The Nordic Energy Market is more flexible than ever

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The Nordic energy market is flexible and green, as societies move toward carbon neutrality by using renewable power

The energy system is in for a massive transformation, as societies move toward carbon neutrality. Based on renewable electricity, the future of the Nordic energy market is more complex, flexible, and green.

Climate change is a slow-moving crisis, but it is changing the world at a fast pace. Within a decade or so the idea of carbon-neutrality has gone from a question of “if” to a question of “when.” The EU plans to be carbon neutral by 2050, China by 2060. 

This means massive changes in the energy sector, which accounts for around 72% of global greenhouse gas emissions, according to the Center for Climate and Energy Solutions. 

As the industry shifts away from fossil fuels, it must find cost-effective and reliable ways to produce cleaner, more sustainable energy.

Thus the current energy transformation is shaped by two major trends: electrification and renewables.

Heavy industry, transportation, heating and cooling – those are all major consumers of energy and that’s where we’re looking to make the biggest cuts in carbon emissions. Some of the biggest gains can be made by using electricity to power many of these processes”, says Research Professor Kari Mäki, who studies smart energy systems at the Finnish state-owned research company VTT.

Burning coal or oil to power engines, heat houses and fire-up blast furnaces is becoming increasingly untenable. Switching to natural gas can reduce emissions in many processes from ship engines to furnaces; biogas can bring the net emissions to zero.

The bigger revolution, however, is that electric cars, geothermal heat pumps, electric arc furnaces, and a multitude of other technologies are becoming more and more widespread. 

“We are in for a massive surge in demand for electricity,” says Mäki. 

The Nordics lead the way in renewables

The second part of the equation is renewable electricity generation. Emission reductions from electrification hinge upon how the power is generated. Driving an electric car is hardly carbon neutral if the batteries are filled by a coal-burning power plant.

“We’re a long way from totally renewable energy, but most industries’ carbon neutrality roadmaps depend on available and affordable clean electricity. This will lean on massively scaling up wind power, complemented by hydro, nuclear and to some extent solar power, biofuels and so on,” says Mäki.

The market for green energy is already growing fast, at times outpacing the increase in production capacity.

The Nordic region is leading the charge in renewables in Europe. Sweden and Finland top the EU charts in share of energy from renewable sources, with Denmark coming in fourth. Outside of the EU, Norway already produces 98% of its electricity from renewable sources, mainly hydropower.  

The market for wind power is also booming, and wind now rivals or even surpasses fossil fuels in affordability, after decades of public subsidies. According to Mäki there is massive potential, especially for a sparsely populated country like Finland. There is plenty of available land for wind farms from the coastal flats to the open ranges of Lapland.

A recent survey by Gasum found that potentially up to 30TWhs (terawatt hours) of wind power could be introduced in the current Finnish electricity system. Meanwhile, Norway and Denmark are focusing on offshore wind farms.

Ramping up investments

Still, further investments are needed to increase the share of wind and other renewables in the Nordic energy mix.

According to the Oslo-based institute Nordic Energy Research, which works under the auspices of the Nordic Council of Ministers, Nordic countries saw a 9% increase in overall share of renewables in their final energy consumption in the decade between 2008 and 2018. 

Industries and individual companies can help spur on the necessary investments by purchasing renewable energy and partnering up with energy producers.

- Ville Pesonen, Head of Energy Market Services, from Gasum 

“Companies can commit to buying wind power from a prospective wind farm over a long period of time, for example. As end users of electricity, they have an important role in funding the transition”, says Pesonen.

When companies seek to achieve their stated emission goals, Energy Market Services can help them to assess their entire value chain and consider where they can most efficiently reduce their carbon footprint. 

“Energy is a huge part of the equation, as it is necessary for every step in the value chain. Some companies are fine with buying certified clean energy. Others may want to take a more active role and support the energy transformation”, explains Pesonen. 

Flexibility from market integration

Rebuilding the energy system around renewable sources and electricity requires flexibility from the market. Solar power is notoriously abundant in the summer, when consumption is low, and wind patterns hardly obey our fluctuating energy needs.

Flexibility can also boost efficiency, using and storing energy when it is cheap and conserving it when momentary demand exceeds supply.

Flexibility can be increased by a variety of technologies as well as market innovations. One advantage for the Nordic region is its highly integrated energy market. 

All of the Nordic countries have deregulated and opened up their electricity markets and invested in cross-border transfer capacity since the 1990s, and the region now has the most harmonised cross-border power market in the world, encompassing the Nordic and Baltic countries. 

The value of integrations is there, whether we move towards carbon neutrality or not, strictly in economic terms. As we move towards renewable energy, the value of being interconnected increases.

- Kaj Forsberg, Analyst from the Swedish Energy Markets Inspectorate

With renewables come greater fluctuations in power generation and a larger integrated market can help the system to cope with these fluctuations. Resources can be utilised much more efficiently when they don’t have to be optimised for a number of smaller, more localised markets, says Forsberg. 

The more large suppliers and sources — from hydro and wind power to thermal, nuclear and biofuels — enter the market, the more secure and stable it becomes. It also becomes more cost-efficient. 

According to Forsberg, it makes sense to further harmonise and integrate Nordic and larger European markets. The Nordics have renewable resources that many other countries lack.

Norway, for example, is increasingly exporting clean hydropower and could potentially see an eightfold increase in renewable energy exports by 2030, according to some estimates. This way the Nordic countries could facilitate energy transition elsewhere in Europe.

Innovative market mechanisms

Market integration is useful for introducing flexibility to the supply side of the equation, but demand-side flexibility is also important, says Fanney Frisbaek, COO of Nordic Energy Research.

Right now we are looking at market solutions for providing flexibility.

- Fanney Frisbaek, COO of Nordic Energy Research

This might mean new services, such as “flexibility aggregators” that could act as mediators between suppliers and end-users of electricity. 

An industrial installation or a business might make a contract, for instance, to allow some of their nonessential systems to be shut down at certain intervals for short periods of time.

For example, temperature-controlled spaces such as cold storage in supermarkets can shut down cooling for a few minutes with no adverse effect on frozen products. Their power supplier or grid operator, who would in turn benefit from the flexibility, would compensate them. 

“The focus is now on market designs and building business models for flexibility aggregators. Among others, market operators such as Nordpool are looking into this: How they can design the market for flexibility products”, says Frisbaek.

Future solutions to energy storage: sector coupling and synthetic fuels 

Another potential source of flexibility is integration between sectors of industry and the processes of producing, transporting, and consumption of energy.

Where transport and logistics used to be thought of as a separate sector from heating and electricity generation and so on, the future energy system will be increasingly complicated and interwoven with various feedback loops and synergies. 

This trend is captured in buzzwords like “sector coupling” and “power-to-x,” which denote a wide range of technologies and market innovations that facilitate flexibility and make electrification possible beyond the confines of a power grid.

Take the coupling of heating and power, says Kari Mäki from VTT. District heating plants running on electricity could store energy by heating vast amounts of water. They could help soak up the excess when supply is high, and use less power when there is a shortage. 

The first stage of electrifying the transportation system relied on advances in battery technology, which has become significantly more powerful within the last decade or so.

Now research is developing novel energy conversion technologies that turn electricity into synthetic fuels that can be stored and transported outside the power grid. These fall under the umbrella term “power-to-x,” where the “x” stands for anything from synthetic fuel to heat or something else entirely.

“All of Europe is talking about hydrogen fuel now. The idea is to use excess electricity to produce hydrogen, but the technologies are still small-scale and expensive”, says Mäki.

But the same was true for solar panels and high-capacity batteries until a few years ago. The science behind synthetic fuels is familiar, Mäki says, but production must be scaled up for them to become cost-effective.

After all, ultimately the market will decide the future of our energy system.

1.12.2020

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