Nordic–Baltic grid needs significant investments

As it is today, transmission operators in the Nordic–Baltic region are investing heavily in grid network and transmission capacity between the states. Several links already exist between Nordic–Baltic countries; but more are to be built and some existing ones will be strengthened.

Norway, Denmark and Sweden have links between them, as does Finland with Sweden and Estonia. The Baltic countries also have links between them. The latest link between Finland and Estonia was just completed in the beginning of 2014, and there will be a completely new link between Sweden and Lithuania, with completion planned for 2015. Further the connections between the Nordic-Baltic region and its neighbours will be improved.

NIB Newsletter interviewed two high-level energy transmission experts Bente Hagem, Executive Vice President of Norwegian Statnett SF, and Jukka Ruusunen, President and CEO of Finland’s Fingrid, both companies being the local national electricity transmission system operators.

The interviewees equally underlined the significance of well-functioning integrated grid infrastructure and energy markets in Nordic–Baltic countries that will not only improve the security of supply, but also enable competitive market prices.

“Historically, the EU member countries have mainly concentrated on their own energy markets, but now the energy sector requires larger markets due to new production technologies and the need to secure supply,” says Jukka Ruusunen.

“This increase in cross-border operations creates a demand for new systems as well. Hence, there is a need for several investments in the energy sector right now, especially in energy infrastructure.”

Bente Hagem agrees:

“It is obvious that right now the grid network requires development—especially in interconnections—but we also need better market systems and more advanced technology. There are bottlenecks between the Nordic–Baltic countries, and when those are reduced, we will have more efficient markets. This is absolutely crucial right now, because we have to have the ability to handle the surplus of renewable energy.”

The strong demand for this development trend has a lot to do with Europe’s drastically evolving energy sector. The European Union’s key objectives for the year 2020 to reduce CO2 emissions have significantly changed energy markets. So has the European Union’s aim of having a fully developed internal electricity market by 2014.

These ambitious goals are creating several opportunities, but also some challenges for NIB’s member countries. In the past years NIB has provided to several loans to improve national or cross-border transmission, in 2012–2013 totalling EUR 160 million.

The current European Union objective for the year 2020, the ‘20-20-20’ target, is to reduce EU greenhouse gas emissions by 20% from 1990 levels, raise the proportion of EU energy consumption produced from renewable resources to 20%, and improve energy efficiency within the EU by 20%. This has caused a surplus of energy in the Nordic countries, as the share of renewable energy sources has been increased by allowing subsidies for renewable energy production. Therefore, both Hagem and Ruusunen call for the ability to understanding long-term decision making.

‘’It is essential to recognise that when we make decisions about energy markets, we are dealing with very far-reaching issues. We are not talking about quarters here—these are decisions that will apply for the next twenty or thirty years. I think that EU climate strategies have both advantages and flaws. The common goal of decreasing CO2 levels is good, but instead of detailed regulation about the means the member countries and market players should have the power themselves to decide how to achieve this. More innovation, less regulation’’, Ruusunen says.

Hagem continues: ‘‘I strongly believe that building networks greatly reduces risks, as does setting up an integrated market with market coupling and new platforms. What will be vital in the future is accessibility to energy, which will also reduce the challenges linked to renewables’ lack of flexibility.’’

The weakness of renewable energy is its unpredictability. The amount of wind or sun can never be forecast reliably enough. Consequently, renewable energy will always require another form of energy by its side to guarantee the security of energy supply. So the flexibility to use different energy sources is important to safeguard capacity. Continuous supply in the Nordic–Baltic countries can be protected with a well-functioning grid network and interconnections.

‘All these things are linked together, as better interconnections bring accessibility to different energy sources, yet offer versatility when no renewables are available. Actually, it would be ideal to have Europe-wide targets that aim for balanced development of different energy sources, taking into account the energy network’s ability to allow flexibility, as well as national differences’’, says Hagem.

As we all know, electricity cannot be stored, no matter if it is renewable or not. However, Ruusunen is optimistic about the future in that sense: ‘’I strongly believe in innovations. I’m positive that there will be a long-term solution for system flexibility and energy storage, and then the renewables will play a more significance role than ever. In addition, when it comes to investment in that sector, I think there are some risks, but we also need investors with courage that are willing to alter the current systems. That is the only way that things can be changed.’’

NIB hosted a seminar of North-Western European energy markets on 14 February 2014. Both Bente Hagem and Jukka Ruusunen were guest speakers at the event. This was the second NIB seminar intended to clarify the new challenges in the energy sector.