A victim of its own success

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The Netherlands' new centre-right government has swept away the entire support structure for renewables because the consumer demand for green power it created meant the market was running out of control

"It was a good game, but we were the only player." Ad Brogtrop, director of renewable energy agency Project Bureau Duurzaame Energie, provides what looks likely to be the epitaph of Dutch attempts to devise a system of renewable energy support based entirely on market principles. From January Dutch supplies of green power will no longer be controlled entirely by price signals, it seems, but by some form of price subsidy (page 23).

Ironically the new centre-right government's total rejection of its predecessor's policy comes at a time when seven years of experimentation with market oriented renewables support seemed to be yielding dividends. By July this year some 1.3 million Dutch consumers had switched to green electricity -- encouraged to do so by an ecotax levy on brown power which effectively levelled the price difference between the two. At the same time, Dutch wind producers have been able to tap into this buoyant market via "green certificates" which allowed them -- in theory at least -- to split and sell separately their physical power and its environmental value. The power companies were also happy. Green power gave the traditional companies a new product with which to woo customers on the newly liberalised market.

It was a system of which we could be justifiably proud, says Ferd Crone, energy spokesman from the Labour Party (PvDA), now in opposition. "With the ecotax we established the principle that people who use grey power should pay more while green power should be exempt. This significantly increased the public support for renewable energy to the point where the Dutch paid the most ecotax in the world."

Haemorrhaging taxes

Unfortunately, the very success of the green power scheme proved its weakness. Premium prices on the Dutch market and insufficient domestic capacity meant an influx of imported green power -- some 80% of total sales, calculates Greenpeace. Much of this power came from old plant. Worse still, foreign green power producers were importing dirty power from other countries to compensate for the green power sold to Holland, alleges Greenpeace. Not only were Dutch tax revenues haemorrhaging abroad, they were not leading to any new capacity.

It was this export of Dutch tax revenues -- some EUR 130 million in 2002 calculate industry sources -- that provoked the ire of Jan Peter Balkenende's newly elected government. It was further goaded into a radical revision of the whole renewables support system by claims that "free-riders" were raking in subsidies for projects that were already commercially viable.

"An excuse," says Crone. "If he really wanted to stop the abuse he could simply have taxed imported green power, instead he's swept away the fundamental principle underlying the Dutch system: that power produced from renewable resources should be exempt from ecotax. That has done irreparable damage to both consumer and investor confidence."

The Dutch wind industry has also cautioned against dumping the baby with the bath water, with turbine owner's association PAWEX joining the sector-wide DE Koepel association to call for a modification rather than a wholesale rejection of the current system. This message is also repeated by the renewable energy directors of power giants Nuon and Essent, Annemarie Goedmakers and Paul van Son, respectively, who are supported by the World Wildlife Fund's Sible Schöne.

Ultimately they would like to see harmonisation of European support regulations, but in the interim they suggest that any subsidies be applied equally to domestic and foreign capacity in conjunction with a time limit stipulation that only power from plant built after a certain date -- 1990 for example -- is eligible for subsidy. The new government is introducing a flat rate environmental charge on electricity consumers, the MEP, the proceeds of which it says will go to support renewable energy. The form of that subsidy remains unknown.

Incentive support

The concept of a production incentive payment to top up the available market price receives almost universal approval. Goedmakers, Van Son and Schöne see possibilities for fine tuning subsidies for onshore and offshore wind. Even Crone concedes that the idea is good. "I made the same proposal six years ago," he says. Meantime the abrupt dismissal of the existing market "has destroyed the continuity and stability which are so important to exactly this sort of market," he adds.

For Brogtrop, the MEP provides stability. "Investors already thought the current system would not last. The MEP will provide long term security. It will work in two ways. It will give a push to Dutch offshore activity and it will help us push through the barriers created by local councils," he believes.

Diederik Samsom, director of independent green power retailer Echte Energie, also welcomes the MEP, but is worried about the precise level of the subsidy. Wind will be severely affected by the government's sweeping cuts, he points out. "Just about all the cuts will have an impact on wind power finance." The MEP allocated to wind power will have to compensate for the lost production subsidy of EUR 0.02/kWh, the lost tax break to consumers who buy green power of EUR 3.8/kWh, the loss of soft loans from green funds made attractive by tax breaks, and the tax breaks on investment in green power technology, another EUR 0.025/kWh, he says.

"Potentially the MEP is a very effective instrument: it allows you to fine tune the subsidy allocated to each form of renewables: less for biomass, more for solar. But we will have to watch very closely exactly what the new government does. Given their political colour, I don't expect wind will win on the new deal but I'm hopeful it will break even."

Commercial optimism

To Crone, Samsom's optimism looks commercially motivated. "At the moment all the power companies have guaranteed that they will continue to sell green power at the same price as grey for 2003. But they were more or less forced to do that to prevent the total collapse of the market." Indeed the pledges not to raise their prices for green power from Nuon and Essent -- based on their belief in the government distributing MEP funds judiciously -- appeared after a report in national newspaper De Telegraaf. It claimed that the news that green power households would be paying EUR 100 extra a year from 2003 led to a rush to cancel contracts.

"The report was nonsense," says Samsom. "We certainly haven't had a rush of cancellations. Nevertheless, Samsom has switched from yearly to monthly contracts to assuage customer anxieties.

Just how seriously the cabinet takes the environment is the question. Whether the centre-right coalition opts to maintain or degrade its predecessor's commitment remains to be seen. But with a new mood of financial realism sweeping the country, the days when Holland set the agenda in innovative schemes for renewables support appear to be over. In the words of Ad Brogtrop: "We've had some good ideas, but really when it comes to the EU we have to recognise we're just a garden gnome."

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