June 16, 2016
Denmark, Editorials, U.S.

Denmark’s wind-subsidy lesson

Danes are the latest to question the price of green-energy virtue | The Wall Street Journal | June 16, 2016 | ww.wsj.com

The economic costs of Europe’s green-energy religion keep mounting, and now its more devout disciples are starting to doubt the faith. Witness Denmark’s reconsideration of its plans to build new coastal wind farms that would add 350 megawatts of generating capacity.

The Danes are the world champions of wind farms, getting some 42% of their energy from wind last year. [NWW note: Although Danish wind turbines generated energy equal to 42% of the country’s electricity consumption, most of the wind energy is fed into the Nordic and German grids; see next paragraph.] But that power hasn’t come cheap, since Danish households pay the highest electricity charges in Europe mostly thanks to Copenhagen’s green levy on electricity bills, the Public Service Obligation (PSO).

Nor is the power particularly reliable. On some gusty days, Denmark’s wind farms produce more power than the western part of the country needs. On other days the turbines are still. A consequence of the hefty subsidies for wind construction is that if Denmark were to export its surplus power on windy days, taxpayers would effectively be subsidizing someone else’s energy consumption.

So some politicians have jumped at a chance for a rethink courtesy of the European Commission, which in 2014 ruled the PSO violates European Union subsidy rules. In addition to illegally subsidizing local green-power firms, the PSO also dragged on Denmark’s economy. Because the levy moved inversely to market-based energy prices, the tax ate the windfall that Danes otherwise would have enjoyed from falling oil and gas prices. With the economy struggling to hit even 1% growth, voters started asking why they’re paying more taxes on electric bills than other Europeans in order to subsidize wind farmers.

As a result, Parliament is preparing to end the PSO instead of mending it. The plan is to pay some green subsidies from general government revenues, to be raised by increases to income or other taxes once the PSO tax on electricity bills disappears. But with taxes already high, Copenhagen will struggle to raise them enough to replace the revenue lost when the PSO ends. This has triggered a long-overdue debate about cutting some of the subsidies.

The proposal to delay construction of some coastal wind farms will save an estimated seven billion Danish krone ($1.06 billion) over 12 years. If approved by Parliament, this would mark a welcome step toward economic and fiscal sanity.

Wind advocates will note that Copenhagen still plans to add to offshore wind capacity. But the episode demonstrates that there are limits to even the European willingness to sacrifice prosperity for carbon virtue. Britain has also scaled back its wind subsidies, while Germany is trying desperately to mend its wind-power “market.” Economic and political reality is catching up with Europe’s green ambitions.