Denmark: land of contradictions

Looking for pointers to Europe’s future? Try Denmark for a measure of the complexity that effort involves. The country is a great question mark for all sorts of people: it promotes wind, and burns coal. It has an enviable position as a strategic link between Germany and the Nordic region, yet profit is an alien concept. Its hundred-odd utilities could be crushed by German and Nordic titans which sell more power than the whole Danish system, but merger mania is not – yet – rampant.

Some of the contradictions will endure under the final electricity reform blueprint agreed this spring. Profit is finally explicitly allowed for producers and traders, but they must be thoroughly unbundled from system operation, grid, and regulated supply operations. Even stakes distributors hold in central power plants must stay in the regulated sphere, and not be passed to traders. Animal spirits are welcome, but in that dark and bare corner over there, please.

Yet Denmark should continue to confound those inclined to simplistic conclusions. Even if regulation may be heavy-handed, the government has chosen full market opening by 2002, bringing Denmark into line with the current situation in the rest of the Nordic region and Germany. Trading may have to be more carefully isolated from regulated operations than in other countries, but this hasn’t stopped a rush to strike trading alliances with Swedish, Finnish and Norwegian players, with an eye on opportunities for joint action in Germany. With massive interconnection infrastructure in place, Denmark, whatever its preferences, looks likely to be caught up in the trading whirlwind laying happy waste to power prices in other Nordic markets, and gathering strength on the Continent.

Crunch time will come when green market initiatives are decided, rather than just called for, as in the reform blueprint. The government is imposing a very tough target on customers – they must cover 20 per cent of their purchases with renewable output by 2003. The state is not minded to shoulder the financial burden, so renewable generators will issue certificates for their output, which are in turn to be traded in some kind of market by customers who must meet their green quota. This market will probably take years to form. In the interim, new wind generators will retain dispatch priority, and get a much reduced but still high price of 43 ore (6.4 US cents) per kWh.

Can the market coexist with this expensive choice? It will be busy on other fronts. Danish coal-fired power is doomed, so what replaces it? Current wind plans will not suffice. Merger mania makes sense, so when will it materialise? Will nuclear withdrawal in Sweden and Germany turn regional overcapacity in reserve margin crisis? Does cogeneration really need so much policy support to flourish, now that gas is cheap and equipment efficiency rates superb? In the years ahead, purist Denmark might suffer under – or need – heartless traders more than it has ever imagined. Or prove all the market-mad anti-activists to be shamefully wrong.