Maaberg biomass-fired CHP

Denmarks policy for a green electricity market
by O Odgaard, Danish Energy Agency, Ministry of Environment and Energy

As a short-term goal, the share of electricity produced from renewable energy sources in Denmark will be doubled to 20% by 2003, as a result of new Danish electricity market reform. A green certificate market with quotas will be introduced, along with measures to protect small renewable energy producers and ensure the continued development of less mature technologies.

Background

On 3 March 1999, a large majority of the Danish Parliament entered into an agreement on comprehensive electricity reform. Part of the agreement concerns electricity produced from renewable energy sources (RES). A competition-based green market will gradually be introduced in 2000 in order to double the share of RES-electricity from 10% to 20% by 2003.

Land-based wind turbines and offshore wind farms will supply the bulk of this short-term expansion. There will also be a significant contribution from new large-scale combined heat and power (CHP) plants, based on biomass.

The fully-operational green market for RES-electricity from 2003 onwards will be designed after consultation with relevant parties in the field, including organisations and professional experts. At the beginning of 2000, a report with recommendations on the specific organisation of the green market will be submitted. Some of the forthcoming market reforms for RES-based electricity are outlined below.

Annual quotas

All consumers will have to buy a proportion of their electricity from RES every year.  Distribution companies will be obliged to pay a fine if the annual quota is not fulfilled. This purchase guarantee is a confidence-building measure for the manufacturers of RES-plant and equipment and aims to stimulate investment in the development and manufacture of RES-technologies. A stable commercial infrastructure is an important precondition for further development of the sector.

It is considered to be a Public Service Obligation (PSO) to issue quotas of RES-electricity, to certify and monitor the certificate market, to provide network services and to balance demand and supply and voltage regulation. The individual renewable energy producer will pay for connection of an individual scheme to the nearest feed-in point on the grid. A PSO agency will be empowered to impose on energy distributors the obligation to provide and sell a certain share of energy from RES.

Green certificate market

The Danish Government has defined green electricity as electricity from renewable energy sources produced from approved and certified, environmentally benign equipment. Electricity from nuclear power, municipal solid waste and large hydro-power plants (above 10 MW) will not be defined as “green electricity” in Denmark.

The producer of green electricity receives so-called “green certificates” according to the actual amount of green electricity delivered to the grid. The electricity is sold to consumers/distribution companies and, after a transitional period, it will be sold on the same terms as conventionally generated power. This means that the owner or operator of a RES plant actually has two products: electricity and green certificates.

The consumers/distribution companies fulfil their quota by purchasing certificates at a national stock exchange for green certificates. This enables a free market for green certificates, with supply and demand setting the price. If the consumers/distribution companies do not fulfil their quota, a fine is imposed. This effectively becomes a price ceiling for the green certificates. Thus, production and distribution of RES-electricity will be subject to market conditions; increased efficiency will be pursued through controlled commercial incentives.

Gradual introduction

To ensure that investors enjoy stable economic conditions until the market is fully functional, guaranteed electricity prices will be used. New plants, constructed before the end of 2002, will receive a fixed feed-in tariff for their electricity for a 10 year period, plus a certificate. After 10 years, the remuneration will be the market price of electricity, plus a certificate. From 2003 onwards, all new RES plants will immediately receive the market price for electricity, plus a green certificate.

Less-mature technologies

Some less-mature technologies will be needed to fulfil the long-term targets for RES. Renewable technologies are at different stages of maturity and the support needed for wind power technology, for example, is much lower than the support needed for biomass gasification technology.

Studstrup power station, which co-fires coal and straw

Less mature technologies of medium- and large-scale need support in order to avoid being disadvantaged by their high short-term development costs. One future measure could be to issue green certificates to all technologies, and grant an additional electricity production subsidy to the less-competitive technologies. The size of this PSO-financed subsidy could be adjusted annually for new plants in accordance with technological progress.

Another, and perhaps better, measure would be to introduce market prices for electricity more gradually for the less-mature technologies. From 2003 onwards, newly installed biomass plants, for example, could be remunerated at a fixed feed-in tariff, which could be lowered towards the market price in accordance with their technological development and improved competitiveness.

Small-scale technologies

All photovoltaics (PV), household wind turbines and small-scale hydro-power plants below 25 kW will be excluded from the certificate scheme. It is currently being investigated if, instead, these can be part of the programme in which electricity meters will run backwards when power production exceeds actual consumption (net metering). Thus, consumers will pay only for their net power consumption and their own generation of electricity from RES will be exempt from energy taxes and fees.

Large-scale solution

A tendering system, like the Non-Fossil Fuel Obligation in England and Wales, could be used to supplement the green certificate market. This is because some RES-technologies, such as offshore wind farms and large-scale biomass plants, are large-scale, require capital and equity availability, and have only a few potential developers. Under such a tendering system, these types of RES could benefit from an open tender procedure, where the limited number of interested investors could bid at the same time and submit comparable offers according to pre-defined conditions. One bidding criterion would be the proposed sales price of electricity plus certificate.

For more information contact the CADDET Danish National Team in Tølløse, or visit the homepage of the Danish Energy Agency at www.ens.dk/uk/publica.htm

The CADDET Renewable Energy Newsletter is a quarterly magazine published by  the CADDET Centre for Renewable Energy at ETSU, UK.

The articles published in the Newsletter reflect the opinions of the authors.  They do not necessarily reflect the official view of CADDET.

Enquiries concerning the Newsletter should be addressed to Pauline Toole, Editor, CADDET Centre for  Renewable Energy, ETSU, Harwell, Oxfordshire OX11 0RA, United Kingdom. Tel: +44  1235 432968, Fax: +44 1235 433595.