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Utility readies for free market

Confusion surrounds a new payment scheme for wind power introduced by Dutch utility NUON. Independent wind producers will be paid NLG 0.15/kWh for their first 20,000 hours of full production (annual production divided by rated capacity.) Although details of the scheme have been posted on the Internet and were considered at a meeting of the association of independent wind turbine owners (PAWEX) last month, NUON's director of renewables, Annemarie Goedmakers, denies that any "new payment system" is in operation.

According to Goedmakers, NUON has simply revised its existing agreement with PAWEX to take account of the free market in Green Labels launched at the start of the year. Under the agreement, struck in 1996 following the breakdown of talks on a national tariff, NUON pays NLG 0.0163/kWh to new projects up to 2 MW and a sliding tariff dependent on location of NLG 0.11-0.16/kWh for new plants between 2 MW and 5 MW.

The 16.3 cents, explains Goedmakers, contains a NLG 0.015 Energy Investment Allowance (EIA). The EIA was one of a series of fiscal incentives introduced to stimulate investment in wind when capital subsidies ended in 1995. But it proved difficult to implement following objections from Dutch tax authorities. In agreeing to pay NLG 0.163/kWh, NUON efffectively guaranteed it would make up the deficit in cases where EIA was inapplicable.

"The problem was that a lot of people wanted the 16.3 cents plus the 1.5 cents under EIA, and we felt that was overdoing it a little," says Goedmakers. The new rate only removes the EIA component and talk of a new NLG 0.15/kWh rate is "inaccurate," says Goedmakers. She emphasises that NUON has no new national tariff rate, but is operating in accordance with the free market. The offer of NLG 0.15/kWh for the first 20,000 full production hours applies only within NUON's traditional distribution area of Gelderland, Friesland and Flevoland, and is intended to stimulate the development of inland sites. "We have made a system for all the producers in our distribution area which will make it possible for inland projects to secure a good turnover."

This initiative is "not a new system," Goedmakers insists, "but an improvement of our existing payment scheme designed especially for inland locations. It is intended as a signal to say that it's not only feasible to begin projects in high wind locations, but also to make it easier for developers of inland sites to go to the bank."

As yet it is still too early to say how effective the scheme will prove, but people are "taking notice," Goedmakers believes, adding that she has had a positive reaction from a number of potential developers of inland sites.

Worried operators

Others within the Dutch wind community are less enthusiastic. PAWEX had yet to formally consider the scheme early last month, but the association's Mathieu Kortenoever was worried on a number of accounts. He felt a minimum price went against the spirit of a free market in principal and that with this scheme it was a case of the large print giving and the small print taking away. "For some projects an offer of 15 cents a unit looks attractive at first sight, but when you read the small print you find the rate only applies to the first 20,000 full production hours. After that NUON will only pay a minimum price. And in wind rich locations that could be within six years."

Responding to this criticism, Goedmakers says the scheme is intended primarily for less windy inland sites and denies that NUON is acting against the spirit of the free market -- it is merely an offer, she insists. She confirms, however, that at present NUON proposes to pay only the market price plus one cent after the first 20,000 full production hours.

Utility manoeuvring

Kortenoever also believes the scheme is an attempt by NUON to influence the market price of the Green Label. Under the label system, introduced in January, local power distribution companies such as NUON pay renewable energy producers a set price comprised of the current pool price plus an ecotax which is normally remitted to the revenue service. In addition to this price, the producer is also issued with Green Labels which are tradeable on a market driven by the utilities' commitment to securing 1.7 billion kWh of electricity generated from renewable resources by 2000.

With the pool rate at NLG 0.08/kWh and the ecotax at NLG 0.03/kWh, it appears that NUON is effectively buying Green Labels for NLG 0.04/kWh through this offer, thereby undercutting the current market rate of NLG 0.05/kWh and thus depressing the profit margin of the renewables sector in general.

Goedmakers is robust in her defence of this accusation. "It is a free market and NUON currently buys Green Labels at many different prices. We pay nothing for the Labels from our own projects and up to NLG 0.05/kWh for Labels from independent producers."

Other criticism focuses on the scheme's implications for wind power technology. Jaap Langenbach of consultancy Wind Service Holland considers the scheme "fatal for the quality of wind turbines." Because full production hours are calculated by dividing a turbine's annual kilowatt hour production by its installed capacity, Langenbach argues the scheme will lead to the installation of turbines with over-powered generators on inland sites in order to prolong the period a plant attracts the subsidy. Thus there is an incentive not to optimise turbines effectively for inland sites.

Langenbach, however, predicts the NUON scheme will have few takers with most independent producers preferring to sell their Green Labels to other power companies at the higher rate of NLG 0.05/kWh.

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