| In parallel with this, the Danish Electricity system is being liberalised, opening up for free trade with electricity across the borders. The Western part of Denmark is now engaged in the NordPool electricity exchange and the development of a separate green certificate market for renewable energy has been approved by the Danish Parliament. Until now the Government through a mix of different policy instruments has to a certain extent promoted all renewable energy technologies. But this combination of a liberalised electricity market and a green certificate market is certainly a new challenge for the development of renewable energy technologies.
In short this is the background for a project which is carried out below the Strategic Environmental Program on the use of policy instruments in the long term implementation of renewable energy technologies under free market conditions. Objective of the project
The objective of the project is to describe and analyze the effectiveness of different policy instruments in regulating the deployment of renewable energy technologies in the long-term time perspective given the assumptions of a liberalized electricity market and that the long-term environmental targets have to be achieved. Wind turbines will be the focal technology to be analyzed, but the results in the project will be transferred to other electricity-producing renewable energy technologies.
Approach
The project is split into four major tasks
- Evaluation of the existing structure of regulating and utilising renewables in the Danish energy system.
This task looks at the existing structure of the development of renewables in Denmark, which instruments have been used, how have they affected the development and how efficient have they been?
- Analyzing instruments which can be used to promote the utilization of renewables in a liberated energy market.
When moving into a liberalized market for electricity, the existing instruments might change in importance: Some of them might not at all be used in a free market, while others might lose in effectiveness. Thus there might be a need for supplementary instruments, especially designed for use in a free market. The new concept of a separate green certificate market is analyzed in this section.
- Competitiveness of renewable technologies under free market conditions.
The development of renewable energy technologies under free market conditions will of course depend on the competitiveness compared to other electricity-producing plants. This calls for the need to establish the long-term development of the energy production cost from renewable technologies, and to look at probable ranges for the electricity price determined by the market.
- Scenarios for long-term utilization of renewables.
Which instruments will be appropriate and most effective to use to promote and /or regulate the development of renewable energy technologies will depend on the competitiveness of renewables compared to other technologies. To illustrate this a number of scenarios will be established, especially in relation to the development of the green certificate market. Status for the research
The project will be finalized by the end of year 2000. Until now most of the work has concentrated on 1), 2) and 3) of the above-mentioned tasks, while the scenario development has just been started.
Concerning the existing incentive structure the importance of the level of buy-back-rates and feed-in tariffs has been analyzed. The analyses have concentrated on the required internal rate of return to achieve a specific target for the development of renewable energy technologies, and thus the required feed-in tariff to reach a specific capacity development. Trade-offs between buy-back-rates and governmental subsidies have been analysed. In relation to these analyses a small modeling tool has been developed to handle private economic calculations for wind turbines.
Concerning new policy instruments a number of issues related to the green market is being analyzed, among these the optimal design of a green market and how prices are to be determined at such a market. A small simulation model is being developed to answer questions like:
- How are the future quotas of certificates best determined?
- Should it be possible to bank certificates to fulfilled future commitments?
- Should it be possible to issue certificates in decided, but not yet existing plants to fulfilled this year's commitment (forward contracts)?
- How will the development of more cost-effective renewable technologies in the future influence price-determination at the green market?
Presently the results from the project are being utilized in a dialogue with the Danish energy authorities and international research institutes. Selected publications
Morthorst, P.E.: The use of policy instruments in the long-term implementation of renewable energy technologies under liberated market conditions, Renewable Energy, Special issue, September 1998.
Morthorst, P.E., Capacity development and profitability of wind turbines, Energy Policy, vol.27, no. 13, 1999.
Morthorst, P.E.: Policy instruments for regulating the development of wind power in a liberated electricity market, EWEC99, 1999 European Wind Energy conference and exhibition: Wind energy for the next millenium, Nice, 1-5 Mar 1999, August 1999. Available in PDF-format.
Morthorst, P.E.: Danish renewable energy and a green certificate market. In: Design of Energy markets and Environment, Conference papers, Copenhagen 20-21 May, 1999, Nordic Energy Research Program. Available in PDF-format.
Morthorst, P.E., The development of a green certificate market, (forthcoming).
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