Regulatory and policy options to encourage development of ...

SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.762005 (Danish Energy and Environment Ministry, 1996). Danish onshore capacitymoved beyond the projected 1500 MW onshore capacity in 1999 (WPM, 2000).Additional capacity gains are being made as smaller turbines are replaced withlarger ones. Energy21 also laid down an offshore wind target of 4 GW. Denmarkcurrently has the world’s largest offshore farm, 160 MW at Horns Rev and hasgranted contracts for a number of others to be constructed.Fixed-price tariffs remained as the central pillar of subsidization until 1 January2000, when they were set to be displaced by a renewable portfolio standard(RPS). In addition to the higher price paid during the life of the tariff, wind wasalso exempted from—or rather compensated for—the imposition of energy andCO 2taxes. Both of these measures helped to make wind more competitive withrespect to conventional electricity generators.However, the attempted adoption of the market-based RPS undermined the perceivedsecurity of investment in wind energy in Denmark. Sales of turbines immediatelydropped to zero in 2000, threatening both Danish targets for renewableinstallation and the Danish manufacturing industry, which had come to dominateits domestic market sector.At this point it is worth noting that the Danish turbine manufacturing industry,with the advantages it gained from its historical experience and a bottom-upapproach to developing its technology was best placed to capitalize on the continuousexpansion of the worldwide wind energy industry in the 1990s. The windturbine manufacturing industry is now Denmark’s third largest export industry.Also, aside from wind energy Denmark relies on coal for much of its energy andso has relatively high greenhouse gas emissions on a per capita basis.The Danish Government could not afford to ignore either the undermining of thehome market for wind or the effect this would have on Danish environmentalcommitments. The Government rapidly readopted the tariff-based mechanism in2001, albeit with some changes to reflect the improved nature of the technologyand to reduce the rising level of overall costs within the tariff mechanism. A parliamentaryhearing in September 2001 led the Government to conclude that reattemptingto adopt the RPS mechanism was impracticable at that stage.After 2001, the reformed support mechanism for wind energy in Denmark provideda fixed price system with an environmental premium per kWh in additionto the market electricity price. The system became somewhat more complex asthe result of efforts to cut down on the overall costs of subsidies to wind.Settlement prices changes such that they had several components: Base Price: €¢4.42/kWh. In cases where turbines were no longer entitled tothe base price, they were effectively compelled to seek a price on the market.