Danish Electricity Reform, Offshore Wind Power and Green
Presentation by Soren Krohn, Managing Director, Danish Wind Industry
Association, at the Parliamentary Hearing of the Energy Policy Committee of the
Danish Folketing, 28 September 2001
This presentation concentrates on offshore wind power.
Why were green certificates included in the Danish political Electricity Reform
Agreement in 1999? Clearly, that was because it is impossible to control prices and
quantities, (i.e. the rate of deployment) simultaneously. Some people thought that the
Danish wind energy programme was becoming too expensive. The agreement
foresees a very peculiarly Danish renewable energy market (a renewable portfolio
standard) with tradable green certificates.
This would be the most complex system for renewables support ever seen anywhere.
DANISH WIND INDUSTRY ASSOCIATION
VINDMØLLEINDUSTRIEN Tel : +45 3373 0330
Vester Voldgade 106 Fax : +45 3373 0333
DK 1552 København V E-mail : firstname.lastname@example.org
Internet : http://www.windpower.org
Other countries are moving in quite different directions.
France has recently followed the German and Spanish example with a fixed tariff
per kWh. Green certificates in the Netherlands and Italy have fixed prices per kWh
set by politicians, and the UK includes tax rebates, which are decided by politicians
just like it was done in the former Danish fixed kWh tariff system.
The Danish green certificate market should have been ready by 2000, but time has
passed. The task is simply too difficult to complete in a small, isolated market like the
Danish renewable energy market.
The planned Danish renewable energy market will be so small, so complex, and so
risky, that it is likely to collapse.
That would give poor international publicity for Danish knowledge about renewable
energy and it would be bad publicity for the use of economic instruments in
environmental and energy policies. No one can be interested in such an outcome.
Anyone promising that wind energy will necessarily be cheaper with a green
certificates, has probably not analysed the problem.
Green certificate prices can easily reach the maximum of 0.27 DKK/kWh without
anyone wanting to finance or invest in wind. This is quite similar to the California
Investors in Danish offshore wind will fear:
(1) that Parliament changes legislation to diminish the value of green certificates. (2)
that the EU Court of justice opens free trade in green certificates with countries with
high wind speeds, e.g. Ireland, lowering the value of certificates, i.e. investors will
require a high price now to recover their investment. (3) Offshore wind farm projects
are very »lumpy« and may destabilise the market.
Investors thus have to insure political risks.
That will be expensive.
It will be difficult to use a single certificate for both biomass and wind at the same
If state supported biomass electricity is mixed with both offshore and onshore wind
energy into a single blue-green certificate, then the system cannot work at the
If state support is mixed into the certificates, then the transparency and the free
market mechanism disappear.
And offshore wind energy comes in large lumps, which may very easily destabilise the
A well functioning green certificate market requires many buyers and sellers.
If Parliament decides to introduce green certificates it places itself on the back of a
It will be forced to leave the rules unchanged once they are introduced, otherwise
the market may collapse.
If investors are left down once, the market will loose confidence, so many future
parliaments will be bound by the initial decision.
It will be just as difficult an exercise to change the rules as to pursue a successful
The deployment of renewable energy including wind energy should of course be done
as inexpensively as possible. How cheaply can it be done? Parliament can almost
decide that by putting electricity from future offshore wind parks up for public
tender. That is the cheapest solution possible, and it was indeed proposed by the
Danish Energy Minister himself in 1998. The deployment of wind power will be very
inexpensive if politicians offer 30- or 25-year power purchasing contracts.
If there are only 5- or 10-year contracts, then deployment will be much more
If Parliament decides on 1-day contracts, then it will be extremely expensive. If
wind turbine owners only know the price of their electricity and green certificate sales
one day at a time, then we have exactly the situation in a green certificate market.
The Danish Wind Industry Association is not against competition or against a
market for renewables but an artificial day-by-day market will be very expensive for
the Danish electricity consumers who ultimately have to foot the bill. This would
make the Danish offshore wind programme a very poor demonstration project.