Wind trade exposes emissions market flaws -- Both Denmark and Netherlands claim rights to CO2 credits

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The owners of 500 Danish wind turbines no longer in receipt of subsidised power purchase payments have been selling their output directly to customers in the Netherlands since May 1. Dutch electricity consumers save a levy of EUR 0.06/kWh when they buy green power, making it economic for them to pay a good price for Danish wind energy while still paying less than for "grey" power.

The sale of Danish wind power to Dutch consumers is being conducted by the Danish Wind Turbine Owners Energy Company, or DV-Energi. Company head Per Lauritsen declines to name the price that Danish wind is fetching, or to name the power broker in Holland he is dealing with. "Not to mince words, we won't say who the broker or the buyer is because if it became known that would put pressure on the price. We'd risk cutting off the branch we are sitting on if we provide that information before we have a signed contract with the final price," says Lauritsen.

Heading for court

Even though it is the environmental benefits that give Dutch consumers the opportunity to save money -- and Danish wind turbine owners the opportunity for higher income -- the CO2 emissions savings will be accredited to Denmark, states the country's environment minister, Hans Christian Schmidt. "The decisive factor under the Kyoto protocol's rules is where the electricity is generated and that is in Denmark," he says. "The environmental benefit the Dutch are buying does not include the CO2 benefit. For that reason the deal does not present a problem for Denmark's Kyoto commitment."

Lauritsen disagrees. "We're sending the physical electricity out of the country, so if the missing volume of electricity is replaced by coal-fired generation it is a burden on the Danish CO2 account," he says.

Christian Kjaer, policy director for the European Wind Energy Association (EWEA), shares Lauritsen's view. "Holland, of course, wants the green power it is buying to appear in its CO2 accounts. It'll be interesting to see if Denmark will remember to raise its CO2 emissions to take account of the CO2 savings sold to Holland. My guess is that it will end up in court," says Kjaer.

In the Netherlands, market insiders are scratching their heads. The deal is being concluded just before a major overhaul of Dutch renewables policy, awaiting final parliamentary approval, goes into force on July 1. The legislation, which has been pending for almost a year, will halve the tax saving enjoyed by Dutch green power consumers, effectively giving Dutch power retailers just EUR 0.03/kWh to buy-in green electricity. Presuming the Danish power costs around EUR 0.02/kWh, "the margin isn't going to be very attractive," says Diederik Samson, former director of independent green energy retailer Echte Energie and now energy specialist for the Dutch Labour party.

Whether certificates can be sold separately from their CO2 value has Dutch experts reaching for their rule books. Technically a green certificate has nothing to do with CO2 emissions, says Peter Niermeijer of Europe's Renewable Energy Certificate System (RECS). Trade in certificates administered by RECS relates only to the renewables targets of the countries involved. He acknowledges, however, that the avoided CO2 emissions are a major element of the green benefits of the power. "This deal could not take place under RECS rules as our basic conditions specify that our members only sell certificates with all their benefits intact," he says.

Nonetheless, the Netherlands' GroenCertificatenBeheer, the office responsible for the Dutch green certificate system, confirms that DV-Energi is approved as a green energy supplier. The office declines to comment on the Danish-Dutch deal, saying only that it will look into the matter.

Meantime, warns Kjaer, a system that has consumers in one country paying for the CO2 savings accredited to another country is not likely to last for long. The solution, he says, is harmonisation of the regulations for sales of green power across the entire European Union.

DV-Energi is the broker of power from 500 Danish wind turbines with ratings of more than 100 kW which, because of their age, no longer qualify for premium rates for their output. Turbines of less than 100 kW are not included because of the requirement for hour-by-hour output readings. DV-Energi has informed the wind turbine owners it represents that sale of their power to the Netherlands will fetch a higher price than if they sold it on the Scandinavian power exchange, NordPool.

Danish climate strategy

Wind power's contribution to Denmark's CO2 reductions made headline news last month following the release of a report severely criticising the country's climate change strategy. The Danish government announced three months ago that its main policy for bringing down emissions would be purchase of unused CO2 quotas from countries like Russia and the Ukraine rather than using renewables to replace fossil fuel generation (Windpower Monthly, April 2003). But that decision was based on an incorrect assessment of the cost of using wind power to bring down emissions, reveals ECON Analyse in its new report, "Wind Power and Danish Climate Strategy."

According to the report, the cost of a tonne of CO2 reduction using land based wind power is DKK 122 (EUR 16.7) -- just DKK 2 (EUR 0.26) more than the government's guideline price of DKK 120 (EUR 16.44) for cost-efficient emissions reduction. ECON, an internationally renowned company based in Norway, has previously conducted studies for the world's largest electricity and oil companies as well as national governments. Wind Power and Danish Climate Strategy was carried out for the association of Danish wind turbine owners.

Under a headline in the Jutland Post, Denmark's largest national daily, claiming "Good CO2 economics in wind power," environment minister Schmidt says domestic wind power will play a role in reducing emissions if ECON's positive economic analysis proves to be correct. He adds that he "prefers to make investments in Denmark." It is not a matter of whether it costs EUR 16.7 or EUR 16.44 to save a tonne of CO2, but a matter of "most environment for the money," says Schmidt.

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