TOPIC #2
Denmark’s Clean Energy Transition
A small country with big ambitions to be a regional leader in low-carbon emissions energy.
Fact-Finding Mission Finds Strong Focus on Green Fuels and Carbon Capture
- In June 2023, ScottMadden sponsored the Smart Electric Power Alliance's fact-finding mission to Denmark to better understand the country’s ongoing clean energy transition.
- Denmark and neighboring countries in the North Sea envision the growth of cheap renewables, production of green hydrogen, and ability to store carbon will drive economic development in the region.
- As a small country jutting into the North Sea, Denmark plans to use its unique location, industry experience, and diverse resources to become a regional leader with a particular focus on clean fuels and carbon capture and sequestration (CCS).
- Utility executives from the United States found stakeholders in Denmark working together to implement enabling policies, encourage technology innovation, and launch market rules to ensure the energy transition becomes a major economic engine.
Figure 2.1: Denmark’s Energy Infrastructure and Offshore Electricity Generation
Source: Danish Energy Agency, S&P Global Commodity Insights
KEY TAKEAWAYS
Denmark is pursuing an aggressive clean energy transition, initially targeting a 70% reduction in economy-wide greenhouse gas reductions by 2030 and ultimately reaching net-neutrality by 2050 or sooner.
With an eye toward long-term economic growth, Denmark is beginning to invest heavily in the development and expansion of renewables, Power-to-X, and CCS technologies, companies, and infrastructure.
If successful, Denmark will support the regional energy transition by offering neighboring countries relatively cheap, clean fuels and carbon storage and accelerate the global energy transition by exporting specialized technologies and services.
Denmark is pursuing an aggressive clean energy transition, initially targeting a 70% reduction in economy-wide greenhouse gas reductions by 2030 and ultimately reaching net-neutrality by 2050 or sooner.
With an eye toward long-term economic growth, Denmark is beginning to invest heavily in the development and expansion of renewables, Power-to-X, and CCS technologies, companies, and infrastructure.
If successful, Denmark will support the regional energy transition by offering neighboring countries relatively cheap, clean fuels and carbon storage and accelerate the global energy transition by exporting specialized technologies and services.
Climate Legislation and Global Offshore Wind Leadership Provide Blueprint
- The Danish Parliament passed the Climate Act in 2020, which requires a 70% reduction in economy-wide greenhouse gas (GHG) emissions in 2030 (relative to 1990 levels) and climate neutrality by 2050. A new federal government formed in December 2022 moved the climate-neutrality target forward to 2045.
- To achieve the original objectives outlined in the Climate Act, Denmark plans to:
- Increase wind and solar capacity by a factor of 2.5 from 2020 to 2030
- Decrease thermal power plant capacity by about 40%, from 7 GW in 2020 to approximately 4 GW in 2030
These changes are expected to result in renewable energy supplying about 97% of Denmark’s electricity consumption by 2030, even as that consumption is expected to increase by 57% from 2019 to 2030.
- Even more notably, the law closely aligns with Denmark’s ambition to provide a leadership role in the global energy transition.
- Denmark’s previous success includes pioneering—and eventually exporting—offshore wind technologies and services.
- Pursuing a rapid energy transition may provide opportunities to export new technologies and services.
- Denmark’s Integrated National Energy and Climate Plan put it simply: “Denmark must be known as a nation of green entrepreneurialism.”
- Even with a clear vision, cost remains an important consideration.
- In June 2020, Denmark announced they would construct two “energy islands” to serve as hubs that gather electricity from surrounding offshore wind farms.
- The construction of energy islands allows wind turbines to be placed further away from the coast and distribute the power they generate across several countries more efficiently.
- The plan envisages an artificial island in the North Sea that will serve as a hub for 3 GW of offshore wind, with a long-term expansion potential of 10 GW. A second energy island in the Baltic Sea will serve as a hub for 3 GW of offshore wind.
- In June 2023, the government postponed opening bids for the North Sea energy island after the Danish Energy Agency estimated costs would exceed 50 billion DKK (~$7B USD).
Figure 2.2: Danish Electricity Generation by Fuel Type (Billion kWh)
Source: U.S. Energy Information Administration
Power-to-X Represents Multiple Products and Market Opportunities
- In Denmark, the term Power-to-X (or PtX) refers to technologies that produce fuels, chemicals, and materials based on green hydrogen.
- More specifically, the term describes the process of converting electricity and water into hydrogen through electrolysis driven by renewable resources.
- This “green hydrogen” may subsequently be used directly as a fuel (e.g., road transport, industrial purposes) or converted into other fuels, chemicals, or materials.
- In a strategy published in December 2021, Denmark outlined how PtX will play a significant role in the green transformation of the transport and industry sectors, where electrification may be too expensive or impractical (see Figure 2.3).
Figure 2.3: Denmark’s PtX Development Strategy
Source: Danish Energy Agency
Denmark is encouraging PtX development with the following recent activities:
- In March 2022, the Danish government announced a “PtX Agreement” detailing the following measures:
- Target 4 to 6 GW of electrolysis capacity by 2030
- Dedicate 125 billion DKK (~$18B USD) to support production of PtX in Denmark
- Enable direct lines, geographically differentiated tariffs, and local collective tariff structures
- Enable the build-out of infrastructure for hydrogen in Denmark
- Appoint a PtX taskforce to support development of a market and infrastructure for hydrogen in Denmark
- In April 2023, the Danish Energy Agency opened bids for the 1.25 billion DKK (~$180M USD) in federal support.
- Interested companies had until September 1, 2023, to submit bids.
- Winning bidders must reach full capacity and start green hydrogen production within four years of signing contract.
- In July 2023, an executive order made it possible to issue a “guarantee of origin” for hydrogen, thereby allowing PtX players to trade and use green hydrogen.
Figure 2.4: Overview of Power-to-X (PtX) Ecosystem
Source: Danish Energy Agency
Figure 2.5: Power-to-X (PtX) Transition Potential as % of Industry Energy Consumption
Source: Danish Energy Agency
Ample Storage Drives Deep Interest in CCS Infrastructure
- CCS is a second energy transition technology being aggressively pursued by Denmark.
- In terms of carbon capture potential, Danish point sources could produce 5.4 to 10.8 million metric tons of CO2 per year by 2040.
- Danish point sources include industrial, waste incineration, power production, and biogas plants.
- Most of the potential is concentrated in five clusters around Copenhagen, Aarhus, and Aalborg and in southern Jutland.
- Meanwhile, total storage potential in Danish subsoil is estimated between 12 and 22 billion metric tons of CO2.
- Storage opportunities include onshore, nearshore, and offshore opportunities (see Figure 2.6).
- As of March 2023, three exploration permits have been granted for offshore storage in the northwestern part of the North Sea: two permits are in depleted oil and gas fields, and one is located in a saline aquifer.
- In addition, preliminary seismic investigations are ongoing at a number of onshore and nearshore geological formations.
Figure 2.6: Potential CO2 Storage Options in Denmark
Source: Danish Energy Agency
- To kickstart CCS development, Denmark has also established two funds designed to deliver cost-effective GHG reductions that contribute to climate targets.
- The CCUS Fund is a market-based, technology-neutral fund aimed at supporting carbon capture, utilization, and storage.
- The Negative Emissions Carbon Capture and Storage Fund will support the capture of biogenic CO2 with the goal of achieving negative reductions.
- By permanently storing CO2 in the subsoil, the two funds are expected to achieve 1.4 million metric tons of CO2 reductions annually by 2030.
- Becoming a regional leader in CCS is the long-term goal for Denmark, as highlighted in recent regional plans focused on cross-border CO2 transport and storage infrastructure.
- In March 2023, a report released by the North Sea Basin Task Force outlined a vision for incremental construction of CO2 transport and storage infrastructure, including offshore, nearshore, and onshore storage possibilities.
- Initial activity would connect promising source clusters and storage sites. Future development would connect additional sources and sinks, upgrading pipelines and cluster hubs and adding ship loading and unloading (see Figure 2.7).
- With ample storage capacity, neighboring countries could transport CO2 to Danish locations through pipelines, shuttle tankers, sea vessels, and other modes of transport (see Figure 2.8).
Figure 2.7: Stepwise CCS Infrastructure Development
Source: North Sea Basin Task Force
Figure 2.8: Potential CO2 Pipelines and Shipping Routes to Denmark
Sources: Ramboll; Danish Energy Agency
Long-Term Vision and Policy Support Drive Clean Energy Innovation in Denmark
- Utility executives participating in the fact-finding mission to Denmark found important lessons in the country’s effort to become a regional leader in clean energy.
- Offshore wind and other renewable energy technologies are an important, but broad, economy-wide clean energy transition that requires additional resources, technologies, and expertise.
- Importantly, Denmark enjoys a high level of unanimity in support of clean energy policies. Voters, politicians, business leaders, and the government are aligned in their support for and subsidization of clean energy initiatives.
- As a result, Denmark has enacted a long-term vision and robust policy support to encourage private investment in the emerging renewables, PtX, and CCS technologies.
- Importantly, the Danes see the clean energy transition as both a moral imperative and a business strategy providing significant opportunities to provide relatively cheap, clean energy to the region and export critical technologies.
- In the United States, the passage of the Bipartisan Infrastructure Law and Inflation Reduction Act create similar dynamic in the United States, aligning clean energy policy with industrial policy. The question remains: who will seize the opportunity?
IMPLICATIONS
Denmark is planning an aggressive clean energy transition. While the country plans to rely on traditional resources, such as offshore wind, they are also looking to build an infrastructure and industry in emerging technologies.
In an effort to leverage domestic expertise and resources, there is ambitious focus on PtX and CCS as drivers of long-term economic growth. Denmark acknowledges that long-term success will require these technologies becoming economically competitive. Consequently, the country is pursuing a host of policies to encourage innovation and market development.
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On Denmark's Clean Energy Transition
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