Hydro banned from green power imports

A temporary escape clause is one view of the measures the Dutch government has applied to its green power market in planning to exclude hydro from a tax rebate system. But Dutch utility Nuon, which has invested heavily in its own hydro plant, is outraged and is urging parliament to reject the proposals. All agree, though, that until there is a pan European market for renewables, national protectionism will be a necessary evil. Meantime, wind power in Holland stands to benefit from less competition.

A temporary escape clause from a government in a tight corner is one view of the restrictions the Dutch government has applied to its green power market. Others are calling it a disaster. All agree, though, that until there is a pan European market for renewables, national protectionism will be a necessary evil. Meantime, wind power in Holland stands to benefit from less competition

Wind looks set to benefit at the expense of hydro on the back of new regulations governing the certification of imported renewables power for sale on the Netherlands' lucrative green electricity market. The controversial regulations, however, which exclude all hydro from a tax rebate system for green power purchases by domestic consumers, have first to secure parliamentary and EU approval in the face of stiff opposition from major Dutch power marketer Nuon.

The Dutch green certificate system was opened to imported renewable energy from January next year in September's national budget (Windpower Monthly, October 2001). Economy minister Annemarie Jorritsma has since outlined a series conditions which she hopes will let enough foreign green power into the country but not allow the Netherlands' own wind-dominated renewables sector to be swamped by cheap power from abroad. Demand for green electricity in the Netherlands, which is competitive with grey power under the new tax rebate rules, already exceeds supply and is rising sharply.

Jorritsma proposes that only power generated in countries which operate a liberalised green power market at home will be eligible for certification under the Dutch scheme. At present this includes Germany, Sweden, Norway, Finland and the United Kingdom. Second, she insists that all trade be in physical power rather than certificates or credits, and that the power be accompanied by a "guarantee of origin," as specified under the recently adopted EU Directive on renewable energy.

Third, and most controversially, Jorritsma has declared that the rebate rules will not apply to power produced from hydro, whether in the Netherlands or abroad. At present power from Dutch hydro plant under 15 MW and built since 1985 is eligible for rebate. Consequently, hydro is a significant component of many of the green power packages offered by Dutch utilities. Lastly, other regulations will be added to ensure that electricity which has already been subsidised cannot be certified under the Dutch system.

The regulations are necessary, says Jorritsma, because the exemption from ecotax enjoyed by certified green power means that it can be marketed at the same price as grey power. As a result, a healthy profit margin is guaranteed to the sellers of most forms of renewable energy. This will make the Netherlands too tempting for foreign renewables producers and thus requires some form of protectionism.


Dutch utility Nuon, however, is outraged by the decision to remove hydro from the subsidy regime and is urging parliament to reject the proposals. Removing the subsidy on small hydro, argues the Arnhem-based utility, will put an end to hydro development and simply lead to increased demand for foreign generated biomass -- a far less environmentally beneficial technology.

Nuon is the Netherlands' biggest hydro retailer -- last year it sold some 600 GWh of hydro (0.5% of total sales) of which 350 GWh was imported -- and fears being landed with considerable stranded costs. The power marketer has made a substantial investment in its own hydro plant, with stations in Alphen on the Rhine and Maurik on the Maas, which currently produce some 93 million kWh annually. There remains some NLG 50 million outstanding on the loans. But absorbing these costs through hiking the kWh price is not an option. "If electricity from hydro is no longer exempted from ecotax that will cost us around NLG 10 million a year," says Nuon's Annemarie Goedmakers, who describes herself as being "dazed" by the government's decision.

"We were deliberately informed of the proposal only at the last minute, giving us no chance to lobby. If parliament doesn't listen to us and accepts the minister's proposals, we will probably take legal action and claim damages from the government," says Goedmakers. The company may also take its case to Brussels on the grounds that the government is using state support to prevent fair competition, Goedmakers warns.

With spectacularly bad timing -- just as Nuon was denouncing the no-hydro proposal -- Sweden's Sydkraft announced the finalisation of a deal to sell a further 100 GWh of small hydro power along with certificates to Nuon. The news, coming a few weeks after the Eneco power company announced its deal with Sweden's Vattenfall for an undisclosed but commercially significant amount of small hydro (Windpower Monthly, October 2001), certainly appears to give credence to the Jorritsma's fears that the Dutch market could be swamped by cheap imports.

Goedmakers disagrees. "The deal has no bearing on the case," she says. "It was made before the government had announced its proposals and the hydro in question is intended for our commercial customers whose fuel bills are not subject to ecotax. We agree that the market needs protection. But we argue it would have been much better if the government had used the regulations to stimulate new production by limiting the rebate to hydro plant built after a certain date, for example," says Goedmakers.

No excess wind for sale

While Nuon foresees the hydro ban leading to Dutch tax payers subsidising foreign biomass production, others in the sector are wondering just where they will make up the shortfall left by the sudden exclusion of hydro. Among those hardest hit -- apart from the small regional utilities NRE and Rendo, whose green power packages comprise 50% and 100% hydro respectively -- is the Netherlands' largest utility, Essent, whose own brand of green power, groene stroom, comprises 15% own produced hydro.

But Essent's director of renewables, Paul van Son, says there will be no sudden shopping spree for foreign renewables: "For the time being we will be keeping hydro in the green electricity package, even if it means selling it at a loss. In the mid to long term we will be looking at purchasing wind on foreign markets. But it's not as if Europe is awash with wind which has no destination. If we were to cut the hydro from our packet tomorrow it would be impossible to buy enough renewable energy abroad to replace it. Germany is one market we will be looking at, although the premium price paid for wind means it will be difficult to secure capacity there. Belgium is also a possibility. But we are not rushing into anything."

In general, Van Son welcomes the proposals as a first step towards a truly open market. "Ultimately we want to see all electricity labelled so the consumer can make a truly informed choice about power use. In the meantime it would be nice to see the government making some special provision to ensure that green power is guaranteed a share of the Netherlands' limited import capacity," he suggests.

Independents disappointed

In the independent sector, new green power retailers have had to live with the fact that most of the Netherlands' renewables capacity is tied up in long term contracts with the major power companies. Consequently, the prospect of shopping abroad for green power has been eagerly awaited. The government's proposals, however, have done little to raise their spirits. Freerk Bisschop of Echte Energie is disappointed, predicting that the regulations will do little to boost supply. The government may have opened the door, he says, but these regulations will mean that very little gets in. Echte Energie currently has capacity for around 10,000 domestic customers and expects to double that by the end of next year. "That remains a realistic target," says Bisschop. "But it will now be a lot harder to reach our longer term target of 50,000 customers within two to three years."

Fellow independent power retailer John Appeldoorn, of Energie Concurrent, which currently offers 90% Dutch wind and 10% Dutch biomass, understands the logic of the decision and welcomes the end to restrictions which will allow him to shop abroad for wind energy: the UK is a likely market, Germany less so. But he believes it would have made sense to keep the rule allowing hydro under 15 MW to be part of the green power tax rebate market.

A temporary solution

With the government proposals insisting on the physical transport of electricity rather than a simple trade in certificates as advocated by the pan-European Renewable Energy Certificate Scheme (RECS) it is perhaps surprising that Jorritsma's approach is welcomed by RECS secretary Peter Niermeijer. "A cat in a tight corner can do some strange things," he says of the decision to exclude hydro. "The government has a problem and they have come to what looks like a strange solution, but it is a temporary solution."

It is politically unacceptable to simply to open the borders and let the market work because nothing would be built in the Netherlands, even if it leads to increased production elsewhere, he explains. "More important is the fact that they have accepted the use of certificates as proof of renewable energy production and use. Now it all depends on the development of bilateral agreements. Once there's a situation where demand is higher than production then things will sort themselves out and it won't matter whether hydro is included or not."

At the moment RECS certificates do not qualify as a "proof of origin" according to the terms of the EU Directive under which the Dutch government system operates. "But that is the objective," says Niermeijer. The fact that the Dutch national grid operator, TenneT -- the body responsible for administering the Dutch green certificate scheme -- has recently joined the RECS platform as an independent issuing body of RECS certificates indicates that the two systems are on the road to convergence, he feels. "The Dutch government has its own system and we could say that the RECS system needs to conform to that, or you could say that RECS has a lot of interesting features which could benefit the government system. I think the government will see that it can take a lot from our system and we could make a few adaptations to our to meet their demands. That's the situation at the moment."