Chill winds at Borgen – Can the Danish government agree on how to handle solar power?

For the third time within half a year, the Danish government is about to change the legislation on support of photovoltaic (PV) power production. The responsible Minister of Climate, Energy and Buildings, Martin Lidegaard (Social-Liberal Party) has been under attack for handling the case inadequately by his fellow politicians and the PV industry. During the last couple of years, the support scheme for PV had become incredibly successful – in fact more successful than it was intended to. The amendment of policy shall now slow down the PV development and re-direct financial resources to other renewable technologies like wind energy. For this, a new agreement has to be conjured between six different parties who are all part of the 2012 parliamentary agreement on the future Danish energy policy.

The Danish energy policy incorporates a bold target of making Denmark independent of fossil fuels by the year 2050, and reaching a fully renewable electricity system in 2035 [1]. Due to Denmark’s rather low solar irradiation, PV had never been a central part of the energy strategy and was not expected to grow significantly in any governmental forecasts [2 and 3]. This was also reflected in PV support policy – Denmark had net metering and feed-in tariff schemes in place, but they were by far less attractive than anything seen in countries further down south.

In the beginning of 2012, Denmark had accumulated PV installations of 17 MW in total and everything seemed to go its way. Then reality struck: During 2012, a whopping 435 MW of PV, approximately 70,000 installations, were set up throughout the country. This development was obviously triggered by substantial decreases of solar panel prices. A solar industry began to develop and to professionalise around mostly small household installation projects. In a forecast published in September 2012, the Danish Energy Agency had adjusted their expectation for PV growth from virtually nothing to reach 1,200 MW in 2020, or 3% of total energy demand [4]. The original financial plan behind the energy strategy had included a total PV of up to 800 MW until 2020 – and suddenly PV was expected to reach that limit in only a few years.

All this happened without governmental intervention or even political intention. On the contrary, now the Energy Minister had to get busy drafting an amendment in legislation to make PV less attractive. In the net metering scheme, net self-consumption, e.g. direct on-site consumption of PV by a household with their solar panels on the roof, had been fully exempt from the otherwise sky-high taxes and fees. These taxes partially finance the social welfare system in Denmark and tax income based on the old low expectations on PV development had been planned into the coming years’ overall state budget. While more and more private consumers would become their own producers of solar electricity and thus not pay taxes any longer for a large part of their consumption, state income was threatened to decrease – And apparently, the development was significant enough to create fear of a financing gap.

An amendment was agreed upon and passed by Danish parliament in December 2012 [5]. It included a decrease in benefits from the net metering scheme on the one hand and an increase in feed-in tariffs on the other hand. Overall, the PV deployment was expected to slow down through these measures while keeping up some incentives for small developments. It came in handy that through this switch, state income would be less affected by PV deployment and more of the burden would be channelled through the Public Service Obligation (that finances the feed-in tariffs) directly to the electricity consumers.

The new scheme had though some unexpected effects as a study by the Technical University of Denmark (DTU) (forthcoming publication) shows: For households, the new scheme has indeed decreased the attractiveness of investing in a PV system. However for large commercial and service buildings, the new scheme is actually more attractive and it especially gave an incentive for installing larger PV systems than before. The same can be said for open field PV installations, which had previously been virtually non-existent in Denmark. And yes, during the few months in which the new legislation has been in place, the authorities received applications for more than 130 MW of large installations, many of which are open field [6]. Energy Minister Martin Lidegaard admitted in an open parliamentary hearing on 30 May, that his Ministry had clearly underestimated the interest in open field PV and had not expected such development [7].

Although the new legislation had introduced a maximum size limit of 400kW per PV installation, this could be easily circumvented by simply separating out a large installation into smaller patches with a grid connection each. It is interesting why Denmark did not feel the need to prevent such a loophole in the scheme, after the experiences Germany had had with an explosive development of large open field installations. Germany amended the Erneuerbaren-Energien-Gesetz (EEG) in Mid 2012 so that installations that have the same owner and lie within a radius of 2km of each other are automatically considered to be one installation unit [8].

In a very fast process, the involved parties decided in March upon a supplement agreement, which reduced the feed-in tariff for open field installations back to the low level that had been in place prior to the amendment of December 2012 [9]. The PV industry is of course annoyed that the corrections deny them access to the high feed-in tariffs [10]. Although the rules are not changed retroactively, many projects had been under development though not finalised at the time the correction was made. Allegedly, between 20-30 companies could get into ”big trouble”, after having pre-invested large amounts into project development and even purchased equipment for large PV installations [11].

The conservative parties therefore called for an amendment of the amendment. An intermediate regulation should protect those companies that have invested and committed money into PV installations between January and March. So, the Energy Ministry drew up a suggestion for this intermediate legislation. But this did not seem to be good enough. The Liberal Party and the Red-Green Alliance are “highly dissatisfied” about how Energy Minister Martin Lidegaard has handled the whole process [12]. Several parties prevented the new amendment to go through parliament in the end of May and beginning of June and have sent Martin Lidegaard back home into his “thinking box”, as the Danish very commonly say. Can he now find way a good way out of this tension field between a too successful support scheme and limited allocation of state finances?

The dilemma is evident: Should he allow large and open field PV projects to benefit from the high feed-in tariffs? What about the projects currently under development? How many of those should be allowed into the intermediate regulation? What about the maximum limit of 800 MW?

As Martin Lidegaard explained, large-scale PV installations had never been the intention of the support scheme. A related question he should ask himself is: Can we get more renewable energy up and running by spending the money on renewable technologies other than PV? The answer is almost certainly yes. PV in Denmark is still approximately twice as expensive as wind energy [13]. And offshore wind has always been the pet project of Danish energy policy. So it is hard to imagine that the political coalition will accept a larger PV deployment to the expense of postponing or even decreasing the targets for offshore wind.

It seems that a compromise will go through parliament very soon that allows up to expected 150 MW of large projects into the intermediate solution. The upper limit of 800 MW until 2020 seems not to be negotiable amongst the involved parties – it will most probably be upheld. In order not to exceed the limit, the high feed-in tariff will probably have to be restricted to 20 MW of PV per year – and to residential buildings only.

This restriction would mean that a young industry will come to a standstill just after it has taken off. Experts in energy planning start to point out that a somewhat higher, but still moderate PV development would bring additional diversity into the electricity system: the value of being able to produce from several sources, including wind and sun, can be significant in the future energy system without fossil fuels [14]. Additionally, almost a hundred thousand more citizens have been more actively involved in the Danish transition to a sustainable energy system. – How should this factor in? What if the PV cost will continue to decrease as rapidly as in recent years? Will the political system be flexible enough to reconsider the PV development targets and to reap potential future benefits?  

We shall see soon how the Danish government will decide on solar power. Let’s hope that any decision will be made primarily with the public good in mind and internal political agendas only play a minor role – It is after all much at stake: Little Denmark wants to be a role model in how to reach independence from fossil fuels – and the citizens of Denmark deserve that this transition is going to be made as reasonably and cost-efficiently as possible.

– Written by Lena Kitzing – PhD Student with Exeter EPG

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