It was the first country ever to venture into offshore wind power. Now, Denmark is scaring off potential investors by abandoning some of the policies that once helped make it an international poster child for green energy.
The center-right government of Lars Loekke Rasmussen wants to scrap an electricity tax that has helped subsidize wind turbines since 1998. The administration says its decision follows a complaint from the European Union that such subsidies favor domestic businesses. But Denmark’s Wind Energy Association, which estimates the change would lead to a massive drop in new capacity, warns the development is dangerous.
Jan Serup Hylleberg, the chief executive officer of the Wind Association, says investors are struggling to interpret the latest signals from Denmark. “Political uncertainty is poison,” he said. “It’s more of a headache to investors than predicting how the wind will blow.”
Denmark is pondering cuts in wind subsidies as businesses including Sweden’s Vattenfall Vindkraft A/S, ScottishPower Renewable Energy Limited and Boralex Inc. get ready to bid for a total of 950 megawatts of new capacity planned at several new wind farms around the Danish coast.
Patrick Decostre, general manager of Boralex Europe, warns that his company is ready to “review its potential investments in Denmark” because of the latest policy shifts.
“This situation would send a negative message to foreign investors like Boralex as predictability is key when it comes to such major investment,” Julie Cusson, Boralex’s head of communications, said in an e-mail.
Denmark’s decision to drop the subsidy rather than address the specific criticism from the EU, which was that all companies should have equal access to support, would reshape the renewable energy landscape. The Wind Energy Association estimates that new capacity would plunge from an annual 215 megawatts in 2013-2016 to 50 megawatts a year in 2017-2020, or less than one-fourth its current level.
The government says part of the reason it decided to drop the subsidy entirely is because doing so would help competitiveness at a time when weak exports are acting as a drag on economic growth. Policy wonks note that Denmark already derives more than 40 percent of its electricity needs from wind power, evidence of a mature industry that no longer needs state aid.
Besides, the country still wants to be fossil-fuel free by 2050. It’s just that reaching that goal “has to be done in the most cost-efficient way,” said Energy Minister Lars Christian Lilleholt.
The government’s tax plans are the latest in a string of environmental policy U-turns that have tarnished Denmark’s reputation as a haven for renewable energy.
And while Denmark’s Vestas Wind Systems A/S is still the world’s largest maker of turbines, the country has fallen behind in offshore production. Part of the policy about-face lies in the political base on which the government relies for support in parliament.
The anti-immigration Danish People’s Party, the largest group in the ruling bloc, says domestic considerations such as care for the elderly take priority over the concerns of foreign investors.
“You have to remember this is a billion-figure cost that we’re passing on to the Danes,” said the party’s leader, Kristian Thulesen Dahl. “While some investors may be annoyed by the fact that they won’t make as much money, that’s no biggie, it’s just business. We also have a responsibility to discuss the costs we impose on Danes over the next 10 year.”
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