Precedent setting tax relief approved

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The price differential between grey and green power in the Netherlands has been significantly reduced following European Commission approval of a scheme to remove the country's energy tax from electricity generated from renewable resources. The approval could herald a major breakthrough in sales of green electricity, say market observers.

So-called "green electricity" schemes, under which consumers elect to pay a premium price for electricity with the extra revenue being ploughed back into renewables development, have become an increasingly familiar feature of the Dutch energy scene since first piloted by Brabant-based utility PNEM in 1995. With PNEM's example being followed by a number of other utilities, some 45,000 consumers -- mostly households and small businesses -- have chosen to put their hands in their pockets for the sake of a better environment. The first wind farm to be financed directly from this source was opened last year.

With EU approval for a scheme, which will effectively exempt green electricity from the Dutch ecotax (REB) of NLG 035/kWh, the price difference between grey and green power is set to be halved. Subscribers to green electricity schemes currently pay some 20% more than grey power consumers. With the zero rating of the REB, this will be reduced to around 10%.

The Commission's approval of the zero rating proposal comes after the failure of an earlier attempt by the Dutch government to reward green power consumers by levying a lower rate of VAT (6% instead of 17.5%) on green electricity. It ran foul of EU legislation on fair competition in the energy sector. The current proposal drafted by the Ministry of Finance was approved under EU guidelines on state aid for environmental protection with an effective subsidy of some NLG 30 million. It will be applied retroactively from January 1 this year and runs until January 2003 with customers receiving an automatic rebate from their utility.

Too vague

Reactions to the announcement from the Dutch renewables sector are mixed. Mathieu Kortenoever of the association of independent wind turbine owners (PAWEX) accuses the authorities of being too vague about the details of the scheme and believes it is too early to judge the effect of a zero rated REB on the market penetration of green electricity or its likely consequences for Dutch wind development.

Others are more positive. Jack ven Gestel, in charge of green sales at utility PNEM, which with some 12,000 subscribers to its own green electricity scheme is one of the sector's market leaders, predicts a significant increase in sales following the decision. PNEM is charging NLG 0.276/kWh for green power. A zero rated REB will bring this down to NLG 0.25/kWh, just NLG 0.02 dearer than the current price for grey power when it includes the REB.

Although green electricity will remain more expensive, the reduction of the price differential from over four and a half to two cents is psychologically important, Ven Gestel believes. "Our market research shows there are many people who are prepared to pay more for environmentally friendly electricity, and when we ask how much more, the usual answer is about ten guilders a month. For an average household which consumes some 3000 kWh yearly, the extra cost of green electricity is currently 15 guilders a month. With the zero tariff, this will be brought down to between seven and eight guilders."

Having crossed the ten guilder psychological barrier, Ven Gestel is looking forward to a "huge increase in green electricity sales." With PNEM already buying wind power from independent producers outside its distribution area in order to meet current demands (Windpower Monthly, December, 1997) his optimism bodes well for the Dutch wind community.

The broader picture, however, presents a more sobering prospect. MEGA Limburg, the utility which claims to be the largest supplier of green electricity, derives none of its 65 gigawatt hours from wind, while in the Netherlands as a whole renewables (wind, solar, small-scale hydro and biomass) still account for less than 1% of total energy production. Moreover, while EU policy on renewable energy support remains confused, uncertainty still surrounds the long term future of the zero tariff scheme. But the recent White Paper on the promotion of renewables, approved by energy ministers last month, recommends the use of tax exemptions of this kind -- an indication that the zero rate may be here to stay.

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