4.3.1 Support to onshore wind turbines
Since 2008, electricity production from onshore wind turbines has received a feed-in-premium on top of the market price. The feed-in-premium system for onshore wind turbines was changed in connection with the energy agreement from 2012, a change that took effect on January 1st, 2014. The amendment introduced a ceiling on the sum of the market price and the feed-in-premium as well as changes to the calculation of full load hours that the turbine would receive support.
Hence, onshore wind turbines connected to the grid after January 1st, 2014 currently receive a feed-in pre-mium of 25 øre/kWh (3.8 US c/kWh) with a ceiling equal to the market price + prepre-mium of 58 øre/kWh (8.7 US c/kWh). This means, if the market price of electricity is higher than 33 øre/kWh, the premium is reduced for every øre (1 øre = 0.15 US c) that the market price increases further. E.g. if the market price at a given time is 45 øre/kWh, the premium given on top of the market price is:
Figure 4-2: Agencies and institutions under the Danish Ministry of Energy, Utilities and Climate. source: www.efkm.dk/en
Page 35/103 Integration of Wind Energy in Power Systems (𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 − 𝐶𝐶𝑖𝑖 𝐶𝐶𝑓𝑓𝐹𝐹𝑝𝑝𝐶𝐶𝑝𝑝𝑝𝑝)− �𝑀𝑀𝐶𝐶𝑓𝑓𝑀𝑀𝐹𝐹𝐶𝐶 𝐶𝐶𝑓𝑓𝐶𝐶𝐶𝐶𝐹𝐹 −33 ø𝑓𝑓𝐹𝐹
𝑀𝑀𝑘𝑘ℎ�= 13 ø𝑓𝑓𝐹𝐹 𝑀𝑀𝑘𝑘ℎ
Since the year 2000, wind turbines have in addition to the feed-in premium received a balancing cost, which as of January 2016 is 1.8 øre/kWh for the first 20 years.
The feed-in premium given to onshore wind turbines connected after January 1st, 2014 is dependent on the effect of the turbine and rotor diameter. Support is given for the first 6,600 full load hours + rotor swept area in m2 x 5.6 MWh/m2. The change in calculation of the hours that the support is given to was undertaken to promote the most beneficial relation between nominal capacity and production.
Grid connection and reinforcement costs are to a large extent distributed among all electricity consumers.
Thus, Denmark applies the concept of shallow connection cost for the investor. Only grid connection costs equivalent to connection to the nearest 10 kV station are allocated to the wind turbine owner independent from the real costs. Remaining costs for both grid connection and necessary reinforcements are shared among all electricity consumers in Denmark.
4.3.2 Support to offshore wind turbines
Offshore wind turbines under the open door scheme connected after February 2008 receive the same sup-port as onshore wind power.
In the open-door procedure, the project developer takes the initiative to establish an offshore wind farm of a chosen size in a specific area. This is done by submitting an unsolicited application for a license to carry out preliminary investigations in the given area. The application must as a minimum include a description of the project, the anticipated scope of the preliminary investigations, the size and number of turbines, and the limits of the project’s geographical siting. In an open-door project, the developer pays for the transmis-sion of the produced electricity to land.
Special large offshore wind farms are supported in a separate scheme to onshore wind farms. Since 2004, offshore wind farms have been solicited via an open, two-stage tendering process. Since then, wind farms are commissioned under a competitive tender process and the electricity production cost is reflected via a feed-in tariff given per kWh produced for the first 50,000 full load hours.
A government tender is carried out to realise a political decision to establish a new offshore wind farm at the lowest possible cost. In the typical government tender procedure, the Danish Energy Agency an-nounces a tender for an offshore wind turbine project of a specific size, e.g. 600 MW, within a specifically defined geographical area.
Depending on the nature of the project, the Danish Energy Agency invites applicants to submit a quotation for the price at which the bidders are willing to produce electricity in the form of a fixed feed-in tariff for a certain amount of produced electricity, calculated as number of full-load hours. The winning price will differ from project to project because the result of a tender depends on the project location, the wind conditions at the site, the competitive situation in the market at the time, etc. The areas for tender are the sites identi-fied in the spatial planning process. The fact that other government authorities have been involved in the process of identifying sites for new offshore wind farms and have approved the final report, creates com-mitment to securing the sites. This, in turn, creates great investor security and up front knowledge about the sites.
Page 36/103 Integration of Wind Energy in Power Systems The Danish independent transmission system operator (TSO) Energinet.dk is responsible for the Environmental Impact Assessment; geophysical surveys as well some geotechnical surveys to be carried out in the plan-ning phase ahead of the call for tenders. These in-depth studies of the physical features of the site deepen the knowledge of the sites, and give future investors an insight into the technology choices they can take in the bidding procedure. This early action is implemented in order to reduce the length and uncertainty of the approval process and to give applicants better possibilities to offer a price that reflects the site specific costs. At the same time, it provides potential bidders with a high investment security and thus results in a reduced risk premium.
The results of the preliminary investigations for an offshore wind site are published in a timely manner before completion of the tendering procedure. The costs of the preliminary investigations will subsequently be re-funded by the owner of the concession. Also, the costs will be published well before tenders for the wind farm are made. In projects covered by a government tender, Energinet.dk also finances, constructs, owns and maintains both the transformer station and the underwater cable that carries the electricity to land from the offshore wind farm.
In order to ensure rapid and un-bureaucratic application processing, enterprises or consortia awarded concession contracts utilise the Danish Energy Agency as their single point of access to assistance on issues related to all permitting. The Danish Energy Agency grants the required permits, and coordinates these with other relevant authorities. This means, the permits granted by the Danish Energy Agency also contain terms and conditions from other authorities, such as the Danish Nature Agency, the Danish Maritime Authority, the Danish Coastal Authority, the Danish Agency for Culture, the Ministry of Defence, etc.
The first call for tender was a result of the energy agreement from 2004, which included a call for tenders concerning two offshore wind farms of 200 MW each, with grid connection in 2007-08. Again in 2008 an energy agreement included a call for tenders with regard to an offshore wind farm of 400 MW for commis-sion in 2013. The two most recent large offshore wind farms, Horn Rev 3 and Kriegers Flak, became a politi-cal decision as part of the energy agreement in 2012. Vattenfall won Horns Rev 3 and the wind farm is cur-rently in erection. Vattenfall also won Kriegers flak in November 2016, and is expected to be fully opera-tional in 2022.
The award criterion is price only, which helps ensure a fair and transparent procedure. The wind power developer awarded will thereby receive their winning bid as a guaranteed fixed price/kWh for 50,000 full load hours (approx. 12-15 years). Afterwards they receive only the spot market price. Note that no support is given in hours with a negative spot price, which Denmark typically experiences a few hours per year.
The winning bids for the five offshore wind farms in Denmark which have gone through a tendering process are shown in Table 4-1.
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Table 4-1: Winning bid of tendering process for five offshore wind farms in Denmark. The price is guaranteed for the first 50,000 full load hours and does not include the cost for transmission to shore, which is paid for by the transmission system operator and financed by tariffs on electricity.
4.3.3 Financing of the support schemes
Support for wind energy in Denmark is mainly funded by the Public Service Obligation (PSO) scheme. The PSO is paid by all consumers as part of the electricity bill and the funds are collected by retailers and trans-ferred to the Danish TSO, Energinet.dk. Energinet.dk is thereby responsible for administration of the PSO.
They are regulated by the Act on Energinet.dk and are monitored by the Danish Energy Regulatory Authori-ty.
The PSO is not part of the government budget. However, to reduce the production cost at the Danish en-terprises, they can get parts of their PSO costs covered through a subsidy scheme funded by the govern-ment budget. The PSO system was established 1999 and replaced financing on the governgovern-ment budget.
The PSO scheme is currently being revised and it is envisaged that there will be some future changes to how Denmark funds RE support schemes. The envisaged changes are a result of the European Commission critic of the PSO scheme, as the PSO scheme is imposed on all electricity consumers in Denmark, whether elec-tricity production took place abroad or in Denmark, while the PSO only finances support schemes that for-eign power generation do not have access to. Starting in 2017, the European Union requires support for RE is granted in a competitive bidding process on the basis of clear, transparent and non-discriminatory crite-ria. As a result, the current Danish PSO scheme will have to change. How Denmark will finance the support scheme for renewable energy in the future is yet unknown and a new finance model for support schemes is currently being discussed in parliament.
Page 38/103 Integration of Wind Energy in Power Systems Figure 4-1: Breakdown of electricity prices in Denmark for households and SMEs.
4.3.4 References
1. Danish Energy Agency, Danish experiences from offshore wind development, 2015
2. Energistyrelsen, Afregning og tilskud til vindmøller, http://www.ens.dk/undergrund-forsyning/el-naturgas-varmeforsyning/elforsyning/elproduktion/stotte-vedvarende-energi-2, accessed 01-08-2016
3. Danish Energy Agency, Renewable Energy and electricity markets in Denmark, Presentation Global Cooperation, April 2016
4. Danish Energy Agency, Tendering Process for offshore wind farms in Denmark, Presentation Global Co-operation, April 2016
5. Danish Energy Agency, support for RE in Dk, Presentation Global Cooperation, April 2016 6. Energinet.dk, Nye regler for balancegodtgørelse til vindmøller,
http://energinet.dk/DA/El/Nyheder/Sider/Nye-regler-for-balancegodtgoerelse-til-vindmoeller-.aspx, 2016, accessed: 01-08-2016
7. Forsyning og ressourcer, Energistyrelsen, Oversigt over støtteregler mv. for elproduktion baseret på ved-varende energi og anden miljøvenlig elproduktion, notat, 2015
8. Lena Kitzing et al, Auctions for Renewable Support in Denmark: Instruments and lessons learnt, Aures, 2015
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