DENMARK: An Introduction to Energy

Introduction

Denmark’s energy sector is undergoing a transformative shift driven by ambitious climate goals, rapid technological advancements, and evolving market dynamics. Long recognised as a front runner in green energy, Denmark has intensified its focus on renewables, sector coupling, and system integration.

The transition is backed by strong political consensus and ambitious climate targets, including a legally mandated 70% reduction in greenhouse gas emissions by 2030, ensuring energy security in an increasingly electrified society. These advances coincide with an environment that must simultaneously encourage innovation, ensure security of supply, and meet climate targets. Market participants are navigating a dynamic and increasingly complex regulatory environment where traditional energy sources are being phased out in favour of renewable alternatives, creating both challenges and opportunities for industry stakeholders.

Regulatory Framework

The Danish energy sector is governed by a comprehensive legal framework that promotes renewable energy development, energy efficiency, and market competition. Key legislation includes:

• Climate Act: This Act mandates emissions reduction targets and establishes a framework for carbon pricing, providing a legal foundation for Denmark‘s climate action efforts.
• Renewable Energy Act: This Act aims to promote the production of energy using renewable energy sources and regulates a wide range of issues related to renewable energy, including support schemes and environmental considerations.
• Electricity Supply Act: This Act regulates the electricity market, including grid operation, tariffs, and consumer protection, ensuring a stable and reliable electricity supply.
• Gas Supply Act: This Act regulates gas supply, including hydrogen supply, and contains rules on transmission, distribution, storage and trade.
• Heat Supply Act: This Act governs the district heating sector, promoting efficient and sustainable heat supply solutions.

Key regulatory authorities overseeing the energy sector include the Danish Energy Agency, responsible for energy policy and regulation, and the Danish Utility Regulator, which supervises the electricity and gas markets.

Political Landscape and Goals

Denmark’s energy policy enjoys broad political support, transcending traditional party lines. Cross-party agreements underscore the nation’s resolve to maintain consistent climate policies even through changes in government. This stability is particularly valuable to investors undertaking multi-year infrastructure projects, such as large-scale offshore wind installations and hydrogen facilities.

The government’s current strategy features specific goals for expanding offshore wind capacity, including plans to reach 35 GW by 2040. Central to this vision are energy islands, which will serve both national demand and potential exports. The North Sea energy island, for instance, is designed to generate and store power, ultimately functioning as a hub that connects renewable energy to multiple markets.

In January 2025, the Danish government announced new initiatives to support offshore wind and hydrogen markets. Recognising challenges such as supply chain pressures and rising costs, the government introduced the possibility of state subsidies to enable 2-3 GW of offshore wind. This initiative aims to accelerate deployment and strengthen Denmark’s position as a leader in offshore wind energy.

Additionally, Denmark is set to develop a hydrogen backbone from Esbjerg to the German border by 2030. In February 2025, a broad political agreement was reached to provide substantial government support for the project. The Danish government has committed a state loan of DKK7.4 billion and operational subsidies of up to DKK8.3 billion to facilitate the construction of the hydrogen pipeline. The booking requirement has also been lowered, allowing producers to commit to transporting a minimum of 0.5 GW of hydrogen through the pipeline.

While transitioning away from fossil fuels, Denmark remains cautious about maintaining supply reliability. Policymakers emphasise grid stability and storage solutions, along with international interconnectors. Notably, recent discussions have explored small modular nuclear reactors as a complementary low-carbon power source – a marked departure from Denmark’s traditional exclusion of nuclear energy.

At the local level, municipalities play an important role in implementing national energy policy, particularly in areas such as district heating development and local renewable energy projects.

Major Projects and Infrastructure Development

Several groundbreaking initiatives are moving from the planning stage to full-scale implementation. Foremost is the North Sea Energy Island, an artificial offshore hub with the goal of being operational by 2033. Initially connecting 3 GW of offshore wind, it could scale to 10 GW, hosting facilities for energy storage and green hydrogen production.

The hydrogen backbone is one of Denmark’s most significant energy infrastructure initiatives, aiming to connect Danish hydrogen production with German industrial demand. The timeline for completion remains ambitious, with hydrogen exports to Germany expected to commence in 2030. Given a growing demand for hydrogen in German industries, particularly in the steel sector, the Danish government is expediting regulatory approvals. Energinet, the project developer, is already engaging with landowners and local communities to facilitate a smooth roll-out. The next step is for Energinet to formally apply to the Danish Minister for Climate, Energy, and Utilities in the spring of 2025 for permission to proceed with the hydrogen infrastructure development.

The development of energy islands remains a priority, but challenges persist. The North Sea Energy Island, originally scheduled to be operational by 2033, has been postponed by at least three years due to financial uncertainties. Further political negotiations and industry developments will determine the revised timeline for this large-scale offshore energy hub. Meanwhile, the Bornholm Energy Island project remains in limbo, as the necessary legal framework for its next phase has yet to be established. The Danish government remains committed to the project and plans to resume discussions with Germany once a new government is in place.

Power-to-X initiatives across Denmark have matured significantly, moving towards full-scale commercial implementation. This evolution marks a crucial step in the energy transition, as these facilities create vital links between renewable power generation and challenging industrial sectors. Industrial clusters, particularly those situated around major ports, are emerging as natural hubs for Power-to-X development, leveraging their existing infrastructure and proximity to both renewable energy sources and potential end users. The planned hydrogen infrastructure will enable these facilities to efficiently distribute green hydrogen and derived products, such as ammonia and methanol, to both domestic and international markets.

In parallel, the national grid is undergoing extensive modernisation. Energinet is reinforcing transmission lines, expanding interconnectors with neighbouring countries, and deploying digital grid-management tools. These updates are essential for accommodating high volumes of renewables, enabling bi-directional power flows, and incorporating hydrogen electrolysers as flexible loads.

Outlook and Future Developments

Denmark stands at a juncture where clear political will, sophisticated legislation, and innovative infrastructure converge to drive its energy transition. The development of offshore wind energy islands and a hydrogen backbone could position Denmark as a major green energy exporter, supporting both domestic and regional decarbonisation.

Challenges remain, including questions about market integration, cross-border co-operation, and the need for harmonised regulatory frameworks. The successful implementation of major infrastructure projects will require continued co-ordination between public and private stakeholders, careful management of supply chain constraints, and innovative solutions to technical challenges. However, a strong policy framework, political consensus, and proven track record of innovation provide a solid foundation for overcoming these challenges.

Industry participants must navigate a complex landscape, balancing renewable expansion, grid modernisation, and sector integration. New business models and collaborations will emerge as technology evolves and energy systems become increasingly interconnected.