Anger over green certificates plan -- Market will die says industry

Sweden's wind power companies have reacted angrily to a government report proposing a national green electricity certificate trading system, predicting the plan will strangle the industry. The report recommends that consumers be required to buy a fixed amount of their electricity from environmentally friendly sources. This they will do by buying green certificates attached to all production of green power from 2003. Under the system the market price of a certificate, which once bought can be traded on, effectively represents the environmental value to society of green power.

The system is designed to encourage and expand the renewable energy market in Sweden. Its proponents hope it can be integrated with Denmark's putative green certificate system and eventually provide a platform for a pan-Nordic market for certificate trading, though the renewables market needs to mature further before this can happen.

The plan envisages big cuts in subsidies to new and existing wind plant, putting wind on an equal footing with other renewables such as biomass, solar, hydro and geothermal. The report says such rationalisation is necessary if renewable energy is to grow and become a viable alternative to other energy forms.

But wind industry representatives say this approach will undermine wind's competitive ability and seriously impede its growth. Bernt Alexandersson, managing director of wind turbine manufacturer Vestasvind Svenska, says the report's recommendations will effectively block all future expansion of wind power in Sweden. He predicts a string of bankruptcy if the report is implemented. "If the government adopts the report's recommendations it will mean the loss of 20 out of the 30 jobs we have at Vestasvind. All we would have left would be service and guarantee functions." Per Malmén, of developer Vindkompaniet, is equally pessimistic. "With this report there will be no expansion of wind power in Sweden. The industry can pack its bags."

Efficiency needed

The report defends its proposed cut in subsidies. "There is an in-built risk that provision of investment and maintenance subsidies leads neither to technological development nor efficiency promoting competition between different technologies," it says. Reducing state subsidies forces the sponsors of renewable energy to find efficiency gains, the report argues. It identifies wind power as a prime example, noting that despite the 1997 cut in Sweden's investment subsidies from 35% to 15% -- which aroused strong negative reaction from wind companies -- the industry's cost-effectiveness increased thereafter.

Such reasoning is questioned not only by the wind industry, but by environmentalists. Svante Axelsson, secretary general of the Swedish Society for Nature Conservation says: "Removing subsidies for wind power without simultaneously imposing a carbon tax on fossil-based electricity production would distort competition even further."

The report does offer an olive branch by agreeing to phase out subsidies to plant built before 1 January 2003 over a five year transitional period. This support will be SEK 150/MWh in 2003, SEK 120/MWh in 2004, SEK 90/MWh in 2005, SEK 60/MWh in 2006 and SEK 30/MWh in 2007. According to the report, this support will give owners of existing wind power plant a reasonable payback time on their investments. Moreover, small scale production plant with a maximum capacity of 1500 kW will receive limited compensation stretching until the end of 2010.

These levels of support seem unlikely to placate the industry. Ola Nordgren at Göteborg Energi, the state-owned utility in Gothenburg, Sweden's second largest city, says phasing out the subsidy element will, in effect, make it economically impossible to build new wind plant.

It is unclear to what extent the industry ministry will adopt the report's recommendations. The report, which advocates a 10 TWh increase in Swedish electricity output from renewable sources between 2003 and 2010, will be sent to interested parties for comment before any decision is taken.