Propped Up
Denmark Rethinking Wind Subsidies

Wind and solar energy have a lot of things going for them—they’re renewable and they don’t emit greenhouse gas emissions—but they come with a hefty price tag. So far they’ve only managed to be bit players in national energy mixes, but countries like Germany and Denmark have attempted to jump-start the fledgling clean energy sector by offering up elaborate government support. Unfortunately, the costs of these subsidies are inevitably passed on down to consumers in the form of high power bills, and that has Copenhagen considering a repeal of its generous wind power subsidy regime. The WSJ opines:

The Danes are the world champions of wind farms, getting some 42% of their energy from wind last year. But that power hasn’t come cheap, since Danish households pay the highest electricity charges in Europe mostly thanks to Copenhagen’s green levy on electricity bills, the Public Service Obligation (PSO). […]

So some politicians have jumped at a chance for a rethink courtesy of the European Commission, which in 2014 ruled the PSO violates European Union subsidy rules. In addition to illegally subsidizing local green-power firms, the PSO also dragged on Denmark’s economy. […]

As a result, Parliament is preparing to end the PSO instead of mending it. The plan is to pay some green subsidies from general government revenues, to be raised by increases to income or other taxes once the PSO tax on electricity bills disappears. But with taxes already high, Copenhagen will struggle to raise them enough to replace the revenue lost when the PSO ends. This has triggered a long-overdue debate about cutting some of the subsidies…The proposal to delay construction of some coastal wind farms will save an estimated seven billion Danish krone ($1.06 billion) over 12 years. If approved by Parliament, this would mark a welcome step toward economic and fiscal sanity.

It’s no coincidence that Germany and Denmark pay the highest costs for their electricity in Europe, and this has an insidious social cost to it, too: expensive power is a kind of a regressive tax, felt more keenly by poorer households than richer ones. Moreover, there’s an opportunity cost to subsidizing the current generation of renewables: wind turbines and solar panels can’t out-compete fossil fuels on cost (hence the subsidies), and by propping them up policymakers are keeping the focus on a generation of technologies that don’t quite cut the mustard. A far better use of governments’ time and money would be the research and development of the next generation of turbines and panels capable of flourishing without subsidization.

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