13 BEYOND WIND: NEW CHALLENGES TO THE EXPANSION …
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biomass-fired solution must demonstrate sufficient end-user savings relative to an alternative solution which, in practical terms, typically is a heat
pump. The government also waives the end-user economy condition for
district heating suppliers who either choose a heat pump or combine a
biomass solution with a heat pump, to advance its decarbonization-byelectrification agenda (Danish Energy Agency 2018a).
The relaxation of the cogeneration and fuel choice requirement comes
into force alongside the expiry of a long-standing subsidy for secondary
(decentralized) natural gas-fired CHP plants, the so-called grundbeløb
(basis payment). Since market liberalization (2004), gas-fired CHP plants
have received a subsidy to compensate for lower revenues and to incentivize the availability of dispatchable capacity for electricity generation.
The subsidy has been designed such that when the wholesale electricity price falls, the available subsidy increases. However, according to
EU state-aid rules, the subsidy is considered distortionary to market
competition and must be eliminated (International Energy Agency 2017).
Another change will allow district heating customers to disconnect
from the existing heating networks progressively, facilitating individual
over collective heating. Until the end of 2018, municipalities could
impose a requirement on new or existing buildings to connect to the
district heating network, with an obligation to pay a fixed fee, and
mandating buildings to use heat from the network (Danish Energy
Agency 2017). Since January 2019, the Danish government has the
prerogative to negotiate with municipalities in this respect.
The modernization effort also involves restructuring taxes. Reducing
the general electricity consumption tax and analyzing the possibility of
introducing dynamic electricity taxation, i.e., electricity taxes that depend
on the time of the day, promotes more efficient responses to demand and
supply balance needs. Second, taxes for electricity-based heat production
will be reduced (effective in 2021). Third, District Heating companies’
taxation framework will be modified so that investments on large-scale
heat pumps are treated on equal footing as biomass, biogas, geothermal,
and industrial surplus heat. Fourth, there is restructuring the taxation
framework to incentivize the usage of surplus heat. Presently, industries
selling surplus heat pay a 33% tax rate on the total value of the heat.
If Denmark is committed to electrification to decarbonize its district
heating sector, then the modernization agenda points in the right direction, as it reduces the considerable tax disadvantage of electricity with
respect to biomass in heat generation (International Energy Agency
335
biomass-fired solution must demonstrate sufficient end-user savings relative to an alternative solution which, in practical terms, typically is a heat
pump. The government also waives the end-user economy condition for
district heating suppliers who either choose a heat pump or combine a
biomass solution with a heat pump, to advance its decarbonization-byelectrification agenda (Danish Energy Agency 2018a).
The relaxation of the cogeneration and fuel choice requirement comes
into force alongside the expiry of a long-standing subsidy for secondary
(decentralized) natural gas-fired CHP plants, the so-called grundbeløb
(basis payment). Since market liberalization (2004), gas-fired CHP plants
have received a subsidy to compensate for lower revenues and to incentivize the availability of dispatchable capacity for electricity generation.
The subsidy has been designed such that when the wholesale electricity price falls, the available subsidy increases. However, according to
EU state-aid rules, the subsidy is considered distortionary to market
competition and must be eliminated (International Energy Agency 2017).
Another change will allow district heating customers to disconnect
from the existing heating networks progressively, facilitating individual
over collective heating. Until the end of 2018, municipalities could
impose a requirement on new or existing buildings to connect to the
district heating network, with an obligation to pay a fixed fee, and
mandating buildings to use heat from the network (Danish Energy
Agency 2017). Since January 2019, the Danish government has the
prerogative to negotiate with municipalities in this respect.
The modernization effort also involves restructuring taxes. Reducing
the general electricity consumption tax and analyzing the possibility of
introducing dynamic electricity taxation, i.e., electricity taxes that depend
on the time of the day, promotes more efficient responses to demand and
supply balance needs. Second, taxes for electricity-based heat production
will be reduced (effective in 2021). Third, District Heating companies’
taxation framework will be modified so that investments on large-scale
heat pumps are treated on equal footing as biomass, biogas, geothermal,
and industrial surplus heat. Fourth, there is restructuring the taxation
framework to incentivize the usage of surplus heat. Presently, industries
selling surplus heat pay a 33% tax rate on the total value of the heat.
If Denmark is committed to electrification to decarbonize its district
heating sector, then the modernization agenda points in the right direction, as it reduces the considerable tax disadvantage of electricity with
respect to biomass in heat generation (International Energy Agency