Policies for a transition to 100% renewable energy systems in Denmark before 2050: Coherent Energy and Environmental System Analysis Background Report Part 4

Executive summary:
A number of possible policy means of attaining the overall goals of the CEESA scenarios are discussed in this report. It is found that the transition from the present energy system dominated by fossil fuels to a system dominated by renewable energy sources requires significant changes in existing policies, both on the supply and the demand side. This is a change from polluting energy systems that depend on depleting inputs to energy systems that depend on relatively abundant inputs andarerelatively non-polluting and intermittent. This change requires a new paradigm. It requires infrastructure which can manage intermittent renewable energy sources in such a way that energy is available at the right time and in the right amount for the consumers. The policy instruments include systems of taxes, subsidies, tariffs, and other economic conditions in order to obtain an optimal effect. In addition, a number of institutional and regulatory changes are proposed. A central question in this connection is the balance between the role of the market and the role of societal planning and regulation.When the long lifetime of many energy plants and infrastructures, including buildings, istaken into account, it is concluded that the balance needs to changeto increase the role of long-term societal planning and regulation. A challenge tothe transition planning is how to obtain an efficient co-ordination between investments in electricity, transport, and heatingsectors. A number of macro-economic barriers exist to the transition from fossil fuels to renewables, e.g., in relation to market structuresthat support “lock-in” to technologies based on fossil fuels.

In Denmark, another barrier is the prevalence of high discount rates for the planning of future investments.Some of the existing barriers can be removed (or reduced) by national changes of tariffs, taxes and other policies, and by changed planning methodologies and priorities at the national level, while others may need changes at the EU level. These changes will require alternative political decisions at high levels in Denmark and the EU. However, the political mechanisms which form the paths to these high-level decisions are not part of this report.

One of the main problems in a future energy system dominated by intermittent renewable sources (e.g.,wind and solar energy) is the stability of the electric grid and the security of supply to electricity consumers. In this connection, biomass in different forms plays a central role as a storage element. But,while the amount of Danish biomass, taking into account other uses of the land area, is rather limited,biomass is also in demand in the transport sector and for high temperature industrial process heat (transformed to a liquid fuel or to biogas). Due to the limited biomass resources, the CEESA scenario proposes that the best solution is to letelectricity from wind and photovoltaicpowerreplace the demand for biomass, where possible, and to stabilize the grid by other means than biomass, where relevant alternatives are available. This includes the systematic use of large heat pumps and heat storage, eventually combined with electric cars. In addition, new and efficient communication systems between energy suppliers and consumers are required, often described as “intelligent grids” or “smart grids”. The appropriate policy means should be selected in accordance with these technological solutions.