Denmark looks to weaken 2050 targets

Denmark is rightly known as among the most forward-thinking nations on green energy.

In fact, it is a point made again in the UK's Financial Times this week. Despite low oil prices, Danish wind pioneers including Henrik Stiesdal, former Siemens chief technology officer, have said Denmark would continue to focus on renewables, including wind. This is because energy from renewables is subject to less volatile price fluctuations than sources like oil, which has gone from $150 a barrel in 2008 to around $50 now, and could rocket again.

In this article, the Danish Energy Agency said that political consensus had “created a stable and consistent political framework, which is important for investor security”.

But there are now cracks appearing in this consensus, and the volatility in the oil market is one of the key reasons why.

Last week, Danish finance minister Claus Hjort Frederiksen, said the Liberal-run Danish government was looking to reverse some of the country’s most ambitious energy targets. These include dropping its plans to phase out coal-fired power stations and become fossil fuel-free by 2050; and make cuts of 340million kroner ($52m) in green funding initiatives over the next four years. The plans were initially reported in local newspaper Information.

The possible change of direction on renewables follows the election in June. The new government is looking for ways to fill a growing budget deficit, which is forecast to be 2.7% of GDP this year. This is more than double the 1.3% that was previously expected.

And the reasons for this deficit include falling returns from oil sales, as well as reductions in the amount of tax raised from Danish pension assets. Therefore, indirectly, the rout on oil prices caused by sluggish global demand and continued high production in the Middle East is having a destabilising effect on support for renewables in a leading green nation.

Frederiksen has said the changes represent a “microscopic adjustment” to the country’s approach to energy policy, and said Denmark was still a leader in renewable energy.

Now, we are aware that governments often need to change course when faced with major challenges in the global economy. However, these cuts look more ideological than they do financially-sound.

The plan does not seem to stack up financially. It may be true that every little helps, but a saving of 340million kroner ($52m) spread over four years will make next to no difference to Denmark’s budget deficit. It will, however, put the brakes on growth in renewables. We see little sense in the country undermining investor confidence for such a small saving.

And there is also the proposed reversal of Denmark’s 2050 targets which, as far as we can see, has no short-term benefit but will simply undermine confidence in the long term.

Denmark set a course early to pursue renewables, and is still seen as one of the world’s pioneering wind markets with some of its influential companies, including Vestas. It would take a lot more than these changes to wreck the market, but it could be an early indicator that worse is yet to happen. We need only look to Australia to see how quickly support for sectors including wind can ebb away in the face of a sustained assault from government.

Denmark's wind crown appears to be slipping. It would be a big shock if the government lets it fall off completely.