Innovation and institutional change: the transition to a sustainable ...

152 Chapter 5
provides an overview of major policy milestones and other developments
affecting the course of cogeneration in the period 1998-2005.
Basic rules for cogeneration change with the introduction of the 1998
Electricity Act
The 1998 Electricity Act significantly changed the national regulation of the
electricity system. Restrictions on power generation disappeared and
electricity trade and supply adopted the competitive model. The changes also
ended the special position of decentral cogeneration in the Dutch electricity
system. The application of preferential gas prices for cogeneration was
terminated. Remuneration tariffs for larger cogeneration units had to be
negotiated in a competitive setting. Cogeneration capacity units of less than
2 MWe still benefited from existing remuneration schemes until 2002.
Special regulations for all other cogeneration installations were ended. From
1998 on cogeneration based auto-producers were submitted to the general
transmission and transport tariffs in the Dutch electricity market. These
tariffs turned out to be rather disadvantageous for cogeneration, and interest
organisations of auto-producers tried to change the tariff treatment of
decentral cogeneration capacity, but without success 31 . The Dutch
government acknowledged liberalization could harm the further penetration
of cogeneration in the Netherlands, but argued that EU-regulation on fair
competition no longer allowed for special treatment of cogeneration in
electricity trade and supply. Instead, the government used the tariff of the
energy tax to further support cogeneration (charging auto-produced
electricity to satisfy own demands for half the tax tariff) and extended the
fiscal support program for tax deduction of energy investments. Imports rose
strongly due to the process of liberalisation of the Dutch electricity market
and negatively affected competitiveness of cogeneration. In period 1989-
1999 electricity prices were mainly determined by gas prices as the Dutch
park of power plants utilised gas as its main resource, and changes in gas
price had no major effect on profitability of cogeneration. This changed due
to liberalisation as rising imports led to a much stronger influence of nuclear
and coal-fired power on the electricity price, especially in off-peak periods.
In combination with rising gas prices (and continuously low coal prices) this
led to a deterioration of the market position of cogeneration.
31 Tariff codes fatal for cogeneration (in Dutch), Energietechniek, 10 (77), 1999: 514.