Ministry confirms market destruction -- Green certificates retained

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Hopes that national budget day would put an end to the uncertain future of the wind market under Holland's new centre-right government were dashed when economics minister Herman Heinsbroek of the libertarian populist List Pim Fortuyn (LPF) party gave only the broadest outline of his proposed radical overhaul of the existing structure. He, nonetheless, confirmed that today's market incentives will be scrapped as of January, including the EUR 0.02/kWh currently paid to wind producers out of revenues from the Dutch ecotax (REB).

At the same time Heinsbroek is wiping out a range of fiscal instruments that have encouraged investment in green projects and technology. Almost certainly to feel the axe are tax breaks for investments in green funds -- a major source of cheap finance for wind projects -- and the "accelerated depreciation on environmental investments schemes." Known as VAMIL, this allowed companies investing in green technology to reduce their taxable income in the early years of the investment, thus improving their liquidity. The end of green fund tax breaks and VAMIL will add about EUR 0.025/kWh to the cost of wind power, calculates Diederik Samsom, director of green power retailer Echte Energie.

In a more politically controversial move, Heinsbroek is also to end the ecotax exemption of green electricity. From January, Dutch households opting to buy green power will pay ecotax at some EUR 0.035/kWh for the privilege -- half the full rate levied on brown power. The effect will be to increase further the sales price of a wind kilowatt hour, even though the rise will be made fiscally neutral for consumers who can offset it against their ecotax bill.

What next?

Having outlined his plans to wipe out wind's existing market structure -- based on tax breaks, a production incentive, and green power sales -- Heinsbroek has given little indication of what will replace it. He will raise money for a support program, however, through an environmental charge on electricity bills dubbed MEP. All households, some seven million in total, will be required to pay a new flat rate charge of EUR 34. Details of how the resulting EUR 250 million MEP funds will be shared out across the renewables sector will only be announced in November -- just one month before the new system is to be implemented.

The Netherlands' trail blazing trade of green certificates -- which underpins the green power market by allowing producers to trade the environmental value of their power separately from the physical electricity -- will apparently be retained. "All we can say at present is that it will have a place in the new system," says the ministry.


The lack of clarity has left green power retailers with no option but to gamble that whatever form of support is on offer from the MEP funds it will be enough for them to continue supplying green power to their customers in 2003 at today's prices. The existing combination of market incentives allows green power to be sold for the same price as brown power.

The exact amount of MEP subsidy Dutch wind requires to compensate for the lost eco tax and subsidies is the focus of intense industry discussion. Mathieu Kortenoever of private wind energy producer association PAWEX suggests that if the MEP system is to be guaranteed for a ten year period as proposed, a EUR 0.05-0.06/kWh MEP production incentive would probably be sufficient for onshore wind. For offshore wind the term would have to be extended to 15 years.

The wild card in the pack however is the fate of the Energy Investment Allowance (EIA), one of the fiscal measures thought to be on Heinsbroek's hit list. This allows private wind developers to set an additional 40% of their original capital investment against income tax. Removing the EIA would create total chaos, says Kortenoever. "It could require a MEP subsidy of EUR 0.09/kWh while raising all sorts of problems for existing wind farms."

Closing the gates

Heinsbroek hopes his cuts will save the Netherlands EUR 575 million from the annual renewables and energy efficiency support budget of EUR 800-900 million. His aim is also to stop the flow of Dutch tax revenues to foreign green power producers -- some EUR 40 million in 2002 -- as MEP subsidies, unlike the REB producer subsidy, will only be available to Dutch producers.

It is expected that under a new support system, subsidy rates will be differentiated according to technology with wind energy winning out over light green "renewables" such as power from incinerated animal waste and refuse. Different rates could also be set for on and offshore wind, insiders suggest.

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