Some policy fears but records to be smashed -- A year of Dutch promise

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New wind plant development in the Netherlands fell for the second year running in 2005, but that should be the end of market stagnation. This year is expected to set a new record and industry confidence is high. A series of projects were pushed into 2006 and even without the addition of the Netherlands' first truly offshore project -- the 108 MW Egmond aan Zee development -- the country could see a three-fold increase in new wind power megawatts. In the first two months of the year alone, 100 MW is coming on line, reports market observer Wind Service Holland (WSH).

In all, at least 450 MW should be commissioned in 2006, says WSH's Jaap Langenbach, well and truly beating the previous record of 226 MW in 2003. Big projects such as Delfzijl (55 MW), Lelystad (46 MW), Amsterdam (35 MW) and Terneuzen (44 MW) are all due for completion, as is the offshore project. The government's 2010 target of 1715 MW of wind power under the so-called BLOW agreement with local governments and councils is set to be blown away, with the Netherlands reaching 2000 MW already by 2008.

Total capacity

In total, 113 new wind turbines were installed in 2005 with a combined capacity of 154 MW. Sixty-six small units (14 MW) were decommissioned, resulting in a capacity addition of 140 MW, compared with 169 MW in 2004. Total operating wind capacity at the end of the year was 1219 MW, provided by 1707 turbines. The average rated capacity of the new turbines in 2005 increased to 1.45 MW from 1.2 MW in 2004. Annual production last year amounted to 2.56 TWh, or 2.2% of Dutch electricity demand, according to Windstatistiek Nederland. The average rated size of all operating turbines is 714 kW.

Among turbine suppliers, Vestas continues to dominate with a 66% market share (chart), though down from the 79% held by Vestas and NEG Micon combined, before their merger. Enercon increased its slice at 37 MW, while the rest of the market is shared by GE Energy and Siemens. Vestas' Aad de Poot says Enercon, with technology particularly suited to benefiting from the complex Dutch payment system for wind power, is likely to increase its market share.

De Poot identifies a changing Dutch market, with fewer private customers. "We hardly sell the smaller turbines, there is a big increase in megawatts though. Less projects but more megawatts." The trend is evident in wind plant ownership too, with power companies Eneco, Nuon and Delta responsible for about 30% of last year's development. Concentration is also evident in the smaller geographical spread of new projects, although the dominant role of Flevoland -- which last year burst through its BLOW target for 2010 -- has lessened (table).

Despite the general feeling of optimism, industry dissatisfaction with the structure of the Dutch wind power market remains. The Milieukwaliteit Elektriciteitsproductie (environment quality electricity production) incentive system, known as MEP, was introduced in 2003 to replace a previous support system which had caused the market for green power to overheat. MEP is a fixed rate incentive intended to meet the difference between the production costs of renewable energy and the market rate for which power can be sold. A renewable power plant does not receive the production incentive for its entire working life, but for a specified number of hours of operation at full capacity, with different rates for onshore and offshore.

Under review

Despite being introduced with a ten year life span, MEP is now subject to a government review. The uncertainty, says Mathieu Kortenoever from project developer E-Connection, is not what investors need. Bankers will not invest in projects if they feel a subsidy may be reduced, he stresses. "The bottom line is that we need clarification. We want a stable investment climate. If there are problems they should be sorted out. There is no need to reshuffle the whole system and turn it upside down."

Currently, MEP offers a subsidy of EUR 0.077/kWh for onshore wind and EUR 0.097/kWh for offshore wind for the first 20,000 full load hours of operation. It is widely expected, however, that in July the onshore subsidy will be reduced. Nobody in government will officially say by how much, but EUR 0.065/kWh is a suggested guideline. Any reduction will not be applicable to projects approved for development this year and next.

De Poot agrees that the review is not helping, although he can understand why the government may want to adopt a wait-and-see approach. Meantime, the industry suspects the MEP subsidy is on the decline and investors are not keen to commit to future projects, he says. The current uncertainty is not enough, however, to dampen industry enthusiasm. De Poot believes that high global energy prices, security of supply worries and environmental concern will put pressure on government to be more self sufficient in domestic sources of renewable energy.

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