DENMARK
GENERAL POLICY DEVELOPMENTS
A new Danish government took office in November 2001. This has led to
several developments in energy policy. The first change came when
responsibilities for energy policy were moved from the former Ministry of
Environment and Energy (now Ministry of the Environment) to the Ministry of
Economic and Business Affairs.
As a general policy direction, the government envisions an efficient energy
market supported by a framework that ensures a high degree of consumer and
environment protection, efficient use of energy, moderate developments in
energy prices, and a high security of energy supply in both the short term and
the long term. The government considers that management of environmental
concerns and security of supply can be achieved most efficiently through the
energy market.
Following a proposal on the liberalisation of the energy markets submitted by
the government in September 2002, an energy policy agreement was signed on
9 May 2003 between the different Danish political forces, promoting the
development of efficient electricity companies and ensuring that consumer
assets in electricity companies are used in a way that is beneficial to consumers.
The agreement also means that there is equal competition between energy
companies for the use of electricity and gas transmission grids. The agreement
covers all of the following issues:
● Improved possibilities for selling municipality-owned utilities.
● Prevention of price increases as a consequence of sales of monopoly companies.
● Ownership unbundling of system operators and transmission companies
(the agreement led to the creation of a state-owned transmission system
operator in the gas sector – Gastra).
● Recycling of tied-up capital to electricity consumers.
● Enabling system operators to tender for additional capacity to improve
security of supply.
● Providing incentives to grid companies to maintain reliable and stable
electricity supply.
● R&D in renewables is improved by DKr 47m annually.
● Modifying support schemes for CHP and renewables to make them more
compatible with the open electricity market.
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The conditions for long-term development of North Sea activities were also
clarified in 2003. By the end of 2003, the Danish Parliament adopted
the proposal and the accompanying legislation implementing the agreement
of 29 September 2003 between the Minister for Economic and Business
Affairs and the company A.P. Møller-Mærsk. This has provided a stable and
long-term basis for exploiting the resources in the North Sea, while also
affording the State a substantially larger share of profits generated from the
activities (see section “Oil and Natural Gas” for details).
On 29 March 2004, three important agreements were signed. The first two
were completed between the government and a broad majority of the Danish
Parliament (Folketinget): the first agreement concerns securing a reliable
energy infrastructure for the future; the second agreement establishes the
framework for expanding the number of wind farms and for a better-
functioning electricity market. A third agreement was signed between the
Ministry of Economic and Business Affairs and Elfor (the Danish Association
of Electricity Distribution Companies) determining financial conditions in the
electricity supply companies and establishing an independent and state-
owned transmission company in the electricity sector.
ENERGY SUPPLY AND DEMAND
In 2003, Denmark TPES amounted to 20.5 Mtoe, growing from 17.6 Mtoe in
1990. Oil accounted for around 42% of the supply, while coal and gas
contributed a little less than a quarter, and renewables more than 10%.
Denmark remains a net energy exporter, with net oil exports accounting for
more than 10 Mtoe (in 2002), gas for more than 3 Mtoe and a certain amount
of electricity.
Denmark’s final consumption (TFC) was above 15 Mtoe in 2002, or 9% more
than the 1990 level. The commercial and residential sectors remain the largest
final consumers with 47% of the TFC in 2002. Transport and industry account
for 32% and 21% of TFC respectively.
ENERGY AND THE ENVIRONMENT
Energy-related CO2 emissions reached 51.2 Mt in 2002, up 1.2% from their
1990 level. The energy sector emits most CO2, and increased exports of
electricity to Norway and Sweden will significantly increase emissions in
Denmark.
As a consequence of the Kyoto Protocol and the subsequent EU Burden
Sharing Agreement, Denmark is committed to reducing average annual
emissions of greenhouse gases by 21% in 2008-2012 compared to the 1990
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basis year. It is estimated that the excess emissions of greenhouse gas will
be 20-25 million tonnes of CO2-equivalent per year in 2008-2012. This
corresponds to between 25% and 30% of Danish greenhouse gas emissions.
The costs to Danish society of this excess could be reduced to between
DKr 1 and 2 billion per year in 2008-2012 as a result of the government's
climate strategy proposed in February 2003.
The Danish government attempts to maintain a high level of efforts to
mitigate energy-related emissions through cost-effective measures. This
strategy very much involves the energy area, and supplements existing
activities. CO2 quotas at EU level will be the most important instrument in
meeting Denmark's climate commitments. The European CO2 quota system
that was agreed upon during the Danish EU Presidency (from 1 July to 31
December 2002) covers energy production and parts of energy-intensive
industry. Companies will be allocated a number of quotas in relation to a
quota-allocation key. Denmark’s allocation plan was among the first national
plans to be approved by the European Commission in July 2004.
Today, Danish companies are in a strong position with large exports of
environment-friendly energy technologies such as wind turbines and various
energy-saving technologies. Companies are already oriented towards the new
projected emissions market and enterprises subject to quotas are expected to
gradually show more interest and demand for more efficient technologies.
The government considers important that the other environmental aspects
in energy production are incorporated when broader cohesive solutions
are assessed. For example, noise nuisance and landscape impacts from
energy plants should be minimised as much as possible. It is also
considered important that energy production from biomass and biogas
are combined with considerations in other environmental problems
associated with agricultural policy. The government will make it possible
to continue expanding biogas use, which, within certain limitations, will
be economically advantageous. New biogas installations established
before the end of 2007 will benefit from a fixed tariff of DKr 0.6 per kWh
over the first ten years, and DKr 0.4 per kWh over the next ten years,
within an overall ceiling of 8 petajoules (PJ).
Denmark has made efforts to minimise air pollution from energy production.
Measures for removing sulphur dioxide and nitrogen oxides from exhaust
gases, replacing coal and oil with gas, and district heating in urban areas have
all helped improve ambient air quality in towns, and further measures are on
the way. The EU National Emissions Ceilings Directive (NEC), implemented
into Danish law in January 2003, contains ceilings for emissions of sulphur
dioxide and nitrogen oxides in 2010. Furthermore, the EU Large Combustion
Plant Directive (LCP) was implemented in Danish law in 2003.
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ENERGY DEMAND AND END-USE EFFICIENCY
Energy production per TPES has grown significantly since 1990, from 0.55 toe
to 1.46 toe (in 2002), while the energy intensity of the Danish economy
measured as TPES per unit of GDP decreased from 0.11 toe in 1990 to 0.09 toe
in 2002.
The gradual decrease of energy intensity is due to improved efficiency in
energy consumption at the end-user, and more efficient energy supply, partly
as a result of greater use of combined heat and power (CHP).
Efforts by the Danish government to improve energy efficiency emphasise
consumer considerations, competition between technologies and solutions,
cost-effectiveness, and long-term benefits for society.
More flexible energy consumption, in particular, can lead to improvements in
security of supply. It is therefore important that as many energy consumers as
possible are able to react to market prices. More flexible electricity
consumption can reduce costly peak loads. This is not the case in Denmark
today. Demand for electricity is inflexible. Therefore, the Danish government
will ensure that the trials in progress in this area are followed up. Such trials
are part of grid companies’ efforts to assess the flexibility of demand in
industry and households.
Just like other energy policies, initiatives for cost-effective energy consumption
should be regarded in an international framework. The Danish government is
intending to work actively for the development of common tools within the EU
to promote energy conservation. The aim is to ensure greater influence with
producers and provide greater savings at lower cost, but also to make sure that
measures do not affect the competitiveness of Danish companies.
In September 2004 the government announced the preparation of an action
plan on energy saving and efficiency. The Energy Authority will publish a report
in December 2004 to appraise the demand response of electricity consumers as
a way to prepare further possible energy efficiency and conservation measures
in a market context, exploiting the flexibility of demand in relation to prices.
RENEWABLE AND NON-CONVENTIONAL FUELS
Exploitation of renewable energy sources such as wind and biomass is taking
an increasingly prominent position in Danish energy supply. Capacity
development with renewable energy installations continued in 2003.
Renewables are pursuing growth in the total supply. Their share was above 13%
in 2003, against close to 7% in 1990. The bulk of it is made of energy from
combustible renewables and wastes, but the fastest growing share originates
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from wind, which, along with solar and other renewables, accounted for 2% of
TPES in 2003.
As part of the agreement on the electricity reform in 1999, an objective was
laid down that renewable energy-based electricity production in Denmark
should represent at least 20% of domestic electricity consumption by the end
of 2003. Under what is considered as normal wind conditions, renewable
energy capacity installed at the end of 2003 would have contributed about
23% of the national electricity consumption for 2003. The objective has thus
been realised.
The renewable energy proportion of national electricity consumption is
expected to rise to about 29% in the years to come, primarily as a result of
the two new offshore wind farms decided in the latest energy policy
agreements.
As a result of the biomass agreement of 2000 and the fixed tariff introduced
at that time, there has been an expansion of biomass-based power production.
The overall objective of the biomass action plan has been achieved, but in
such a way that the amounts of straw are smaller, while amounts of woodchip
have been greater than anticipated. Discussions are in progress between the
energy sector and the agricultural sector supplying straw on possibilities to
use further amounts of straw. The target to build several central power
stations has now been more or less achieved. The number of small
independent biomass installations, especially wood pellet boilers, is also
increasing, and this expansion is expected to continue. The Danish
government intends to ensure the quality and environmental properties of the
smaller installations through support to testing smaller bio-fuel boilers.
OIL AND NATURAL GAS
Although oil production is projected to decrease in the coming decades, the
2003 figure is still higher than the previous year, with 18.7 Mtoe produced. In
2003, at 7.2 Mtoe, gas production was a little less than in 2002. However,
production from the North Sea oil and gas fields is the main reason why
Denmark has been self-sufficient in energy since 1997. Technological
development has made it possible to exploit a steadily increasing percentage
of the oil discovered in Danish territory. A sixth Licensing Round is to be held
at the end of 2004 for the purpose of awarding new oil and gas exploration
and production licences.
The agreement of 29 September 2003 between the Ministry for Economic and
Business Affairs and A.P. Møller-Mærsk sets the framework for the long-term
organisation of oil exploration in the North Sea until 2042. The agreement
seeks to ensure an optimum exploitation of domestic oil resources, and to
secure considerably higher revenue for the State.
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From 2004 to 2042, the State's share of profits on these activities is
estimated at 61%, subject to certain assumptions with regard to production
volumes and oil prices. This represents a substantial improvement over
the average 47% share received by the State in the past, and the 40%
received in recent years. It appears from the statement to the Danish
Parliament on the North Sea of October 2003 that additional revenue of more
than DKr 2 billion (€270 million) is anticipated for the period until 2012.
ELECTRICITY
Gross electricity production reached 46 TWh in 2003, growing regularly (from
26 TWh in 1990). More than half of it remains produced from coal, 22% is
produced using gas and 12% from renewables (essentially wind). Expressed in
terms of domestic consumption only, the share of wind is higher, around 16%,
in 2003. Denmark exports significant quantities of electricity, especially to
Norway.
On 23 September 2003, a substantial power cut hit Sealand and southern
Sweden. Conscious of the challenges this poses for the economy, the
government is attempting to establish a stable framework for electricity
supply, in co-operation with other Nordic countries.
After liberalising electricity supply in 2000, changes took place in the
framework of the electricity sector. Electricity transport and distribution are
monopoly tasks, subject to state regulation, while electricity production and
trade are subject to competition under normal market conditions.
The political task is to establish a framework for the monopoly tasks that will
secure equal access to the grid for all producers, under equal and non-
discriminatory conditions. This ensures not only competition for production,
but also that consumers are able to choose freely between different producers.
This involves creating a stable framework for new investment so that market
forces can secure efficient cohesion between consumption and supply.
The system operators play a central role in maintaining an efficient market
and in sustaining security of supply.
To ensure segregation of ownership between system operation and overall
transmission from production and trade so that the conditions for access to
the electricity grid are laid down independently of commercial interests, the
government made the State responsible for system operation and overall
transmission. To accomplish this, following the agreement with Elfor, the State
intends to take over Eltra, Elkraft System, and Elkraft Transmission from the
grid companies.
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The March 2004 agreement involves the new joint system operation and
transmission company "EnergiNet Danmark" remaining in public ownership.
EnergiNet Danmark is being set up by statute as a state-owned enterprise that
will ensure efficient operation and expansion of the overall infrastructure. Energi-
Net Danmark can include a normal return for grid companies in its tariffs for
future investment, including possible purchases of regional transmission grids.
The remaining surpluses will be transferred back to consumers.
A first right and duty of purchase for the State will be implemented for the
regional transmission grids in connection with direct or indirect transfers.
Thus, section 38 of the Electricity Supply Act, stating that electricity
production and electricity trading companies may not own more than 15% of
a grid company, is repealed. In order to bring capital relationships in the
electricity sector into order, the definition of capital as free equity capital and
tied-up equity capital in the electricity legislation will be amended so that they
no longer differentiate between free and tied-up capital.
There is political consensus that the price of electricity cannot be allowed to
rise as a result of these changes in the definition of capital and the
establishment of EnergiNet Danmark. This will be ensured through new price
regulation. There will therefore be no increase in revenue caps due to the
modified concept of capital. Thus, the interests of the consumers are still
being taken into consideration. An additional part of the agreement is simpler
regulation regarding supply obligation and consumer representation, which
harmonises with a well-functioning market.
In recent energy policy agreements, it has been decided to prepare a national
action plan for the future infrastructure up to 2010. The goals are to secure a
greater degree of security of supply, to establish well-functioning competitive
markets, and to accommodate renewable energy.
Before 1 March 2005, the Minister for Economic and Business Affairs will
present an action plan for the future infrastructure.
The action plan will also describe the future energy supply, the interplay and
integration of different energy technologies, as well as the perspectives for
future energy supply up to 2025, including use of new energy technologies.
Experience of open electricity markets shows that a well-functioning electricity
market and a comprehensive transmission grid that can ensure free movement
of energy both domestically and across national borders are equally necessary
if production capacity is to be fully exploited. If the transmission grid is to
meet this requirement, the action plan will also highlight possible needs to
enhance international and domestic grid interconnections.
About a quarter of the total electricity production comes from decentralised
combined heat and power plants. Through better regulation and better use of
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the decentralised plants, the government wants to ensure a better electricity
market for all, including the smaller electricity producers. Therefore, the
government will implement a number of changes as agreed in the recent
energy policy agreements. The aim is for the new regulations to enter into
force on 1 January 2005.
Subsidies to existing decentralised CHP plants will be reorganised to secure
the plants the same total level of subsidies as under the current three-period
tariffs. Subsidies will be regulated in relation to changes in the price of
electricity. The government considers that heating prices must not increase as
a result of the reorganisation. The aim is to better optimise the supply of
power from CHP with demand for electricity and avoid situations where CHP
plants produce electricity in excess of what the market can absorb.
Subsidies will be set for individual plants so that total subsidies reflect the size
of the subsidy granted to the plant under the three-period tariff. The subsidy
period is 20 years from the date the plant is connected to the grid, and no less
than 15 years from 1 January 2004. A 2-year transitional scheme will be
established for plants of less than 10 MW and a special flexible scheme for
small plants of less than 5 MW.
RESEARCH, DEVELOPMENT AND DEMONSTRATION
The government considers it important that energy research contributes to
developing useful and environment-friendly new technologies, that will be
competitive when needed, e.g. in order to replace Denmark's domestic oil
and gas production. Research, development and demonstration of new
technologies therefore need to be strengthened.
From 2004, an extra amount of DKr 47 million is allocated to research,
development and demonstration activities in order to promote exploitation of
new energy-efficient technologies. The extra efforts involve a permanent annual
increase of DKr 15 million, from 10 to 25 million per year in the financial
framework for grid company research and development activities, and an
increase of DKr 25 million in allocations to the energy research programme,
which will be provided annually over a 5-year period starting from 2004.
Furthermore, DKr 7 million will be earmarked annually for type approval and
quality assurance of renewable energy technologies. A legislative
amendment will seek to raise financing of state initiatives through taxes
expected to be received under the existing CO2 Quota Act when CO2 quotas
are exceeded.
Financing through CO2 taxes will be an additional supplement to existing
funds, e.g. the DKr 110 million allocated to research into renewable energy
under the Danish Research Councils for 2003- 2005. Demonstration activities
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based on strong research environments within renewable energy, new energy
technologies, and energy-efficient technologies, must be given extra focus.
To strengthen and facilitate public and private partnerships for R&D, the
government is currently working on formalising a co-operation model that will
ensure the best synergy between the Renewable Energy Fund of the Danish
Research Council, the Energy Research Programme under the Danish Energy
Authority, and the electricity companies' Public Service Obligation (PSO)
funds.
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