Fiscal Support for Renewables in the Netherlands

by K W Kwant, Novem,  the Netherlands

Introduction

Since January 1996, there has been an important shift in the way the Dutch government supports renewable energy. An energy tax and some other fiscal measures to support an environmentally conscious economy have been introduced, while direct government subsidies for renewable energy have been reduced. This article outlines some of the measures that have been introduced.

Green Funds

This scheme means that private income from "Green Fund" investments (including renewable energy) is not taxed. Green Fund investors can therefore get a good return on their investment at a lower interest rate. This, in turn, enables the Green Fund to lend finance to"green" projects at lower rates.
 Green Funds are supervised by the Dutch Central Bank which is obliged to invest at least 70% of its capital in "green" projects. To qualify for green funding, a project must be located in the Netherlands, and have a minimum value of NLG 50,000 (where NLG is the Dutch guilder). Energy projects that fall under green funding are:

  • energy from wood and energy crops
  • wind turbines
  • photovoltaic cells
  • solar collectors
  • geothermal energy
  • hydro-power
  • heat pumps
  • heat/cold storage
  • district heating

To date, several banks have established Green Funds and more will follow soon. The public has invested NLG 900 million at an average interest rate of about 4%, and the funds have begun acquiring green projects. More than 50 projects are currently green funded, mostly in the fields of wind energy and district heating.

Table: Energy Tax in the Netherlands in Cents (NLG 0.01)

Fuel

Minimum Demand

1996

1997

1998

Electricity (kWh)

800

3.47

3.47

3.47

Natural Gas
(metres cubed)

800

3.76

7.52

11.2 0

Heating oil (l)

-

3.31

6.63

10.0 0

VAMIL

The Accelerated Depreciation on Environmental Investments Scheme (VAMIL) was introduced in September 1991. It enables companies to write off their investments in certain listed equipment earlier than with normal depreciation. This keeps down their taxable income in the early years of the investment, improving their cash position. In 1996, some renewable energy technologies have been added to the VAMIL list. These are:

  • biomass gasification systems
  • anaerobic digestion systems
  • photovoltaic power systems
  • solar water heaters
  • wind turbines
  • heat pumps

Regulating Energy Tax

 Households and small and medium-sized businesses pay an energy tax on electricity and natural gas when they exceed a minimum demand. The tax is paid to the utilities who, in turn, pass it on to the government. But in the case of energy generated by renewable energy sources, the utility pays the tax revenue to the generator of the renewable energy instead of the government.
 The minimum demand above which tax is payable is 800 kWh of electricity and 800 cubic metres of natural gas, so there is an incentive for energy-efficient households and businesses.

Green Electricity

 Green electricity is not a fiscal instrument but rather a way of selling renewable energy. It was pioneered in the Netherlands in 1995 by PNEM, an energy distribution company. Other utilities followed suit, selling green energy (generated renewable energy) to customers at a premium price about 4-8 cents more than the standard tariff of 28.5 cents/kWh. The utility adds this premium to the energy tax payment mentioned above, effectively doubling the tariff they can pay to independent producers.
 The scheme was born after an experiment by PNEM proved that some consumers would be prepared to pay more for renewable energy. The utilities hope to encourage 10% of their client households to buy green electricity. By mid-1996, about 10,000 households, one company selling foodstuffs and some government organisations had joined green electricity schemes.
 The World Nature fund guarantees that the energy sold as "green" is in fact generated by renewable energy sources.
 As well as providing energy from existing (limited) schemes, green electricity will stimulate the generation of more renewable energy. The government is considering stepping in to help, by lowering the value-added tax on green electricity from 17.5% to 6%, which would offset the premium paid by the consumer.

The Results

The switch from subsidies to fiscal measures has both positive and negative aspects, and affects different renewable energy technologies in different ways.
 Utilities, are at a disadvantage because, in the past, subsidies were guaranteed before a project started whereas now the "fiscal support" is earned over the duration of the project.
 Thermal solar energy still benefits from direct subsidies; only very large systems would qualify for Green Funds or VAMIL. Photovoltaics are considerably more expensive than the energy tax bonus available, but additional financing is available for demonstration projects.
 Wind generators are generally no better or worse off under the new system, while energy from biomass is definitely benefiting from the fiscal measures.

 

Table: Renewable Energy Targets in Avoided Primary Energy

Renewable Energy Source

1994 [PJ]

2000 [PJ]

2007 [PJ]

2020 [PJ]

Wind

2.06

16

33

45

Photovoltaics

0.01

1

2

10

Thermal solar

0.16

2

5

10

Geothermal

0

0

0

2

Cold/heat storage

0.02

2

8

15

Heat pumps

0.25

7

50

65

Hydro

0.90

1

3

3

Biomass and Waste

35.2

54

85

120

TOTAL

38.6

83

204

270

The Future

A new energy white paper was launched by the Dutch government in December 1995 which aims to generate 10% of the energy supply from renewable sources by 2020 and to improve energy efficiency by one third over the next 25 years. These targets have to be achieved in an open and liberal energy market employing free trade mechanisms. Importing of renewable energy is an option.
 An action plan is included in the energy white paper, which covers the financial measures outlined in this article and the intensification of R&D work. This will be supported by the Dutch government with a budget of NLG 95 million in addition to the finance generated by the fiscal measures outlined in this article.
For more information contact the CADDET Dutch National Team in Sittard.

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.