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Netherlands

Netherlands

Dutch close borders to new market -- Buy green certificates and avoid tax on electricity use

The Netherlands ministry of economic affairs has announced that the Dutch green electricity market will not be open to foreign imports when it comes into operation on July 1. Without a level playing field in the form of a single European market for green power -- and a guarantee that imports will lead to an actual increase in European renewables production -- green power generated abroad cannot be certified, and thus traded, in the Dutch system, says the ministry. Meantime Dutch consumers can now shop around for green electricity, although there are confusing signals on the likely uptake of green power.

Putting an end to months of speculation, the Netherlands ministry of economic affairs has announced that the Dutch green electricity market will not be open to foreign imports when it comes into operation on July 1. Without a level playing field in the form of a single European market for green power -- and a guarantee that imports will lead to an actual increase in European renewables production -- green power generated abroad cannot be certified, and thus traded, in the Dutch system, says the ministry.

The announcement is contained in recently published legislation detailing the workings of the green certificate system, which is intended to stimulate renewables production by enabling Dutch consumers to shop around for green electricity. Renewable energy producers supplying power to the national grid will automatically be credited with one green certificate for every MWh of power supplied. To ensure that sales match production, power retailers wanting to sell green electricity to domestic customers will have to acquire a green certificate for every kWh of green power sold.

In fiscal terms the certificate acts as an exemption from the carbon tax on domestic power sales, effectively enabling green power to be sold at the same price as grey. Certificates are valid for one year from the date of issue after which they can no longer be redeemed.

Supplier opportunity

With the rest of the electricity market due to be liberalised only in 2004, the opening of green power trade to competition will provide utilities with an early opportunity to expand their customer base outside their traditional distribution regions. With each new subscription worth about NLG 3000 in shareholder value, this will provide a clear enough incentive for the companies to actively market their green packages, the government believes.

But there are confusing signals on the likely uptake of green power. The Netherlands may have the most green power consumers of any country in Europe, but a recent poll of 400 households by the Centrum voor Markt Analyses (CMA) shows that for many, green power remains a very grey area. Even though a number of Dutch utilities have been selling green power at the same price as grey for over a year, a massive 78% of respondents were convinced that green power was much dearer than grey. Ten per cent even thought changing to green would lead to problems with household appliances.

Promotion essential

Clearly power retailers have a lot of work to do on promoting their product. Opinion on how this should be done is, however, divided. Some 250,000 Dutch consumers buy green power today. Annemarie Goedmakers of power marketer NUON believes the existing renewables capacity could supply power to another 250,000. With the government ban on foreign imports, any increase on that will require a long term investment in Dutch renewables capacity. This in turn requires a cautious marketing strategy.

"This is not going to be a price driven market," says Koen Krikke, manager of Essent Energie's green power portfolio. "Last year our green power package worked out cheaper than grey power for many domestic customers, but we did nothing to advertise that fact. To put it bluntly, we are not interested in selling green power to customers who are looking to save a few cents. In the final analysis, green power costs more to produce than grey.

"The ecotax means that for the time being green can be retailed at or under the price of grey, but we can't assume that that will always be so. To build our renewable capacity means a long term investment strategy. It would be foolish to build our capacity around a customer base that may vanish with the next change in energy policy."

For the same reason, independent Dutch wind farmers are unlikely to notice any great change on July 1. New operators may, in theory, sell their output on the open market and trade their green certificates for whatever price they can realise, but the reality of wind farm finance means they will still be looking to established players for contracts. "Bank managers are not going to finance a wind farm on the basis of a contract with a start-up retailer who plans to get rich on selling renewables cheap," says Krikke.

Green quality

Quality not quantity looks likely to be the industry strategy, with the different players using the certificate's specification of source to build up a range of green energy products. NUON has already begun that process of product differentiation, with the claim that its "natuurstroom" (natural electricity) product generated solely from wind, solar and water is the greenest green electricity currently available.

Quality can, however, be a double edged sword. Questions are already being asked about the composition of NUON's grey power -- if it has the greenest green, how dark is its grey? Goedmakers answers simply, "We just don't know, and until we have labelling of all power, we can't answer that question." The green label, she believes, is just a first step towards the total transparency of the electricity market. "People who don't want to buy nuclear or brown should be able to do so."

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