Background

The government-established Energy Commission recently published its recommendations for Denmark's future energy policy. The commission's report forms part of the policy preparation for the next stage of Denmark's green transition.

The central message of the recommendations is that to reach the goal of a low-emissions society by 2050, an ambitious and long-term energy policy must be established by 2020. The Energy Commission sees the government's 2030 goal for sustainable energy and the European Union's carbon dioxide emissions obligation as a stepping stone to 2050.

Recommendations

The commission's main recommendations include the following.

Renewable energy to be market based and technology neutral

Marketisation is central to achieving a cost-effective transition to a low-emissions society in which technological opportunities are fully exploited. Electricity and gas markets must be further developed, the deployment of renewable energy must be increasingly market based and cost-effective market-based instruments must be applied in energy-efficiency efforts.

Renewable energy will become the cheapest form of energy and, within a few years, renewable energy expansion will be market-based and no longer subsidised. The ambition is to phase out renewable energy subsidies as part of a cost-effective green transition.

Renewable energy sources will need to be subsidised during the transition to a non-subsidised energy system independent of fossil fuels. This support should no longer focus on individual renewable energy technologies, but instead be based on the principle of technological neutrality to support renewable energy deployment, considering the overall energy system. The market must be used to achieve lower prices and different renewable energy technologies must compete against each other.

Integrated and flexible energy system

Electrification is vital to integrate the ever-increasing production of renewable energy into the energy system. The Danish energy system must be reorganised to make it possible to use electricity for heating, production and transport. Consequently, it is essential to remove the distortions in the existing tax system.

Increased electrification will create the need to develop a more flexible energy system. Flexible electricity consumption should be encouraged and barriers should be removed. The commission highlights that additional initiatives are required to integrate electric vehicles into the energy system.

For a transitional period, biomass may contribute to the green energy supply. However, biomass is a scarce resource and increased sustainability requirements are likely to lead to price increases. Therefore, several uncertainties stem from reliance on biomass up to 2050. The district heating system must undergo continuing conversion from fuels to electricity from heat pumps and improved exploitation of surplus heat, provided that this is reasonable from a socio-economic perspective. Denmark has a well-functioning and well-maintained natural gas system, which offers significant potential during the phase out of fossil fuels. In the long term, the natural gas system will be able to exploit renewable energy gases, provided that they become commercially competitive.

Leading role in energy technology should be strengthened

For Denmark to maintain and further its role as an energy technology frontrunner, the funding of research and development and demonstration must be increased considerably to at least Dkr0.8 to 1 billion per year.

Reactions

The Danish government has welcomed the commission's report. The minister of energy, utilities and climate reiterated that the aim is to adapt an energy and climate policy that yields the most value from investment in the green transition. The minister has stated that the report will make a considerable contribution to the government's upcoming draft for a new energy policy, which will be launched in Autumn 2017 with the aim of establishing a new energy agreement.

The Danish Energy Association has also reacted positively towards the recommendations, but has pointed out that the report lacks a clear strategy for the future role of thermal power plants. Concrete initiatives have yet to be seen.

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