Subsidy schemes for wind farms

Introduction
Onshore wind turbines
Offshore wind turbines under open-door procedures
Offshore wind turbines under tender procedures
Horns Rev 3, Kriegers Flak and nearshore wind farms


Introduction

In 2012 Denmark's major political parties agreed on a plan for national energy policies up to 2020. The agreement had a strong focus on climate change and renewable energy sources. A plan was negotiated to secure Denmark's energy target to produce 100% renewable energy by 2050.

Wind turbines are part of the plan to secure a more eco-friendly energy policy. The specific targets for wind power up to 2020 include a 1,500 megawatt (MW) increase in offshore capacity, as well as a 500 MW net increase in onshore capacity.

The agreement provides for the establishment of two new offshore wind farms, Horns Rev 3 and Kriegers Flak, and 350 MW of nearshore wind farms (farms less than 4 kilometres from the shore). The tender concessions for these projects are underway.

The price supplement for electricity produced by wind turbines is regulated in the Promotion of Renewable Energy Act.

The subsidy schemes are different for onshore and offshore wind turbines. For offshore wind turbines, the schemes also differ between turbines established under open-door procedures and turbines established as the result of government tenders.

Onshore wind turbines

For onshore turbines, the electricity produced is supplied to the electricity supply grid and the turbine owner sells the electricity on the market under market conditions. A Dkr0.25 supplement to the market price is paid for electricity produced by wind turbines connected to the grid on or after January 1 2014. The price supplement applies for the first 6,600 full-load hours.

Further, a supplement of Dkr0.023 per kilowatt-hour (kWh) is paid to cover balancing costs throughout the turbine's lifetime. In the case of wind turbines that were connected to the grid before January 1 2014, there are special regulations that depend on the date of connection and the size of the turbine.

Offshore wind turbines under open-door procedures

Wind turbines established under an open-door procedure benefit from the same price supplement as new onshore wind turbines.

Offshore wind turbines under tender procedures

The price supplement for electricity produced by offshore wind farms established as the result of a government tender is determined as part of the tender. The winners of the tenders to date have been the bidders that offered the lowest feed-in tariff.

In the earlier government tenders carried out for wind farms at Horns Rev II, Rødsand II and Anholt, the feed-in tariffs were respectively set at Dkr0.518 per kWh for 10 terawatt-hours (TWh), corresponding to around 50,000 full-load hours, Dkr0.629 per kWh for 10 TWh, corresponding to around 50,000 full-load hours, and Dkr1.051 per kWh for 20 TWh, corresponding to around 50,000 full-load hours.

For the upcoming projects at Kriegers Flak, Horns Rev 3 and the nearshore wind farms, the subsidy schemes are similar:

• Subsidies are provided as a price supplement under a contract for difference scheme based on a fixed price corresponding to the price offered in the tender. The fixed priced will not be indexed. The price supplement is provided from production of the first kWh and for a fixed production.
• The price supplement will be calculated hour by hour as the difference between the offered price per kWh and the spot price for electricity. The total price supplement for an hour will be the product of the price supplement and the metered production for the same hour. The spot price for electricity means the hourly price per kWh stated by the Nordic electricity exchange, Nord Pool Spot, on the spot market for the relevant area. Payment will be monthly.
• A price supplement will not be paid for production during hours in which the spot price is negative. The total subsidy period will be extended to cover the number of negative hours in which the subsidy was discontinued. The number of hours of negative spot prices, in which the subsidy is discontinued, will be limited to a maximum per year or for the whole subsidy period (eg, 150 or 300 hours per year). In the event of negative prices, the concessionaire is allowed to curtail operations.
• If the spot price for the electricity produced by the installation exceeds the fixed price per kWh, a negative price supplement will be calculated. Negative price supplements will be offset against future positive price supplements rather than being collected. There will be no time limit for the period in which negative price supplements may be calculated or offset.

For nearshore wind farms, an extra subsidy of Dkr0.01 per kWh is provided if the local (citizen) ownership of a farm exceeds 30%.

The price supplement is expected to be provided for the following production levels:

• Kriegers Flak – 30 TWh;
• Horns Rev 3 – 20 TWh; and
• nearshore wind farms – 17.5 TWh.

Horns Rev 3 will have a production capacity of 450 MW. The Danish Energy Agency has yet to decide whether Kriegers Flak will be one farm with a 600 MW capacity or two farms with capacities of 400 MW and 200 MW respectively. The question arises because of a mining site within the area. However, the agency is leaning towards the 600 MW option. The six areas for nearshore farms will have a maximum production capacity of 350 MW in total.

Horns Rev 3, Kriegers Flak and nearshore wind farms

The deadline for binding tenders for Horns Rev 3 was February 16 2015. The Danish Energy Agency announced the winning bid on February 27 2015, which resulted in a feed-in tariff of Dkr0.77 per KWh.The project has a guaranteed connection to the grid from January 1 2017 and should be fully operational in early 2020.

A contract notice for Kriegers Flak is expected in March 2015, with preliminary tender specifications and pre-qualification in October 2015. Binding tenders will be submitted before September 15 2016 and the concession contract is expected in October 2016. The wind farm should be fully functional by the end of 2021.

The Danish Energy Agency issued a contract notice for the nearshore wind farms on February 20 2015. The deadline for submission of applications for prequalification is May 26 2015. The Danish Energy Agency expects the farms to be running by 2020.

For further information on this topic please contact Nicolaj Kleist at Bruun & Hjejle by telephone (+45 33 34 50 00), fax (+45 33 34 50 50) or email (nkl@bruunhjejle.dk). The Bruun & Hjejle website can be accessed at www.bruunhjejle.com.