Wind Energy — The Case of Denmark
Author: | Denmark, Economics, Emissions, Grid
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Center for Politiske Studier, September 2009
PART 1: The real state-of-play and its hidden costs
Denmark generates the equivalent of about 19% of its electricity demand with wind turbines, but wind power contributes far less than 19% of the Nation’s electricity demand.
The claim that Denmark derives about 20% of its electricity from wind overstates matters. Being highly intermittent, wind power has recently (2006) met as little as 5% of Denmark’s annual electricity consumption with an average over the last five years of 9.7%.
In the absence of large-scale electricity storage, any modern electricity system must continuously balance electricity supply and demand, because even small variations in system voltage and frequency can cause damage to modern electronic equipment and other electrical equipment.
Wind power is stochastic,especially in the very short term (e.g., over any given hour, 30 minute, or 15 minute period). This has created a completely new challenge that transmission system operators (TSOs) all over the World are only now learning how to handle. Some draw from Denmark’s experience. But Denmark’s special circumstances make its experience of limited transferability elsewhere.
Denmark manages to keep the electricity systems balanced due to having the benefit of its particular neighbors and their electricity mix. Norway and Sweden provide Denmark, Germany and Netherlands access to significant amounts of fast, short term balancing reserve, via interconnectors. They effectively act as Denmark’s “electricity storage batteries”. Norwegian and Swedish hydropower can be rapidly turned up and down, and Norway’s lakes effectively “store” some portion of Danish wind power.
Over the last eight years West Denmark has exported (couldn’t use), on average, 57% of the wind power it generated and East Denmark an average of 45%.The correlation between high wind output and net outflows makes the case that there is a large component of wind energy in the outflow indisputable.
The exported wind power, paid for by Danish householders, brings material benefits in the form of cheap electricity and delayed investment in new generation equipment for consumers in Sweden and Norway but nothing for Danish consumers. Taxes and charges on electricity for Danish household consumers make their electricity by far the most expensive in the European Union (EU). The total probable value of exported subsidies between 2001 and 2008 was DKK 6.8 billion (€916 million) during this period. A similar amount was probably exported prior to 2012 and larger quantities will be exported following the commissioning of 800 MW of new offshore wind capacity in 2013.
The wind power that is exported from Denmark saves neither fossil fuel consumption nor CO2 emissions in Denmark, where it is all paid for. By necessity, wind power exported to Norway and Sweden supplants largely carbon neutral electricity in the Nordic countries. No coal is used nor are there power-related CO2 emissions in Sweden and Norway.
Wind energy has replaced some thermal generation in Denmark. It has saved an average emission of about 2.4 million t per year CO2 at a total subsidy cost of 12.3 billion DKK or an average cost of 647 DKK (€ 87 or $124) per ton CO2. Wind power has proven to be an expensive way to save CO2 emissions.
The cost of Denmark’s wind capacity to Danish consumers is exacerbated by its inability to use so much surplus electricity. The surplus will increase in 2013 when 800 MW of new offshore capacity is commissioned, increasing Denmark’s wind production by 2.7 TWh per year. Nearly all the additional wind power will be exported and this will further depress prices; nearly all the subsidies paid by Danish consumers will also be exported without achieving any significant fossil fuel use nor any CO2 reduction. Achieving own-consumption of all its wind power is technically impossible in the short term and will remain entirely hypothetical until electricity consumption rises and new technical and demand-side solutions have been developed and implemented. In most cases, these have yet even to be invented, let alone proven and costed.
Notwithstanding its many disadvantages wind power’s one striking advantage is that, like nuclear, its marginal costs of operation are very small once the capital has been paid. However, unlike nuclear, many ten to fifteen year-old turbines are past their useful life. By contrast, most conventional rotating power plant can enjoy a working life of 40 to 60 years, as evidenced by most power plants in Europe today. This puts into question the strategic, economic and environmental benefits of a power plant that may have to be scrapped, replaced and re- subsidized every ten to fifteen years.
The Danish Parliament reached a political consensus during 2008 that in 2025 50% of Denmark’s electricity demand must come from renewable resources, mostly wind power. The Ecogrid Study Group has concluded that if the extra wind power is to achieve this aim, drastic re-engineering of the whole energy system will need to take place, including the retirement of much expensive, high quality, existing capacity. Wisely, it has not tried to estimate the costs of doing this. In any case, Sweden and Norway will be unable balance the extra wind capacity planned that is also planned for Germany and Netherlands.
PART 2: Wind Energy’s effect on employment
Denmark has been a first-mover in the wind power industry for over ten years, and its leading wind turbine manufacturers have been able to maintain a very strong global position. This has been a consequence of a concerted policy to increase the share of wind power in Danish electricity generation. The policy has only been made possible through substantial subsidies supporting the wind turbine owners. This indirect subsidy has in turn generated the demand for wind turbines from the manufactures. Exactly how the subsidies have been shared between land, wind turbine owners, labor, capital and shareholders is opaque, but it is fair to assess that no Danish wind industry to speak of would exist if it had to compete on market terms. This paper documents the experiences gained in Denmark with regard to the employment effect of subsidizing the wind industry.
Substantial subsidies have been directed to the Danish wind mill industry over years. From 2001-2005 the yearly subsidy has been 1.7-2.6 billion DKK.
The Danish Wind industry counts 28,400 employees. This does not, however, constitute the net employment effect of the wind mill subsidy. In the long run, creating additional employment in one sector through subsidies will detract labor from other sectors, resulting in no increase in net employment but only in a shift from the non-subsidized sectors to the subsidized sector. Allowing for the theoretical possibility of wind employment alleviating possible regional pockets of high unemployment, a very optimistic ballpark estimate of net real job creation is 10% of total employment in the sector. In this case the subsidy per job created is 600,000- 900,000 DKK per year ($90,000-140,000). This subsidy constitutes around 175-250% of the average pay per worker in the Danish manufacturing industry.
In terms of value added per employee, the energy technology sector over the period 1999-2006 underperformed by as much as 13% compared with the industrial average.
This implies that the effect of the government subsidy has been to shift employment from more productive employment in other sectors to less productive employment in the wind industry. As a consequence, Danish GDP is approximately 1.8 billion DKK ($270 million) lower than it would have been if the wind sector work force was employed elsewhere.
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