Future energy policy must ensure green energy transition and economic growth

“Global, European and thus also Danish climate and energy policies are at a crossroads. A number of the factors driving Denmark’s green transition have changed. We have a global climate agreement. European and regional energy alliances are strengthening, and global energy markets are changing rapidly.”

Those were the words of Denmark's Energy, Utilities and Climate Minister Lars Christian Lilleholt when he presented the Government’s Energy Commission in March this year. In 2017, the Energy Commission will be proposing ways to combine the green transition with economic growth in the period from 2020 to 2030.

Port of Esbjerg Magazine asked Stine Leth Rasmussen, Head of department at the Danish Energy Association – the commercial and professional organisation for Danish energy companies – what it will take to make the green transition in Denmark a success. We also asked Claus Madsen, CEO of ABB in Denmark and Chairman of the Danish Energy Industries Federation, how the green transition can help drive exports and economic growth. Both questions have become even more relevant since the Government’s decision in May to abolish the PSO charge.

A transformed energy system
“In order for the green transition to be a success, future framework conditions must take into account that the energy system will have changed considerably by 2020, compared with 2012 (when the current energy agreement was adopted–ed.), and must help drive the electrification of the energy system,” says Stine Leth Rasmussen.

“We need to change our focus and think of energy policy in a much broader context. So far we have been making changes to an energy system based on fossil fuels, and we have had different objectives, which have pulled the system in different directions,” she says.

“But by 2020, about 80% of Denmark’s power and heating consumption can be covered by renewable energy. In other words, renewable energy is no longer a small, marginal player up against a predominant crowd of coal-fired power plants. On the contrary, renewable energy has become the leading player, and this is changing some of the market dynamics.”

For this reason, says Stine Leth Rasmussen, an energy system that is based on renewable energy requires a different approach – to energy efficiency improvement as well, for example:

“When the energy system was dominated by fossil fuels, saving energy meant saving fossil energy. Back then, it was by definition a good thing to save energy, but once you have transitioned to a greener system, a much more balanced approach is required to determine where it makes sense to save energy.”

If the green transition is to become a reality, we need to define new goals and develop new means to achieve them. Simply setting a target for the share of power that should be generated by wind without addressing how this green power should be used and how the system should work is no longer a viable approach, Stine Leth Rasmussen explains.

Improving power conditions
At the same time, she is intent on bringing down power end-user prices. The Danish Energy Association believes that the high electricity charges, including the PSO, are blocking the electrification that is ultimately intended to tie the entire energy system together. This can be achieved, for instance, by increasing the share of green energy in the transport sector and making it easier for industry to switch from fossil fuels to renewable energy.

“We all agree that as many sectors as possible should use on electrical power, but as long as charges remain at their current high level, it’s a costly choice to make. This dates back to the old days, when the generation of electricity was based on coal, but since today’s production is so much greener, it’s wrong for charges to stay so high. It hinders the green transition, according to Stine Leth Rasmussen, who concludes by saying:

“The success of Danish energy policy will be measured by our ability to make the system a connected and coherent whole, not by the number of wind turbines we install or how much we can reduce our energy consumption. Creating a green energy system that is not too expensive and that still offers excellent security of supply is the real challenge.”

Green transition offers huge growth potential
Meanwhile, the main focus of Claus Madsen, CEO of ABB in Denmark and chairman of the Danish Energy Industries Federation, an organisation representing 390 energy businesses, is to create framework conditions that will convert the green transition into a growing flow of international orders placed with Danish energy businesses.

Claus Madsen sees huge potential, and the International Renewable Energy Agency’s prophecy in May on Bloomberg TV that renewable energy will account for 40% of the world’s energy supply by 2030 – twice today’s percentage – is further indication of a growing market.

“Wind power, not least offshore wind power, offers definite export potential to the EU, the US, China, Brazil and several other countries. Denmark's leadership in this field gives us plenty of opportunities to succeed in these markets, and with major actors like DONG and Vattenfall and a strong network of sub-suppliers, we can go out into the world and drive markets,” he says.

“We should also be able to increase our exports of district heating, an area where Denmark has a leading position. And there is further potential in biomass-fired power plants, solar energy and energy efficiency improvement, where Denmark is also a frontrunner.”

Stable and uniform frameworks
Unsurprisingly, Mr Madsen sees stable framework conditions as key in retaining Denmark’s leadership within green energy technology. “Industry depends entirely on a stable long-term policies. We invest in factories, build capacity, train employees and invest in research and education based on these policies. If these change, you will be more nervous the next time you need to make a decision. In a worst-case scenario, the industry shies away from investing,” says Claus Madsen, referring to the national framework conditions.

Technological requirements that are more uniform internationally are another key prerequisite for the Danish export adventure gathering momentum.

“EU politicians need to align framework conditions so that requirements regarding, say, offshore wind do not differ from country to country – otherwise the industry will not be able to standardise and recycle solutions. Creating a reasonable set-up with reasonable requirements that facilitate simplification and standardisation could be a key contribution politicians could make,” says Claus Madsen, emphasising that international standardisation is also an important prerequisite for reducing the cost of green technology.

The energy sector also needs to shoulder responsibility
However, framework conditions are not enough to safeguard Denmark’s leading position, Claus Madsen emphasises. It is also necessary for Danish businesses to continuously optimise their production as competition increases.

“Clearly, the larger a market gets and the more money that’s involved, the more people become interested in looking into it. My guess is that competition will intensify, but then we’ll just have to develop better technologies and act smarter within our own supply chains. If, for instance, you’re building an offshore wind park, you may need to work together with sub-suppliers from other countries to create a sustainable solution. The conditions are the same in all sectors – offhore wind is no exception,” he says.

Claus Madsen also believes that businesses should strive to make themselves independent of subsidies, and cites DONG as a good example:

“The IPO will strengthen DONG’s offshore wind profile even further. It’s comforting to know that we have a highly commercial business that wishes to retain its green leadership position. And it’s only fair that any industry that is supported by subsidies has some kind of expiration date. You need to reduce and eventually remove subsidies, and you will only get there if, as an industry, you aim to bring down costs. It’s important that the industry takes care of this itself.”

The courage to stay on course
Reverting to policymakers and what they should do, Claus Madsen encourages them to stay on course.

“We need to continue daring to stay in the lead. We need to have the courage to realise the projects we announce. And we need to keep investing in research and development and in pilot plants. Denmark is still a display window, and lots of delegations come here. This is because we have so much interesting to show them, and we have to keep doing that.”

This is a translation of the Danish article published in Port of Esbjerg Magazine 2, 2016.