The Netherlands is a rare example of a country where consumers have a high willingness to pay for green power and a correspondingly high enrolment in green tariffs. By the end of 2014 64% of Dutch consumers had a green power contract for their electricity. This is by far the highest recorded enrolment out of any country in the world. It’s closest rival, New Zealand which has a large amount of renewables generated anyway, only has 26% of consumers enrolled. Despite this apparent success, renewable energy still comprises a small proportion of the total energy generated in the country. This case study will look at several of the factors which have driven the increase in households purchasing green electricity, before engaging in a discussion on whether these trends are uniquely Dutch, whether the program has been a success, and whether there are lessons which can be learned for other countries looking to support a demand side policy.
Percentage of households purchasing green electricity 1996-2014
(% of households, various data sources)
Government intervention to support renewables is possible at many different levels of the supply chain. These levels can be divided broadly into demand side and supply side mechanisms. At the supply level it can fund research and development of new technologies or provide a subsidy for installed new renewables. Demand level intervention can be either focused on retailers through a quota such as the renewables obligation in the UK or directly to consumers such as by encouraging green tariffs. Between 1996 and 2003 the Dutch government pursued a policy to support renewable energy though increasing consumer demand, particularly from households and small businesses. This is a relatively unique approach to the policy as the majority of countries, if they had a policy at all, concentrated on the increasing supply or putting obligations on retailers. In theory it is a good policy option to encourage consumers to ‘purchase’ green electricity themselves. It means that consumers are more engaged with their energy supply and see some private benefit through the ‘warm glow’ satisfaction that arises from knowing that their energy is sourced ethically. The logic is that the support at the demand side will encourage the market to meet this demand by increasing the supply of renewables.
Tax incentives to increase supply
In 1996 an energy tax was introduced for small and medium scale energy users, the ‘ecotax’. This was a levy that was placed on all electricity usage and had the effect of increasing all energy prices for consumers. Green electricity purchased by consumers was exempt from the tax, which made green electricity comparable to, or sometimes cheaper than, grey electricity. This was especially true after 2001 when the price increased from 2-3 to over 6 euro cents per kWh. The tax was phased out in 2005 and was replaced by a new feed-in-tariff, a more conventional supply side policy. The tax was very successful in increasing demand and engaging consumers but, as will be explored later, its affect on installed capacity was far less clear.
The process of liberalisation
The liberalisation of electricity markets helped to encourage the adoption of green electricity in two main ways. First, the market for green electricity was opened before the market for grey electricity. This meant that many consumers’ first experience of switching between retailers was in order to purchase green electricity. Second, and perhaps most importantly, was that retailers saw green characteristics as the main way to differentiate their product in the face of oncoming liberalisation. Because of this many retailers engaged in aggressive marketing campaigns to sell green electricity. This both increased the public awareness of the product but also gained significant media attention. The process of liberalisation and consequent public engagement has also led to high switching rates. In the past 10 years 55% of consumers have switched at least once.
Partnering with NGOs to establish credibility
The first retailer to offer green electricity, PNEM, co-operated with the environment NGO WWF to certify that the electricity they were selling was really from a green source. This gave the retailers credibility and overcame some of the trust issues that sellers of green electricity usually face. Other retailers then followed suit and partnered with either the WWF and other NGOs. The WWF also launched a campaign aimed at encouraging switching entitled ‘Don’t Let the North Pole Melt, Go for Green Electricity’. The campaign was large and was launched at a public event attended by 3000 volunteers who rolled out a 300 km long green ribbon along the Dutch coast line. There were also co-ordinated TV programs, volunteers giving out 250,000 flyers at train stations, and advertisements in national newspapers. The organisers claim that 20,000 new households purchased green electricity in the first three weeks of the campaign. The campaign is also credited as having a positive impact on the public recognition of the concept, with increased consumer awareness and engagement.
One local factors
While Dutch consumers tend to be broadly similar to most other europeans in their attitude towards the environment and climate change, they differ in one key way. In an Eurobarometer study 97% of Dutch consumers agreed that “as an individual, you can play a role in protecting the environment” in their country. This was the highest in Europe and well above the EU average of 86% . This may suggest that dutch citizens are more amenable to the marketing of green electricity than consumers in other countries. It is also likely that consumers in the Netherlands, being in a country where the prospect of flooding has been longstanding, are concerned about sea level change. This would explain why it was that the WWF campaign for green electricity was couched in these terms.
The case study of the Netherlands is a perfect example of well marketed green electricity, robust support from government, and record enrolment rates. In much of the literature, particularly in the early publications from the turn of the millennium, the policy is credited as a success. In order to determine the success of a green electricity program it is necessary to establish a number of criteria for evaluation. The fist, and most obvious, should be the contribution to installed capacity and the environmental benefits this brings. Second, one could look to other factors such as engagement, consumer awareness of the environment, and increased public acceptance of government support for renewable energy as other peripheral benefits.
On the first of these two criteria, whether this has actually led to an increase in capacity, the case study does not appear to be particularly successful. As the diagram below shows, the proportion of electricity generated from renewable sources in the Netherlands is very low. It seems strange that 64% of households purchase green electricity yet the proportion that is actually generated is so low. As the proportion of households who purchased green electricity grew there was not enough generated domestically to satisfy the demand. As a result it became increasingly common for guarantee of origin certificates to be purchased from abroad, primarily from Norway where green energy is plentiful. This led to a situation where the majority of the green electricity that was being subsidised by the Dutch government was in fact being generated elsewhere. It was for this reason that the Ecotax exemptions were phased out by 2005.
Proportion of electricity generated from renewable sources, 2013
(% of gross electricity consumption)
The point above illustrates one theme which is becoming increasingly clear with renewables, that location of generation is both important to consumers and in terms of additionality. While the spirit of free trading of renewable energy certificates in the EU may be admirable, the presence of countries such as Norway which would be generating green electricity anyway is problematic. Good scheme rules should be prescriptive about the type of green electricity which is being sold, to ensure that it wouldn’t have been produced anyway. This is also important in terms of consumer trust and maintaining the ‘additionality’ of the product. In response to this there has been an eco-label developed which only includes green electricity produced within the Netherlands. While this may be a good way to ensure that renewables are ‘additional’ and not imported, it does risk undermining consumer trust in the product as a whole and making it more difficult for consumers to understand.
On the second criteria, of consumer engagement, trust and understanding, the policy probably was more successful. The high enrolment and success of campaigns by the marketers and the WWF show that the product did resonate with consumers and lead to engagement. Furthermore, since the tax exemption was phased out in 2005 the market has continued to grow from 42% to 64% in 2014. This hopefully shows that some of the engagement has persisted and that the market will continue to grow.
There is also one larger question to consider, by learning from the experience of the Netherlands, would it be possible to build a policy to encourage sales of green electricity that actually manifests itself as installed capacity? The answer to this question is still unclear, and it perhaps would be unreasonable to take a stance on this without further economic analysis of the impact of green tariffs under differing regulatory regimes. The experience in the Netherlands seems to be a rare one, with government cash matched by enthusiastic NGOs and retailers. It is hard to imaging a similar phenomenon happening in the UK, or any country where supply side policies are already dominant. This probably also represents a certain path dependence in policy choice, whereby the success of policies on either the supply or demand side do require considerable time investments and may crowd out interventions at other stages of the supply chain. It is also interesting to note that the Dutch Ministry of Economic Affairs noted the possible tension between voluntary demand and supply oriented mechanisms, arguing that having a renewable obligation may potentially undermine the market for the voluntary approach.
While it is best not to engage in too much guesswork on what will happen in the future, it is perhaps possible to make one observation. The growth of the market seems to have stalled in recent years, with only 1% of growth between 2013 and 2014. It may be that the trend seen in Australia, that consumers prefer personal or community investments in renewable energy, may chip away at the appeal of buying green electricity. This may be especially true if consumers see that their actions may have little impact on alleviating climate change.