain lots of ifs and buts until we have a better idea of what is happening," she says.

Aad Brogtrop, director of the Arnhem-based Project Bureau Duurzame Energie, shares Goedmaker's view of a market holding its breath. "At the moment the banks are particularly cautious and they will become increasingly reluctant to finance projects if this degree of uncertainty continues," he says. The situation has been worsened by continuing uncertainty over green fund tax rules, he adds, referring to recent revisions in tax law which have seriously depleted the amount of cheap capital available from green investment funds (Windpower Monthly, June 2000).

No obligation

Both Goedmakers and Brogtrop see the delayed introduction of the GC system as symptomatic of wider problems with Dutch renewables support: specifically the ministry's decision to go for a "free-market," consumer-driven mechanism rather than an end-user obligation system, similar to the Renewables Portfolio Standard (RPS) proving so successful in Texas (Windpower Monthly, April 2000). As well as setting a minimum standard for renewables, RPS legislation also obliges all retailers of electricity to demonstrate through the ownership of renewable energy credits (green certificates) that they have supported the production of a specified amount of electricity from renewables.

Despite widespread calls for an end-user obligation from industry and parliament, economics minister Annemarie Jorritsma has insisted on a consumer-driven policy. Arguing that the apparent simplicity of the end-user quota system is deceptive, she cites ministry commissioned research showing that "more than 750,000 Dutch households and more than 50,000 businesses are prepared to purchase green energy at a premium price." The slow growth of Dutch renewables is not due to limited demand, she says, but to supply-side hurdles -- specifically land use bottlenecks. As such an end-user obligation would be totally ineffective.

Brogtrop is sceptical of these claims. With EU legislation forbidding the sale of green power for less than the price of grey, consumer demand will not increase quickly enough to put the Netherlands on target, he believes. When the Netherlands sought EU approval for its ecotax system, the proviso was that the "production price" of green power should not drop below that of grey power. Nonetheless, current growth in green electricity sales has been fuelled by the decision of utility Essent to contravene EU legislation and offer a green power package which undercuts the price of grey. "It remains to be seen how long this will be accepted," says Brogtrop. Further, he fears that with the end of the utilities' quota obligation in January, the market could be swamped by a sudden influx of spare capacity, driving down prices. Essent was created from the merged of utilities EDON, PNEM and MEGA and is now the largest power supplier in the Netherlands with 2.26 million customers.

Glaring contradiction

Goedmakers is equally critical, arguing that there is a glaring contradiction between the ministry's decision to set targets on the one hand -- 10% renewables share by 2020 -- and its rejection of a true RPS on the other. The current policy attempts to mix free and command economies, she suggests. "In the Soviet Union, when the government said how many television sets were to be sold, at least it made sure that that many were built. If you want to be sure about a certain percentage [of renewables share], then you have to set a legal target or threshold."

Both sides of the argument -- for RPS regulation on the one hand or for free market consumer driven demand on the other -- can quote the latest statistics in support of their case. Spectacular increases in green electricity sales in the Netherlands (from 100 million kWh in 1997 to 500 million kWh by end 2000) appear to demonstrate that consumer demand alone is enough to drive the market. However, the fact that only half of the total amount of renewable energy produced in the Netherlands in 1999, was actually sold as green electricity (350 GWh) suggests that demand will still have to double before it will have the effect of boosting production.

International trade

The confusion surrounding the Green Certificate system is further amplified by the prospect of international trade. In the long term, the government aims to make the GC system compatible with a pan-European certification system, estimating that 18 PJ of the 288 PJ renewables targeted for 2020 will be imported.

In the short term, however, because it still contains provision for an ecotax-funded subsidy to be paid to renewables producers, the GC system will have to remain an exclusively Dutch affair. "Clearly paying German wind farmers a subsidy from Dutch tax payers is out of the question," says Brogtrop. "That would be a bit too much of a good thing." Consequently, he believes the national GC scheme cannot be extended across the border without "reciprocity," and that must be arbitrated at EU level.

According to Peter Niermeijer, one of the architects of the Renewable Energy Certificates campaign (RECs) to launch a European certificate-based renewables trading system, the producer subsidy will eventually have to be removed. Meanwhile it is "generating a lot of extra discussion," not least because its removal could double the tradable value of green certificates. The current value of Groen Labels is around NLG 0.05/kWh with a NLG 0.0354/kWh REB subsidy element in the total kWh price paid to the producer. Theoretically the REB element, if removed, would be reflected in a corresponding rise in the certificate price. With REB scheduled to be raised again to NLG 0.12 kWh in January, the certificate price should follow suit. "Early starters could make a killing, buying labels at five cents and selling at 12 cents," suggests Niermeijer.

In general Niermeijer is more sanguine about the prospects for the new market. The delayed introduction of the Dutch GC system will not have too serious an effect, he believes, as most capacity is tied up in long-term contracts. Moreover, there is also a good chance that RECs' own European trading system could be operational before the end of January. The RECs group was due to meet in Stavanger on September 22-23. "If it gives the go-ahead we can begin testing the system immediately," he says.

Independent certificates

Meantime Dutch RECs members (including independent wind turbine owners association, PAWEX, utilities Essent, Eneco and Remu, the Rabobank, E-Connection, Ecofys and brokers Energy Match) have decided to take the initiative. They are to ask power and certification concern KEMA to constitute itself as an independent certificate issuing body until the government appoints its own.

Although Niermeijer admits this move is partly intended to put pressure on the government, he also believes much can be achieved through leading by example. "That's as it should be within society, you make the rules and then the government puts them into legislation." Moreover, he points out, the market players are ready to cover the cost of building the system because they feel that whatever the immediate uncertainties about the practicalities of certification, in the long term there is money to be made in renewables trading.

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