Implications for green power from utility merger

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The Dutch energy sector looks set for another major shake-up following the announcement of a proposed merger between four of the country's utilities, including giants NUON and Energie Nord West (ENW). The merger, which is expected to be ratified by shareholders in the spring, will see NUON (Gelderland, Flevoland and Friesland), ENW (North Holland), EWR (Leiden), and Gamog (gas suppliers in Gelderland) fuse to form one mega utility, which will be known as NUON ENW with headquarters in Utrecht.

A successful merger would take the new company to poll position in the national utility league table where the top spot is currently occupied by the MEGA/PNEM Group, following the merger of MEGA-Limburg and PNEM in January last year.

With a 40% share of the Dutch market, turnover of NLG 7.6 billion, some 2.5 million electricity accounts, 1.7 million gas accounts and 0.4 million water customers, NUON ENW will also become a significant force on the international scene. Its 4.7 million customers will make it the first Dutch power company to enter the European top ten.

According to NUON, the move has been motivated by the pace of liberalisation in the Dutch and European energy markets, which the companies believe makes expansion imperative. Specifically they hope that economies of scale, by strengthening purchasing power, will enable them to offer more competitive tariffs and to expand the range of products and services they can offer the consumer.

Pledge to renewables

Anxieties that the decision to scale up in readiness for international competition may signal a weakening of NUON's traditional commitment to the development of renewable energy should be somewhat allayed by the prominence given to renewables in the concern's mission statement. At present NUON generates 3% of its annual output from renewable resources and aims to increase that to 5% in the year 2000. According to NUON, the new company intends to remain a leader in the renewables sector with particular emphasis on small scale energy applications.

Nevertheless, the merger looks set to have considerable implications for the operation of the year old market in tradeable renewable energy certificates, or Green Labels. Under the Dutch system renewable energy producers are issued with Green Labels by their local distribution company certifying the amount of power they have supplied to the grid. These certificates are sold back to the utilities on an open market driven by the utilities' voluntary obligation to secure 1.7 billion kWh of electricity from renewables by 2000. The proposed merger of NUON and ENW -- two of the utilities most active in wind -- following in the wake of the emergence of the MEGA/PNEM combine last year, inevitably means fewer customers for independent wind producers competing to realise a profit through the sale of Green Labels.

Mathieu Kortenoever, head of the association of private wind turbine owners (PAWEX), says that while he can see the dangers of a cartel situation emerging, in practice he feels it will have limited implications for PAWEX members: "when David is negotiating with Goliath it doesn't make much difference whether Goliath is nine meters or 15 metres tall -- he's still a giant." According to Kortenoever the consolidation of the sector may even prove beneficial to his membership.

Less like gentlemen

"All the mergers will of course reduce the number of players, and thus potential buyers for green labels, but on the other hand the competition might intensify because fewer players will act more aggressively towards each other. Before, the Dutch utilities were all equally matched, and they were not strong enough to fight the foreign competition. Now that they are international players they will act less like gentleman among each other. The pros and cons are equally balanced," he says.

A successful merger would leave the Dutch energy market divided between six main players, NUON-ENW, MEGA/PNEM, EDON, ENECO, Delta and REMU. Breaking news that the Utrecht-based utility REMU intends to join forces with the Gas Bedrijf Central Nederland (GCN) -- and is contemplating an eventual union with NUON ENW -- potentially means a further reduction in the number of players and continues the historic trend which has seen the total number of Dutch utilities reduced from some 100 in the 1980s to 30 today.

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