Lessons from Energy Deregulation in Scandinavia and England (Part 2 of 3)
Kenneth J. Kogut, P.E., CEM
National President, The Association of Energy Engineers, 1998
Kenneth J. Kogut & Associates
Contents
Amsterdam
"Streamlining '96"
Copenhagen
"Energy 21"
Tax Legislation
About the Author
NETHERLANDS
Amsterdam (Back to top)
AEE delegates met with utility executives from NV UNA. Discussions focused upon the controlled and limited deregulation market currently existing in Holland and Dutch generating companies. UNA currently has a generating capacity of 3.6 gigawatts (GW), and ranks third in the Holland utility electric utility industry, with EPZ rated at 4.6 GW and EPON rated at 4.3 GW ranked above UNA. Discussions focused around the possible merging of the three utilities pushing them to an overall ranking of eleventh within the European electricity companies.
Currently, there are four (4) Dutch generating companies: EPZ, EPON, UNA, and EZH. Prior to the current controlled form of deregulation, there existed fifty (50) distributing companies. Subsequent to deregulation, there currently exists twenty (20) distributing companies.
The present electric/heat generating plant fuel mix of UNA consists of 62% gas, 20% coal, 17% Blast Furnace Gas (BFG), and 0.41% oil. This is compared to the Netherlands generating fuel mix of 42% coal, 46% gas, 4.2% BFG, 0.3% oil, and 7.9% nuclear. The Netherlands electric energy production is estimated to be 40 GWH/year. Coal imports for electric producing plants are imported from Australia, Columbia, and South Africa. Domestic coal mines have been shut down.
Peak electric loads for the Dutch generating system is 11,700 MW, with an estimated system capacity of 10,000 MW. Typically 86% of system peaks are generated, with 14% being imported.
"Streamlining '96" (Back to top)
The Netherlands are currently working under an order of Economic Affairs titled—Streamlining '96. Some major points of this directive include:
- Keep transmission and distribution separate, an "arms length" from generation.
- Merger of the four (4) producers—Create a "Great Production Company."
- Provide special status for sustainable energy—ex: solar should be protected.
- A new government body would be created governing the gas and electric business. The new body would control free traffic of energy and protect "captive" users.
Based on the present electric energy rates, approximately 60% of cost per kWh goes to the price of fuel. The general price for electricity for the industrial sector in the Netherlands is $0.065/kWh (USD), of which, approximately less than $0.01/kWh represents the systems grid (380 kVA) cost which is needed to be supported. Overall the Netherlands maintain a 65-70% systems load factor.
Up until recently, electricity in the Netherlands has been free of tax. Households currently have a value added tax (VAT) on energy. Residential rates with VAT added are at approximately $0.15/kWh (USD), and approximately $0.11 kWh without the VAT.
Privatization is not in the near picture for the Netherlands. Some competition exists, but rates are relatively low compared to other European countries.
DENMARK
Copenhagen (Back to top)
The Ministry of Environment and Energy held court for AEE delegates in Copenhagen, Denmark. Discussions focused upon development energy policies, developed by The Danish Energy Agency, as related to the country of Denmark. The agencies of energy and environment were combined since 1994.
The Danish Energy Agency, an Agency under the Ministry of Environment and Energy was established in 1976. The Agency focuses on the production, supply and consumption of energy and ensures, on behalf of the State, the responsible development of energy in Denmark from the perspectives of society, the environment and security of supply.
The Agency drafts and administers Danish energy legislation and implements analyses and assessments of development in the energy field. One of its important tasks is to launch initiatives to translate Government energy policy into practical initiatives. In April 1996, the Government presented its action plan for energy, Energy 21, the aim of which is to contribute Denmark maintaining and developing its pioneering role in the achievement of sustainment of sustainable global development. In 1996, 8% of the total Danish energy consumption was covered by renewable energy sources. According to Energy 21, this share shall increase to 30% in 2025.
"Energy 21" (Back to top)
Energy 21 maintains the Government's objective of reducing CO2 emission in Denmark by 20% by the year 2005 in relation to 1988 levels.
The Danish Energy Agency is responsible for the overall planning of power, heat and natural gas supplies in Denmark. In addition to electricity, most consumers today have access to energy supply networks consisting of district heating or natural gas. In areas not supplied by district heating or natural gas, various subsidy schemes provide incentives to consumers to switch environmentally friendly forms of heating.
Energy supply networks are in the process of being made more efficient by increasing co-production of heat and power at combined heat and power (CHP) plants. CHP supply from large-scale plants is being further developed and local district heating plants converted to CHP based on natural gas, waste and biomass. New, local district heating systems are also being established and industries are being encouraged to establish their own, local CHP plants.
Denmark is also a leader with regard to energy savings. The Agency works to encourage the general public, trade and industry and public institutions to make even more efficient use of energy in order to achieve savings. Initiatives targeting private consumers include energy conservation campaigns and various subsidy schemes. Labeling of electrical appliances is being introduced to encourage consumers to purchase low-energy appliances.
The Energy Agency also administers a scheme launched in 1997 to energy-label all buildings so that buyers know the energy condition of a building when contemplating a purchase. Furthermore, systematic energy management has been introduced in most public institutions and energy consultants encourage trade and industry to save energy by means of energy auditing schemes.
Tax Legislation (Back to top)
In 1996, new green tax legislation was introduced for trade and industry the revenue of which is to be recycled to business enterprises. Energy intensive enterprises can enter into agreements concerning energy efficiency measures, which will allow them to receive a reduction in CO2 tax. Subsidies may also be granted for specific projects leading to energy improvements in business enterprises.
To attain the overall objective of reducing CO2 emissions, continual development of new, more energy-efficient technology is required. The Energy Agency administers the Energy Research Programme (ERP) that provides funds for research and development in a number of important fields including further recovery of oil and natural gas, combustion and gasification of biomass, development of large-scale, low-noise wind turbines, and fuel cell and superconductor research.
There are currently four (4) power plants in Copenhagen. Surface heat is utilized for the power plants, for process plants, and to supply heat to the residential sector.
The current value added tax (VAT) on energy is 25%, with total taxes on energy amounting to a 50% level. Electric energy cost to the Danish household is currently at $0.20/kWh USD) with taxes added. The average normal household consumes approximately 4,000 to 5,000 kWh per year.
Wind power currently accounts for 3% of the Danish power generation, with a target of 12 to 14% for renewable (solar, biomass) energy. Present windmill designs can generate up to 1.5 megawatts (MW) of power. The best overall combination of cost effective energy delivered to the Danish systems is produced from windmills in Denmark, and the purchase of hydropower from Norway. New plants built in Denmark consist of gas and straw fueled, with little emphasis on oil.
Currently, there exists seven (7) major generating companies, supported by 100 distribution companies. These companies feed into two (2) power pools. Privatization of the local distribution companies (LDC) is not on the foreseeable horizon. Denmark wants to focus on an electric system for the Danish, with little or no outside influence. Eventual liberalization of the Danish electric utility system will come about after Norway, Sweden, England, and the surrounding countries accomplish it.
About the Author (Back to top)
Kenneth J. Kogut, P.E., CEM, maintains a professional energy management consulting firm serving clients in the commercial, industrial, institutional, and governmental sectors. Through the efforts of Mr. Kogut, professional energy consulting services have been provided in the areas of energy audits and the development and implementation of energy management programs for his firm's clientele. Mr. Kogut has been actively involved in the energy field in the capacities of designing, developing, managing, and implementing energy management programs and energy conservation projects for over twenty-five years.
Mr. Kogut has accomplished energy reviews and assessments for the firm's clientele across the North American continent, Canada, and Puerto Rico. Prior to the establishment of his Firm, Mr. Kogut assisted in developing testimony to the Washington, D.C., Public Service Commission in one of the first time-of-day rate cases in the country. Mr. Kogut was also involved in the development of one of the first electric rate structures for the eastern part of Saudi Arabia.
He has consulted to various electric and gas utilities in aspects of utility operations, and, as a consulting engineer, was responsible for technological forecasting and development of electric usage rate structures, and feasibility studies associated with the state-of-the-art and advanced energy systems for the electric utility industry. Mr. Kogut has published a number of papers on the subject of energy, is a registered Professional Engineer (P.E.) in Illinois, and a Certified Energy Manager (CEM). He holds a bachelor of mechanical engineering (BME) and a master of engineering (ME) degree from the University of Detroit, and was also an Alfred P. Sloan Fellow at the University. He was president of the Association of Energy Engineers (AEE) for 1998.
Kenneth J. Kogut & Associates, 5232 West 170th Place, Oak Forest, IL 60452; (708)560-0083.