Utility credit trading and the green connection

Wind in Europe is knocking on the door of big time power production. Thanks to liberalisation, electric utilities, long regarded as the enemy of small independents, are learning a new role as market facilitators for green power. Nowhere is this more so than in the Netherlands, where utilities are devising ways of profitably integrating renewables into their supply portfolios. General agreements for cross border trade in green power are next.

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While the wind community continues to debate the respective merits of green power trading mechanisms and subsidy schemes, a number of European utilities are already putting in place a cross border trading system which they hope will make renewables an integrated part of the liberalised energy market in the short rather than the long term. If plans for a joint declaration come to fruition at this month's World Sustainable Energy Trade Fair (SUSTAIN) in Amsterdam, a working system for international trade in green energy certificates could be operational by the beginning of next year, utility insiders predict.

Four months ago a deal between a Dutch utility and a British wind energy producer moved the idea of cross border trade in renewable energy certificates off the drawing board and into the real world. Energie Noord West (ENW) bought 200 green energy certificates from the UK's National Wind Power (NWP) for a nominal sum (Windpower Monthly, March 1999). The certificates, each representing 100,000 kWh supplied by NWP to the UK grid, will be used by ENW to help fulfil its voluntary obligation with the Dutch government to secure 3% of output from renewable resources by year 2000. The utility will also be able to sell the certified kilowatt hours to Dutch consumers as part of its program for marketing green electricity to consumers who elect to pay a premium price for nominally green electricity. The money earned will go into renewables development. For its part, NWP lost the right to market these kilowatt hours on the UK's own emerging green electricity market.

According to ENW's Willem-Fredrick Metzelaar, the deal was intended to provide a practical demonstration of the possibilities of the Dutch Green Label system as a vehicle for international trade in renewable energy credits and to stimulate a wider international debate.

Since January that debate has continued apace, with Dutch utilities' umbrella organisation, EnergieNed, hosting meetings for interested parties in the UK, Denmark and Germany. "Apart from some criticism from sections within Germany, these were all very positive," reports ENW's Metzelaar. His view is supported by Peter Niermeijer of EnergieNed. "There is clearly sufficient interest to proceed with the creation of an international system for certification," he confirms, adding that Switzerland, Belgium, and Italy are also interested in the scheme.

Before a system for cross border trade in certificates can become operational, however, independent certification authorities need to be set up in each of the countries involved. This problem will be addressed at a meeting on 27 April in Arnhem. "It's a tough nut to crack," concedes Niermeijer, "But I am confident that solutions can be found in Denmark and the Netherlands, with the UK following close behind." In Denmark, Niermeijer points to the grid operator as a likely candidate and in the UK the Energy Saving Trust will be a key player, while in the Netherlands administrative responsibility is likely to pass from EnergieNed to a government agency.

It's a question of trust, says Niermeijer: "If we want to do something together in Europe we have to concentrate on how to make certificates, how we can trust each other. We need issuing bodies who are independent from the trade. Thus we have to find suitable bodies in each country. Optimally it would be the responsibility of different national governments, but we have yet to reach that point."

International declaration

Given a successful outcome to the Arnhem meeting, the next step towards the creation of an international trading system will be taken during SUSTAIN. As part of a seminar on Utilities in the International Green Energy Market, delegates will be invited to help formulate and sign "A declaration to governments and international organisations to promote the international trade and development of renewable energy supply." The declaration is unlikely to be highly detailed, Metzelaar says. "There are a number of countries still engaged in discussions about the transportation of energy and unbundling tariffs which, insofar as they affect decisions about the centralisation or decentralisation of production, are issues which have significant implications for the employment of renewable resources."

In outline, however, both Metzelaar and Niermeijer are agreed on the substance of the proposals they want to see come out of SUSTAIN. The primary focus will be on the creation of a flexible, international system for the certification and registration of green energy based on the Dutch model, but with independent certification authorities in each country. There will, they insist, be no attempt to dictate the renewables policy of national governments. The trading system will effectively be presented as an alternative way of supporting renewables. German wind producers, for example, will be able to opt either for subsidised production or entry into the European trading system.


Addressing the vexed question of how green energy produced under a subsidy regime can be incorporated into a system where profits are realised through the trade of certificates on an open market, Metzelaar and Niermeijer propose that subsidised kilowatt hours should be certified, but that these certificates should be clearly flagged as non-tradeable. This would mean, for example, that German certificates could not be imported into the Netherlands, but would remain the property of the German state. "But this will be a political decision, it's not up to us, we are just the facilitators," emphasises Niermeijer.

Despite the long term objective of integrating renewables into a liberalised market, government regulation will remain necessary, believes Metzelaar. "We're still in a transition phase where there isn't really a market as yet. You might propose the full integration of renewables into the energy market, and our proposals are a small step in that direction, but you still have to subsidise it. The question is, what path are you going to take?"

The Dutch market for tradeable green energy credits, or "labels," is currently driven by a voluntary obligation agreed between the utilities and government. Legislation under consideration would, however, shift the renewables percentage obligation from the utilities to the end user or consumer, as under the Danish proposal (Windpower Monthly, April 1999). The voluntary obligation, not surprisingly, is the utilities' preferred option, but, argues Metzelaar, it is also in the interests of wind. Imposing quotas on utilities means that renewables will be seen as a burden rather than an opportunity-and any utility dragging a substantial renewables obligation into a fully liberalised market would be unlikely to last very long, he argues.

Room for profit

Metzelaar is upbeat about the future of renewables in a liberalised economy. "If you talk about large scale renewable energy production, some form of subsidy is still necessary for the time being," he says. But for utilities keen to establish their identity in the new market there is certainly a percentage profit in renewables development-and a small profit can be made through marketing green products, he believes. "But it is also an innovation," says Metzelaar, "and if you are in a liberalised market you should invest in any new system that you think is going to be profitable," he adds.

"Wind power is one of the fastest growing markets in the world and the hardware producers are barely able to keep pace with the demand." He foresees a situation where there is a two year waiting list for new turbines. Offshore wind is particularly interesting he believes, arguing that governments should cover the initial investment costs of offshore developments in the same way they cover the hidden costs of fossil fuels: "Then wind energy will become truly competitive with fossils," he says.

It's a mess

Although it is clear that the utilities have the power to set their own agenda in terms of international trade, Metzelaar is closely monitoring the debate within the wind community. He understands the reluctance of wind turbine owners to relinquish subsidies and accepts there will always be forecasting problems with wind energy supply to the grid. However, he likens the case of subsidised wind producers to that of the European farmers. "On the surface everything seems okay, but if you look more closely it's a mess: there are huge problems in the sector's ability to respond to market developments."

Renewables producers should try to break free of the subsidy system and work more closely with the utilities he counsels: "Utilities have the economic force and together we can try to persuade governments to make better use of instruments such as ecotaxes." If wind power producers continue to lose themselves in the niceties of debate without end, there is a danger renewables will miss the boat, he warns. "In any market its the first players who set the rules of the game."

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