The Dutch lose faith in windmills

The Dutch lose faith in windmills

Karel Beckman and Alexander Haje

The new Dutch right-wing government has announced a radical overhaul of Dutch energy policy. It is cutting subsidies for most forms of renewable energy drastically, and is even putting an end to all subsidies for offshore wind, solar power and largescale biomass. It has also announced a warm welcome for new nuclear power stations – the first time a Dutch government has done so since the Chernobyl-disaster in 1986. However, not all is lost for the renewable energy sector: the cabinet is still brooding on a long-term strategy and a “Green Deal” that might yet put the Netherlands back on a “greener” course.

The sun goes down for Dutch green subsidies

It was probably the huge subsidy allocated to a 600 MW offshore wind park by the previous government that induced the new Dutch cabinet to make some drastic changes in the existing subsidy scheme for renewable energy. In May 2010, the previous government announced that the German wind power developer Bard Engineering will receive a whopping (maximum) subsidy of €4.5 billion from the Dutch taxpayer to build two 300 MW offshore wind parks off the country’s northern coast. The new right-wing government, a coalition of the liberal party VVD and the Christian-Democrats CDA, supported by the anti-islam party PVV, decided they would not make the same mistake. During the election campaign, the new Prime Minister, Mark Rutte of the Liberals, had been cynical about the large government support for wind power. ‘Windmills turn on subsidies’, he had said.

Thus, when on 30 November, the new Minister of Economic Affairs, Agriculture and Innovation, heavyweight Maxime Verhagen, a Christian-Democrat, unveiled the new government’s policy on renewable energy, it was no surprise that this included a large cutback of green subsidies: from about €4 billion a year to just €1.5 billion. The new scheme is more than a cutback, though – it also aims at a radical overhaul of the existing methodology behind the allocation of subsidies. The plan intends to reward and stimulate “efficient” (cheap) forms of renewable energy, such as onshore wind power, and does not support relatively inefficient (expensive) renewables, such as offshore wind.

Deficit

In the previous system (known by its Dutch abbreviation SDE), subsidies were awarded to various forms of renewable energy for a fixed period (usually 15 years). The amount of subsidy was based on the difference between the cost price of the technology in question and the cost price of fossil-fuel based electricity. This so-called “deficit” was (and still is) calculated each year by the Dutch energy

In the new system the Dutch government will allocate subsidies in an entirely different way

research institute ECN (Energy Research Centre of the Netherlands). Thus, for example, offshore wind power last year received 9.7 eurocents per kWh, onshore wind 4 eurocents, solar PV 43 eurocents, etcetera – all based on the “deficits” established by ECN. This system subsidises relatively inefficient (expensive) and efficient (cheap) forms of renewable energy alike, as they are all subsidised to the extent that is needed to make them competitive with gas-fired and coal-fired power.

In the new system (somewhat misleadingly called SDE-plus), which will take effect halfway through 2011, the government will allocate subsidies in an entirely different, and rather complicated way. Subsidies are made available in four “stages” (on the basis of first-come, first-served).

1) In the first stage, a government subsidy of 9 eurocents per kWh (or 79 cents per m3 for gas) is offered, but only to producers of technologies that have “deficits” of less than 9 eurocents. Based on the figures from ECN, these are: biogas (“green gas”), hydropower, power from waste processing installations, and gas from fermentation processes.

2) If there is still money left after this first stage, the second stage will be opened up, in which a subsidy of 11 eurocents per kWh (or 97 cents per m3) will be offered. This stage will be open to producers of onshore wind power and fertiliser-based gas.

3) Again, if there is money left, there will be a third stage with subsidies of 13 cents per kWh or 114 cents per m3. This will be open to producers of hydropower and small-scale biomass.

4) The fourth and last stage (15 cents per kWh or 132 cents per m3) will be open to electricity produced from all-purpose fermentation processes.

Not included in any of the four categories, because they are too expensive, are solar power, large-scale biomass and, indeed, offshore wind power.

There is one catch, though. The government has also defined what is called a “free category” of applicants. These can apply for subsidies in any of the four stages. Which producers qualify for this “free category”? First of all, any producer of any of the renewable energy forms listed in the four stages. Secondly, producers of a limited number of renewable energy forms with “deficits” of over 15 cents per kWh, namely: thermal conversion of biomass (<10MW), solar PV (>15 kWp), osmosis and geothermal

The new Dutch policy on offshore wind stands in sharp contrast to that of its neighbouring countries

energy. Thus, for example, companies active in onshore wind power (a technology from the second stage) may also apply for the subsidy of 9 eurocents per kWh in the first stage. Or, to give another example, producers of solar PV may apply for a subsidy in any of the four stages, but of course if they are granted a subsidy, they will have to make do with an amount that is substantially lower than what they used to get when the ECN defined their “deficit”.

Large-scale biomass and offshore wind power, however, do not even qualify for the “free category”. In other words, they won’t get any subsidies at all. Large-scale biomass is excluded, the Ministry notes, because it tended to eat up a large part of the subsidies in the past. Still the government has promised the power sector that it will try to find ‘some alternative way’ to stimulate this form of renewable energy. This will probably take the form of a government-mandated share of biomass to be used in coal-fired power stations. 

For offshore wind power, the prospects are rather worse: it is not mentioned anywhere at all in the new plan. This marks a sharp change from the policy of previous governments, which had set a target of 6,000 MW for offshore wind power in 2020. At this moment, a mere 220 MW of offshore wind capacity has been built in the Dutch part of the North Sea. It now looks like the two heavily-subsidised 300 MW parks of Bard Engineering will be the only ones added in the foreseaable future, with the exception of one approximately 100 MW park that is still to be financed out of the previous subsidy regime.

The new Dutch policy on offshore wind stands in sharp contrast to that of its neighbouring countries. Germany, the UK, Denmark and Ireland are still firmly committed to expanding wind power in their territorial waters. The views of the government in The Hague seem more aligned with those prevalent in the head office of Shell, located just a few blocks from the Dutch parliament building. In October of last year, the CEO of Shell Peter Voser openly criticised the large subsidy awarded to the wind parks of Bard Engineering. Shell itself pulled out of offshore wind power in 2008 because of the high costs involved.

Green Deal

The main rationale behind the government’s new subsidy scheme is, as the Ministry puts it, ‘for the Netherlands to achieve the European renewable energy target in the most cost-effective way’. In other words, to cut costs. Indeed, for the Dutch government budget, the SDE-plus system will be quite “cost-effective”, as it will have to be paid for by the energy users in the form of a surcharge on their electricity and gas bills. The old SDE system was paid for out of the general budget. Roughy half of the surcharge will be paid by households, the other half by business. In addition, the government is considering levying a separate “coal and gas” tax.

Minister of Economic Affairs, Agriculture and Innovation Maxime Verhagen: 'massive EU-funding of energy infrastructure would distort the market'

Does this mean, then, that the Netherlands will give up on offshore wind power and other “expensive” forms of renewable energy altogether? That conclusion would be slightly premature. At a conference in The Hague organised by the prestigious Clingendael International Energy Programme (CIEP) on Tuesday (11 January), Minister Verhagen stressed that the government is proceeding along two tracks: a short-term one and a long-term one. The new subsidy scheme should be seen as a short-term measure. As part of its longer-term strategy, the government wants to step up investments in innovation and R&D in offshore wind power and other “expensive” forms of renewable energy, Verhagen said.

At the same conference, Hans Vijlbrief, Director-General of Energy, Telecommunications and Markets at Verhagen’s Ministry, explained that past policies had rested on a mistake. ‘We tried to mix stimulation of both innovation and production. That doesn’t work.’ In the new policy, the two forms of stimulation will be separated. The government will direct its efforts towards making offshore wind power and perhaps also solar power and large-scale biomass cheaper, before it will subsidise their production, said Vijlbrief.

In April the government will come out with a new Energy Strategy, which is expected to spell out its long-term plans in more detail. At the same time, Verhagen has promised to come up with a set of policy initiatives under the name of a “Green Deal”. The aim of this plan, which the Ministry is still working on, is to stimulate initiatives for energy efficiency and local sustainable energy projects. As part of this Green Deal, the government is considering setting up a fund to finance such initiatives and to support homeowners who want to invest in energy-savings measures.

Nuclear power

A second sea-change in Dutch energy policy is the warm embrace of nuclear power by the right-wing cabinet. The Netherlands has only one fairly small nuclear power station, called Borssele, in the province of Zeeland, with a capacity of just 485 MW. At least since Chernobyl, strong opposition from the

The cabinet has made it clear that it welcomes applications for new nuclear build

Social Democrats and other Left parties made any new nuclear power projects in the Netherlands unthinkable. In 1994, the government decided to close down Borssele in 2004. In 2002, the date of closure was postponed until 2013. Then, in 2006, it was decided to keep the power plant open until 2033. However, new nuclear projects were ruled out in the various coalition agreements of past governments.

That has changed now with the coming of the current right-wing coalition. The new cabinet has made it clear that it welcomes applications for new nuclear build. In the coalition accord of 30 September it says that ‘to realise CO2-reduction and become less dependent in energy supply, more nuclear energy is needed. Applications for licenses for the construction of one or more new nuclear power stations, which meet the requirements, will be approved.’ The government did not, however, promise any subsidies for nuclear power stations. In answers to questions in Parliament, Verhagen said that interested market parties will have to bear the costs themselves.

In response to the new policy, several companies have indicated they are interested in building a new nuclear power plant in the Netherlands. Utility company Delta, which is owned by the provincial government of Zeeland and is 50% owner of the Borssele plant, has entered into a deal with French energy giant EDF. The two companies are in an advanced stage of preparations for the application for a building licence. They are expected to be able to submit an application next year.

'Borssele' is the only Dutch nuclear power station

Delta has a major competitor in Energy Resources Holding (ERH), which owns the other 50% of the Borssele plant and has also indicated that it wants to build a new nuclear power plant at the Borssele site. The remarkable rivalry between the two joint-venture partners of Borssele has a history. Borssele was built as a joint-venture of Delta and Essent, which were both owned by provincial and municipal authorities at the time. However, when Essent was taken over by the private German energy company RWE in 2009, Delta successfully prevented the sale of the Essent-stake to RWE, on the grounds that the statutes of Borssele forbid privatisation. The former shareholders of Essent were left with the Borssele-stake, which they put into a separate holding, ERH. They are still involved in legal proceedings, trying to overturn the privatisation ban and to sell ERH to RWE. If they are successful, this would give the German company the opportunity to try and enter the nuclear sector in the Netherlands. Ironically, the Borssele plant was built with RWE-technology.

In addition to Delta (EDF) and ERH (RWE), two other major candidates have expressed interested in pursuing new nuclear build in the Netherlands: French company GDF-Suez, which is the largest power producer in the Netherlands through its subidiary Electrabel, and Swedish Vattenfall, which took over Dutch energy company Nuon in 2009.

Guarantees

However, it is by no means certain yet that any new nuclear project will be successful in the Netherlands. At the CIEP conference, Verhagen said he expected an application from Delta in 2012. He said the government would then do everything in its power to grant a licence within the four-year term of the cabinet, i.e. before 2015. He added that this applied to other projects as well. But it is not clear whether the Minister will be able to deliver on this promise. Handling an application for a nuclear project is a highly complex matter. Experts doubt whether the Dutch government has sufficient expertise to do this quickly.

For companies, preparing and submitting an application for a building licence is no simple matter either. Peter Terium, the CEO of Essent, who was also present at the CIEP conference, said 2012 is a

‘There will have to be a solid legal and regulatory framework in place, which cannot be overturned at the next elections’

‘very ambitious’ deadline for any company to have an application ready. He noted that merely preparing an application can cost a company tens of millions of euros, if not more. He also noted that energy companies will want a lot more guarantees from the government than a mere intention to approve an application before they commit themselves to major investments. ‘There will have to be a solid legal and regulatory framework in place, which cannot be overturned at the next elections’, he said.

A spokesman from the government says that Verhagen is working on proposals for such a regulatory framework, which could be ready in a matter of weeks. Still, when it comes to realising its CO2-emission reduction targets for 2020, the Dutch government would probably be wise to not count  nuclear power as part of the solution.

 

Netherlands against EU fund for energy infrastructure At the EU Council of Energy Ministers, which will take place in Brussels on February 4, the Dutch government will come out against the European Commission’s proposal to establish a European fund for energy infrastructure investments. ‘We are against massive EU funding of energy infrastructure’, Dutch Minister of Economic Affairs Maxime Verhagen said at a conference at the Clingendael International Energy Programme (CIEP) in The Hague on Tuesday. ‘Such a fund would distort the market.’ On 17 November, the European Commission adopted a so-called Energy Infrastructure Package. According to the Commission, massive investments in energy infrastructure are needed in Europe in the coming decades, a considerable part of which might not be taken up by market parties. To address this problem, the Commission intends to propose a new financial instrument that would provide the EU with funds to pay for investments. Hans Vijlbrief, Director-General of Energy, Telecommunications and Markets at the Ministry of Economic Affairs, said that the Dutch government does believe that the EU has a role to play in energy infrastructure, ‘but not in financing’. He added that the Commission should focus on implementing the regulations that are in place, so that the market could do its work. ‘Governments should not decide on investments, barring exceptions’, he said. A spokesman for the French government who was present at the conference in The Hague said France also rejects the idea of an EU fund for energy investments. Verhagen further said that the Netherlands is ‘not in favour of binding energy efficiency targets’. He also called on the European Commission to do more to harmonise subsidy schemes for renewable energy throughout Europe. Vijlbrief called on Brussels to ‘make renewable energy trade uniform throughout the EU. A single European renewable energy market would allow each country to do what it is best at.’