EU Best Practice in RES: Wind Energy in Demark

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1 EU Best Practice in RES: Wind Energy in Demark October 2003 European Commission (Directorate-General for Energy and Transport) Contract no. NNE5/2002/52: OPET CHP/DH Cluster

2 TITLE: EU Best Practice in RES: Wind Energy in Demark Authors: Argyris G. Kagiannas, Kostantinos D. Patlitzianas Organisation: Decision Support Systems Lab (EPU-NTUA) National Technical University of Athens School of Electrical and Computer Engineering Address: 9, Iroon Polytechniou str., Zografou, Athens, Greece Tel.: / 2083 Fax: akagian@epu.ntua.gr / kpatli@epu.ntua.gr Web: - The project "OPET CHP/DH Cluster" has obtained financial support from the European Commission (Directorate-General for Energy and Transport) under the contract no. NNE5/2002/52 for Community Activities in the Field of the specific programme for RTD and demonstration on "Energy, Environment and Sustainable Development - Part B: Energy programme" The responsibility for the content on this publication lies solely with the authors. The content does not necessarily represent the opinion of the European Community and the Community is not responsible for any use that might be made of data appearing herein.

3 1. INTRODUCTION Denmark has relatively modest to good average wind speeds in the range of 4,9 to 5,6 m/s measured at 10 m height Onshore wind resources are highest in the Western part of the country, and on the Eastern islands with coastlines facing South or West. The country has very large offshore wind resources, and large areas of sea territory with a shallow water depth of 5 to 15 m, where siting is most feasible. These sites offer higher wind speeds, in the range of roughly 8,5 to 9 m/s at 50 m height. In 2001, 86% of the wind turbine electricity came from privately owned turbines and 14% from utility owned turbines. This picture will change somewhat in 2002 and 2003 with the construction of the two 160 MW utility owned offshore wind farms Horns Rev and Rodsand. More than MW of wind power is currently installed on land in Denmark. Middelgrunden next to Copenhagen is the first large pilot project (40 MW) offshore. It was commissioned in Two wind farms of 160 MW each are being installed in the North Sea at Horns Rev (2002) and in the Baltic Sea at Rodsand (2003). The two large offshore wind farms will boost the share of wind power in the Danish electricity consumption. In 2002, wind power is expected to cover approximately 18-19% of the Danish electricity consumption and approximately 21% in During the past 15 years, the Danish government has pursued a target of 10% wind energy by This target was achieved last year. A new target has now been set for 20% of Danish electricity consumption supplied by renewable energy by The majority of this energy is expected to come from wind power. In order to understand the rapid increase of Wind energy in Denmark it is important to know the historical background of its Energy Policy. After the oil crises the power generation system in Denmark was changed from being largely oil fired to being coal-fired. The conversion to coal-firing meant that Denmark had relatively large greenhouse gas emissions per capita and the energy policy to a large extent became synonymous with environmental policy. The environmental situation explained above is the basic reason why wind energy has such a prominent place in Danish energy planning, as the best way to reduce greenhouse gas emissions. 2. POLITICAL CONTEXT The Danish energy policy for RES has been a model for many markets in the world. In countries as close as Germany, France or Spain and as remote as China or Argentina. The most important characteristic of the Danish energy policy has been its remarkable continuity and the careful long-term planning scenarios, such as "Energy 21". The planning horizon for the Government policy document "Energy 21" is set at the year In 2001 a new government came into power and moved energy policy to the Ministry of Economics and Industry. According to some public opinion, this new change translates the aim of the government to a less environmentally friendly and a more «old industry» friendly policy than previous governments. EU Best Practice in RES: Wind Energy in Demark Page 3

4 3. LEGISLATIVE CONTEXT The basic support mechanism for wind energy in Denmark is basically a fixed price system with an environmental premium per kwh in addition to the market electricity price. Currently new wind turbines are paid 0,058 EUR/kWh for the first "full load hours". For offshore wind turbines the tariff is 0,061 EUR/kWh for full load hours. A number of transitional schemes are in operation for older wind turbines. The premium is financed as an addition to the electricity price per kwh, shared equally among all electricity consumers in relation to their electricity use. This is thus not in legal terms a state support mechanism, but the excess cost of RES has been internalised in the electricity price. The government has been studying a so-called green certificate market based scheme, which would be combined with a Renewable Portfolio System (RPS) requiring electricity consumers to buy an increasing share of their electricity from renewable sources. However, after a parliamentary hearing in September 2001 the government concluded that the scheme was impracticable for the time being, and its implementation has been postponed. 4. FINANCIAL CONTEXT A subsidy scheme for installation of wind turbines developed in the 1980s gave vital support to the industry in a period when wind turbine project costs were not yet competitive with other energy sources. Later, in the 1990s, a fixed pricing system for selling electricity to the national grid gave investors further stability and confidence. In Denmark, there is no special regulation for value added tax for wind turbines or electricity production from wind turbines. Denmark has a single rate 25% VAT system with an exceptional zero rating only for newspapers and shipbuilding. However, Danish energy policy relies to a very large extent on so called "green taxation", i.e. indirect taxes on energy to encourage energy savings. Households generally pay an effective rate of tax of some 200% on energy products, such as natural gas, petrol, or healing oil. Fuels used for electricity generation are not taxed, but there is an electricity tax plus a VAT of 25%, which effectively means a rate of taxation above 200 per cent. Households pay an electricity price of some 0,19 EUR /kwh. Danish industry pays very low taxes on electricity used for manufacturing purposes, and has some of the lowest electricity prices in Europe, around 0,05-0,06 EUR/kWh, according to IEA statistics. Denmark has been in the forefront of basic research in wind energy technologies for the past 20 years. The most important institutions dedicated to R&D are: the Wind Energy department of Risoe National Laboratory is known worldwide, the Technical University of Denmark, and Aalborg University (electricity aspects). An important difference between the Danish and other national governments' support for wind energy RD&D is that the Danish support has primarily been directed towards basic research, whereas other governments have tended to support wind turbine development. The international market for wind energy is clearly partly due to two key elements of the Danish research: The wind resource technologies mentioned above. The European Wind Atlas methodology for mapping wind resources has been extremely important in multiplying other technology advances by far better siting of wind turbines; The Danish type approval certification scheme has been a very dynamic tool to foster better design procedures in wind turbine manufacturing companies. EU Best Practice in RES: Wind Energy in Demark Page 4

5 Another difference of Danish R&D support is that, Denmark has in many ways been a fullscale laboratory for the Danish wind industry. This has not only helped the Danish industry itself, but has helped create confidence in this new technology to an extent, which no single test wind farm could have done. Danish market comprises more than a half of the world production of wind turbines (although less than half are physically manufactured in Demark). The sales from the Danish wind industry broke all previous records in The Danish wind turbine manufacturers sold MW equal to an increase of approximately 60% compared to the year before In 2001, the Danish manufacturers sold twice as much wind energy capacity as the global sales of new nuclear capacity of approximately MW. An important asset of Denmark's wind market is the fluid information between the different actors (including manufacturing, research, development, engineering, services, etc). This fluid information is particularly due to the relatively limited size of the country and the industry. Considering wind turbines as a "highly visible technology", the models for dealing with "public planning issues" have been very important for the acceptance of the technology and consequently for the market development of this source. In Denmark the public planning procedures were initially developed through local trial and error. In 1992 more systematic planning procedures were developed at the national level, with directives for local planners. In addition, an executive order from the Minister of the Environment and Energy ordered municipalities to find suitable sites for wind turbine siting throughout the country. This "prior planning" wit public hearings in advance of any actual applications for siting of turbines helped the public acceptance of subsequent siting of wind turbines considerably. Around 1997 another set of planning regulations we developed for offshore wind farms, with a central, national authority, the Danish Energy Agency, being responsible to hear all interested parties, public and private. This "one stop shopping" method (actors has to go to many different places to gather and analyse data) has facilitated the planning process considerably, and is widely studied around the globe. To conclude it can be said that the success of the Danish wind industry is not based on a carefully planned micro-managed strategy as most people think, but on a stable energy policy and in long-term planning scenarios. With this «long term planning» Denmark has succeeded in ensuring consistency in its energy policy, and has succeeded in clearly sending strong signals to market actors about the policy scenario in which they will operate. However, in the present European liberalized electricity market, working with a long-term approach as Denmark does, cannot be considered an attribute anymore. The adoption of the European Directive 96/92/CE concerning common rules for the electricity market inserts dynamism to the market and therefore risk. Moreover, the Danish renewable energy market nowadays is specially confronted with unpredictability, due to the apparent different energy approach of the newly elected Danish Government, and the possible modifications to the existing policy that they may bring about. EU Best Practice in RES: Wind Energy in Demark Page 5