In 1915, pioneers in Sweden and Denmark established the first 25 kV power cable between the two countries. This was the very first step towards creating the highly effective joint Nordic electricity market that maintains the balance between power generation and consumption in the region. In 2014, the market, Nord Pool Spot, recorded a traded volume of more than 500TWh for the first time.
By Páll Tómas Finnsson
Closely knit regional power grids
Today, a full century after the first cross-border power cable was laid out, the power grids in Denmark, Norway, Sweden and Finland are closely intertwined. Major interconnectors also connect the region to its European neighbours, i.e. the Baltic states, Germany, Poland and the Netherlands.
These connections and the Nord Pool Spot market enable the countries to trade wholesale power on a daily basis to ensure a balanced and cost-efficient production. The energy exchange has also played an important role in the successful expansion and integration of intermittent renewable energy sources, i.e. wind and solar power, in the Nordic grid.
“The Nordic countries have different natural resources that complement each other well,” says Flemming G. Nielsen, Head of Division at the Danish Energy Agency and former Chair of the Nordic Council of Ministers’ Electricity Market Group. “This provides multiple benefits to the countries when it comes to power production, energy efficiency and security of supply.”
The availability of hydropower from Sweden and Norway has been a valued element of the Danish power system through the years. Previously, it reduced the need for coal fired power production during peak load times and today, it serves as a means to balance the system as it becomes increasingly reliant on fluctuating wind energy. Backup capacity is needed in periods without wind, while Denmark exports large amounts of energy to Sweden and Norway during off-peak hours, allowing them to hold back on production of hydro energy. Denmark aims to meet an ambitious 50% of its electricity demand with wind power by 2020.
“The transformation towards carbon neutrality requires strong grid connections and advanced methods to monitor and balance the system,” says Nielsen. “We’ve gradually expanded the connections between the countries and can now exchange more than 100% of our production.”
Louisiana Declaration envisioned liberalised markets 20 years ago
The initial steps towards a formalised Nordic market were taken when Norway liberalised its national electricity market in 1991, and five years later, Nord Pool was established as a joint Norwegian-Swedish power exchange. Finland joined the exchange in 1998 and was followed by the fourth Nordic country, Denmark in 2000. Since then, Nord Pool Spot has expanded to the Baltic region and Europe, and now operates power markets in nine countries.
The process of liberalising the national Nordic markets was lead by the Norwegian Water Resources and Energy Administration and was met with political support from the entire region. In 1995, the Nordic Council of Ministers put forward the Louisiana Declaration, describing its vision of a “free and open market with efficient trade with neighbouring countries.”
“Since the deregulation, the market has undergone continuous development,” says Joakim Cejie of the Swedish Ministry of the Environment and Energy, Nielsen’s successor as the Chair of the Electricity Market Group. “So far, the main focus has been on strengthening the grid connections and increasing production capacity. Lately, we’ve shifted our focus towards further developing the market design.”
The Nordic Transmission System Operators (TSOs) have been instrumental in the development of the grid infrastructure and the joint Nordic wholesale market. The TSOs collaborate on common grid development plans and own the Nord Pool Spot market together with their Baltic counterparts. Moreover, the TSOs are key actors in balancing supply and demand in the region, as they procure up- and down-regulation of the power production in close interaction with the market’s more than 300 commercial actors.
“What’s unique about the Nordic electricity market is the successful co-operation between all the different stakeholders – producers and retailers, the Nordic TSOs, regulators and political decision makers,” says Cejie. “Summoning political will and courage is the key to developing and operating an efficient electricity market – whether Nordic or pan-European.”
Nordic visions for a more flexible end-user market
With an integrated wholesale market in place, the Nordic energy co-operation is now looking to deregulate the retail market also. Until now, retailers have been faced with legal obstacles preventing them from operating outside their home markets.
“This is a key objective for the Nordic end-user market,” says Cejie. “We want to minimise the thresholds and enable retailers to operate across the borders. A liberalised retail market would lead to increased competition and better value for the consumers.”
Another aspect of empowering consumers to better manage their energy consumption is the development of new technologies, such as smart electric meters, capable of recording consumption on an hourly basis, and smart grid systems that automatically reduce demand during peak usage periods. An example of such technologies is electric car chargers that are programmed to connect to the system when electricity prices are at their lowest, i.e. during the night.
“The market needs to be developed further to handle the increasing amount of renewables coming into the system,” Nielsen affirms. “This requires more advanced steering systems and active consumer participation by means of automation in Nordic homes and in our industry.”
“The consumers are very important, also from a supply perspective,” says Cejie. “You can establish new production to improve the security of supply, but getting consumers to reduce their consumption, especially during peak hours, is a very good substitute. The next step is thus giving consumers the right tools to adjust their consumption to the system load and the electricity prices.”
“The Nordic countries have different natural resources that complement each other well”
Flemming G. Nielsen, Head of Division at the Danish Energy Agency
Share of renewable energy in gross energy supply
Proportion of environmental taxes in total tax revenues