The Danes announced plans in May to cut back on the cost and speed of their energy transition. The debate sounds practically identical to the one in Germany, where the government also aims to slow down its Energiewende. But a Danish expert says Denmark remains on course. Craig Morris investigates.
Last September, I asked a provocative question: Are we losing Denmark next? A few weeks ago, the new Danish government seemed to answer my question: yes. But is it that simple?
Denmark is doing away with its Public Service Obligation (PSO), essentially an 11 percent surcharge on retail rates to cover the funding for renewable electricity. In that respect, the PSO is similar to Germany’s renewable energy surcharge, which currently makes up more than a quarter of the retail rate (in both countries, industry pays less).
In its place, the Danish government plans to fund renewables through taxes rather than through electricity consumption. This proposal has also been repeatedly made in Germany in the past three years but has never been adopted and is currently not on the agenda.
Denmark has the highest retail power rates in the EU but (like Germany) more modest levels for industry. The proposed policy switch aims to limit the cost impact. Businesses will benefit the most. The savings for companies is estimated at 25 percent, compared to only a 10 percent reduction for retail customers. A Danish press report sums up the general dismay in Denmark quite well. It ranges from “so much for investor confidence in Denmark” to “whatever happened to the COP21 agreement?”
Theoretically, the policy switch in Denmark need not lead to less support for renewables. After all, it is merely the payment mechanism that will be tweaked. But in practice, support in general is being reduced. For instance, the country aims to withdraw 350 megawatts of near-shore wind farm auctions to be held by 2020.
But Brian Vad Mathiesen, Energy Planning Professor at Aalborg University, says the news of a slowdown is being overhyped. “There will be as much as 55 percent wind power by 2020, and we will overshoot our EU target of 30 percent renewable final energy by 2020, possible reaching 40 percent.”
Denmark has seen wind power, which covered more than 40 percent of demand in 2015, peak at around 140 percent of demand. The goal is now to reach 50 percent wind power by 2020, and to do so the Danes actually need to slow down – to the extent that the goal is also seen as a limit. And again, the German situation is similar; the Germans could reach the maximum goal (limit) of 45 percent renewable electricity for 2025 as early as 2018.
Mathiesen is mainly critical of the proposal to switch from a surcharge to a tax item, an idea he calls wrong-headed: “As the share of renewables grows, we would then pay more and more of our power bills through our income taxes – that makes no sense.”
No one really knows what the impact of the change will ultimately be, partly because lower electricity prices are likely to increase electricity consumption, the extent of which can only be guessed. Some Danish experts use the waterbed effect to explain away concerns of greater carbon emissions; because power sector emissions are limited EU-wide, any increases in one country have to lead to decreases in another.
This policy change isn’t the first setback for Denmark’s energy transition. In 2002, a new governing coalition put an end to the country’s grassroots renewables movement. From 2003-2008, the country’s installed capacity grew by a mere 73 megawatts, equivalent to the addition of only one wind turbine every few months. But a new policy rejuvenated the market starting in 2009. Installed capacity rose by 50 percent from 2009-2015 to more than 5,000 megawatts. More importantly, the amount of wind power generated more than doubled (a sign that better engineering has improved the performance of modern turbines).
But Mathiesen insists that, despite all signs to the contrary, Denmark remains committed to the transition. “This proposal is part of a healthy democratic debate in Denmark,” he reassures foreign onlookers. Mainly, he is frustrated about the way Danish experts plan to redesign the market. “I really need to write a piece for the Financial Times, explaining to everyone how crazy some of these ideas are – there’s a better way of doing this.”
Well, Brian, if you ever get around to writing that piece, we would be happy to post it here, too!