Price fixing claims lead to quotas call -- In fear of Brussels

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The Dutch government has moved swiftly to restore confidence in the Netherlands' infant green electricity market following allegations of price fixing in a leading Dutch financial daily, Het Financieel Dagblad (FD). Economics minister Annemarie Jorritsma categorically denies any interference by the government in market prices of electricity. The FD had claimed that power companies were being prevented by government from selling green power cheaper than grey power -- a price differential brought about by the mechanisms of the Dutch ecotax on conventional electricity. "There is not and never has been any plan to fix prices," says Jorritsma.

Her remarks contradict information from power companies Essent and Remu who say they had attempted to sell green power for less than the price of grey, but were instructed by the economics ministry to bring the prices back in line. According to the power companies, the government was afraid that if the ecotax levied on grey power was used to undercut electricity prices, the European Commission (EC) would view the Dutch ecotax -- officially known as Regulerende Energie Belasting (REB) -- as an illegal state subsidy.

Jorritsma concedes that the ministry had spoken with power companies about the interpretation of the Commission's ruling on the exemption of green power from ecotax. But she says the talks did not deal with pricing. The EC had originally approved the zero-rating of green power in June 1998 on the grounds that "despite the exemption, the price of green power was still higher than grey power inclusive of REB," she says. The effective support could be viewed as partial compensation for the extra cost of generating power from renewable resources, said the EC. If there were no extra costs, REB would no longer meet this condition.

Double earning

The niceties of Jorritsma's explanation are, however, likely to be lost on many ordinary consumers. They will focus on the FD's claim that maintaining price parity means utilities are earning double on green power sales compared with traditionally sourced electricity -- an average of EUR 0.045/kWh against EUR 2.27/kWh. Or, as the newspaper paper puts it, 700,000 green power consumers paid EUR 61.2 million too much for their power in 2001. The ecotax is calculated to have yielded the government some EUR 2.39 billion last year.

The implications for wind energy production of an effectively fixed sales price are difficult to assess. Consumers may be paying "too much" for their green power, but demand continues to rise. Also rising are the profits on green power sales; prices paid by utilities to independent wind energy producers have risen from an average of EUR 0.068/kWh to EUR 0.082/kWh.

Under the Netherlands' complex REB system, power companies are entitled to use ecotax revenues to pay a EUR 0.027/kWh subsidy to producers, thus providing a considerable incentive for utilities to turn wind power producers in their own right and claim the subsidy for themselves. This incentive is further strengthened by the recent verdict of a Utrecht court instructing power companies and independent wind farmers to renegotiate contract prices to also include the value of the green certificates which renewables power operators can sell. Faced with the prospect of higher contract prices pressurising margins, substantial investment in wind energy plant will become even more attractive, believe many in the industry.

Lost illusions

In the longer term, however, the FD allegations indicate a growing sense of scepticism about the operation of the green power market in the Netherlands. Even before publication, high profile environmental science professor Lucas Reijnders made a swingeing attack on the government's "ill-conceived" strategy for liberalising the green energy market. "It didn't take long for me to lose the illusion that I could stick a plug in the socket with a good conscience," he told an audience at the University of Brabant in Tilburg. "I am convinced that we can't carry on with green power like this. This is a poorly thought-out liberalisation."

Along with battery-chicken waste fuelled biomass generators, he denounced Nuon's green electricity as "virtual" and Essent's as "dirty." Rather than the current "madness," Reijnders would like to see a quota system introduced comparable with the US and UK models where power companies are obliged to sell a certain percentage of total power sold from domestic renewable resources.

The debate spilled over into the National Energy Forum held in early December where Remu commercial director Herre Hoekstra felt compelled to defend the ecotax, arguing that the Netherlands would only reach its CO2 reduction targets if the REB remained in place. "By making green power REB exempt, we've seen hundreds of thousands of people switch to renewables in just a few months. In just half a year we've achieved far more than we ever achieved under four years of the Environmental Action Plan regulations."

Gerard Uytdewilligen, of the Dutch wing of Germany's Energie Baden-Wurttemberg (EnBW), was unimpressed by this argument. Given that green power was being sold at the same price as grey it would have been easier to simply send everybody a letter telling them they had been switched to green power automatically. "Then there would have been even more customers. I think that by equalising price you deny the extra quality of green electricity. Green electricity is a premium product," he argues.

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