Bruun & Hjejle
Bruun & Hjejle is a leading Danish law firm for complex transactions and disputes partnering with leading clients. The strategic focus is on M&A, Banking & Finance, Real estate and Construction, Dispute resolution and Regulatory matters. The firm services leading Danish and global companies, private equity funds, organizations, public institutions and governments.
Energy & Natural Resources
Geothermal energy has long been used for district heating in Denmark, but lately political and industry interest therein has been on the rise. This has resulted in an increase in applications to explore for and produce geothermal energy. Since 2017, five new exploration licences have been granted and five additional licences are currently being assessed by the Danish Energy Agency. Geothermal energy will help to fulfil the political goal of a carbon-neutral Denmark by 2050.
The Ministry of Climate, Energy and Utilities recently invited companies to take part in the eighth Danish licensing round for oil and gas exploration and production in the Danish North Sea. Licences were expected to be issued this summer, but political pressure on the government elected in June 2019 means that the eighth licensing round's future is uncertain.
The new government has raised the bar for climate and environmental goals with the aim of making Denmark the world leader in the transition to renewable energy. The government's climate plan calls for a significant focus on the use of wind energy and a new agreement goes even further than the 2018 energy agreement, with plans for an offshore energy island with a capacity of at least 10GW.
The signatories to the Energy Agreement recently decided the location of the first of three new offshore wind farms that will be put up for tender. Unlike previous projects in which the government was responsible for developing the offshore site and preparing the grid connection, the new wind farm will be procured through a procedure in which the winning tender will be responsible for developing and preparing the grid connection.
The government and all parties in Parliament recently entered into an agreement which entails a major commitment to developing green energy by 2030. The agreement contains a broad range of green initiatives and tax reliefs on electricity which aim to encourage Danish consumers to swap fossil fuels for green electricity. Similarly, the planned modernisation of the heating sector aims to provide both companies and consumers with greener and cheaper heating.
The Danish transmission systems for electricity and natural gas are owned, operated and developed by Energinet, an independent public enterprise owned by the state. The government recently made a new political agreement with a broad number of political parties concerning Energinet's future economic regulation, which means that it will become subject to a revenue framework. With the new agreement, Denmark will follow the same regulatory tendencies seen in other northern and western European countries.
A new executive order, which provides a framework for how grid companies can cover operational costs and return of investment, will be one of the most important tools for such companies going forward. The executive order stipulates the rules governing the prices that electrical grid companies can charge consumers to cover the costs of running the grid and has introduced a five-year regulation period.
Due to a recent agreement between the government and the Danish People's Party, solar and wind power projects will compete for state subsidies for the first time. Under the new subsidy model, the solar power, land windmill or near-shore windmill projects which deliver the highest amount of megawatts for the lowest price will receive subsidies until the budget is allocated. Subsidies will be awarded as a fixed additional charge to the electricity cost.
The government-established Energy Commission recently filed its recommendations for the 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.
In several energy supply industry sectors, profits are allowed only as a reasonable return on invested capital subject to regulatory control. This applies, for example, to the electricity distribution, gas distribution and heating supply sectors. The Danish Energy Regulatory Authority is in the process of establishing new methods and principles for determining a reasonable return on invested capital across the different sectors.
The government recently came to an agreement with a majority of Parliament concerning the financial regulation of electricity distribution companies. The agreement is the first step towards the government's new energy supply strategy. However, its details remain vague, including with regards to general and individual optimisation requirements.
McKinsey & Company recently delivered a report analysing the optimisation potential in the energy supply sector as part of the government's anticipated energy supply strategy. The report covers district heating, waste incineration, electricity distribution, gas distribution and water supply, and concludes that there is potential for optimisation of between Dkr5.9 billion and Dkr7 billion annually across these sectors.
The Danish government recently joined other North Sea countries and the European Commission in a common declaration to support further offshore energy development through a detailed programme and structured cooperation between the countries. The aim of the commitment is to create improved conditions for the development of offshore wind energy and ensure a sustainable, secure and affordable energy supply in the North Sea region.
The government recently launched the Energy Commission, a body intended to prepare recommendations for the objectives and actions of Danish energy policy from 2020 to 2030. The commission will contribute to Denmark's aim of meeting its international obligations on climate change in a cost-effective and market-based manner and is expected to publish its recommendations in early 2017.
The government set up an interdepartmental working group to examine the regulation of the gas supply sector in 2014 with the aim of rethinking regulation in order to encourage a more competitive gas sector and ensure the efficient and competitive distribution of gas in Denmark. An efficient gas sector is expected to result in lower gas prices for consumers and increase competitiveness.
A new subsidy scheme for electricity-intensive businesses recently came into force, which offers companies financial support to cover part of the public service obligation (PSO) fee for electricity consumption. Its main objectives are to ensure that PSO payments do not affect the competitiveness of electricity-intensive businesses while also promoting their energy efficiency.
The Danish Energy Agency recently called for applications for offshore testing of new technologies relating to the establishment and operation of wind energy production. Turbines in test projects will receive financial support guaranteeing a price of Dkr0.70 per kilowatt-hour produced and sold. Support is available for tests of any kind of new technology that could reduce capital or operating expenditure.
Many European countries have introduced subsidies or levies as incentives for a transition from fossil fuels to renewable energy sources. Combining different countries' incentive programmes may be possible to optimise investments in renewable energy production. One such possibility has been to combine the use of Danish subsidies for wind farms with the UK levy exemption certificates scheme.
Denmark aims to produce 100% renewable energy by 2050. Wind turbines are part of the plan to secure a more eco-friendly energy policy. There are different subsidy schemes for onshore and offshore wind turbines; the schemes also differ between turbines established under open-door procedures and turbines established as the result of government tenders.
The Committee for the Regulation of Electricity was set up to examine the regulation of the electricity supply sector. Its purpose was to offer the electricity sector incentives to convert to green energy and operate cost effectively; and ensure efficient competition and consumer protection. The committee recently submitted its 16 main recommendations and 100 specific recommendations and evaluations to the government.
The Danish Energy Authority has initiated a new round of applications for funding for the establishment of partnerships to promote the use of electricity, gas and hydrogen in transport. For 2014 to 2015, a total of Dkr33 million has been allocated to support partnerships working to promote green transport. The goal is to create a lasting increase in the prevalence of energy-efficient vehicles.
The government has opened the long-awaited seventh licensing round for new oil and gas licences in the Danish parts of the North Sea. At the same time, the government initiated work on the preparation of a new oil and gas strategy to ensure the effective exploitation of oil and gas resources in the North Sea. The strategy will be based on an analysis of the status of the industry.
The Energy Agency recently released a legislative proposal introducing a general supply obligation for all electricity retailers that provide electricity to household consumers. The supply obligation aims to guarantee all household consumers the legal right to be supplied with electricity at reasonable, transparent and non-discriminatory prices, in accordance with the EU Electricity Directive.
The Energy Agency is expected to launch the seventh licensing round for oil and gas exploration and production licences in the North Sea shortly. The licensing round will be carried out by a public call for tenders. The deadline for the submission of tenders is likely to be April or May 2014, with the final award of licences taking place in early Autumn 2014, but there is still considerable uncertainty as to the final timeline.
Danish energy and climate policy is focused on the long-term goal of the total energy demand being met by renewable energy sources by 2050. Following Parliament's recent approval of the new Energy Agreement, plans are in place to extend the existing capacity by 2,000 megawatts before 2020. The existing large offshore projects (sited far away from the shore) will be combined with small near-shore projects.
Environment & Climate Change
The Danish Energy Agency estimates that Denmark must reduce its greenhouse gas emissions by between 32 million and 37 million tons by 2030 to reach its EU climate goals. To this end, the government recently published a new proposal regarding climate and air policy. The proposal contains 38 specific initiatives and mainly addresses the transport sector, agricultural production, shipping and green transitioning in housing and industry.