Unforeseen profits from a green energy subsidy scheme

Over the past few years the Dutch government has granted more subsidies to increase the profitability of investments in on-shore wind-power projects than were in hindsight needed. In many cases the level of subsidisation was such that returns on investment were higher than what the market generally dictates; in other words, considerable extra profits were made. One of the main reasons is that the government underestimated the price of electricity.

This is the principal conclusion of a study carried out by CE Delft for the Netherlands’ Court of Audit (Algemene Rekenkamer). Last year the so-called MEP subsidy scheme for green power generation was discontinued. Under this scheme producers of electricity from biomass, solar, wind and water were eligible for a fixed subsidy per kWh. However, the sums paid out threatened to get out of hand and it was estimated, moreover, that the Netherlands would manage to secure its target of generating 9% of domestic power sustainably by 2010 on the basis of the subsidies already issued.

Meanwhile, though, the cabinet has formulated a higher target and announced its intention to set up a new green power subsidy scheme. The challenge in designing a follow-up to the original MEP will be to ensure equal effectiveness, but at less cost to government coffers.