A shared ASEAN electricity grid has been a long held aspiration in ASEAN. Shared energy networks have been utilised in regions around the world, but perhaps none so successfully as the shared Nordic and EU energy grid. We spoke to energy expert Nord Pool Consulting, to explore how this grid works in practice.
Energy Watch (EW): Can you explain about the Nordic Energy grid? Nord Pool Consulting (NPC): In the Nordic region, the European Union is the driving force for most of the regional integration initiatives. However, Nordics have been the forerunner in many of the power market related regional harmonisation projects in past decades. In fact, Norway was the first of the Nordic countries to deregulate its power markets.
The Energy Act of 1990 formed the basis for deregulation in other Nordic countries. In 1995 the framework for integrated Nordic power market contracts was made to the Norwegian Parliament. Together with Nord Pool’s license for cross-border trading, this framework made the foundation for spot trading at Nord Pool. In 1996 a joint Norwegian-Swedish power exchange was established. The exchange was renamed Nord Pool ASA. Sweden joined in 1996, Finland in 1998, and finally full integration was reached when Denmark joined in 2000.
Generally, utilising the value of difference is one of the key reasons for regional integration and cooperation. The value and benefits resulting from the regional cooperation are utilised well in the Nordic power market and this market constitutes a good example of something that could be applied in other areas.
In the Nordic region, the available production capacities in different countries are complementary to each other, and jointly they have become a regional asset. The countries are able to support each other in different situations as shown in the figure below.
EW: How has this worked in practice? NPC: The regional cooperation in Nordics has led to lower overall costs in the market since optimal investments have been made across the regional scale instead of suboptimal solutions separately in each country. Therefore, grid investments have in general been larger than investments in generation. Furthermore, the regional cooperation has had a positive effect on the security of supply in the Nordics.
A regional market has the potential to provide significant benefits such as:
Allow the region to operate on a multilateral basis; Achieve a more efficient utilization of energy resources, connecting countries with surplus power generation capacity to countries facing a deficit within the region; Help utilities balance their excess supply and demand, improve access to energy services, and reduce costs of developing energy infrastructure; Reduce the need for investment in power reserves to meet peak demand, lowering operational costs while achieving a more reliable supply and reducing system losses; Attract additional investment in the regions interconnection, by providing a price signal as a key catalyst to investors for their financial returns; Accelerate development and integration of renewable power generation capacity into the regional grid; Help expand power networks and client base in a region where some people still lack access to electricity and clean cooking energy sources.
NPC: When the markets are fully integrated, it is possible to generate electricity anywhere within the region where the marginal costs for production are lowest. Full integration also provides more security of supply when higher level of fuel diversification can be gained due to the wider and integrated transmission network.
Market integration can help effectively reduce the market power of a single market participant. In a small national market, big incumbent generators are often able to dominate and determine price levels. Since there are usually multiple actors and generators in integrated electricity markets, market power is more evenly balanced.
Finally, and importantly, integrated electricity markets create economic signals for the market. Integrated power markets are able to provide transparent and reliable market prices for electricity, which can be used to evaluate and target electricity sector investments.
EW: How has the Nordic grid developed over time? NPC: Generally, for the last 30 years the investments in the Nordic system has been focused on building interconnections and internal grid, with smaller investments in generation capacity. In Norway this is certainly the case, with no major investments in generation until some recent focus on renewable energy thanks to the green certificate market.
However, based on an integrated approach of the power market in the Nordic and Europe, the main investments have been made to the interconnections with neighbouring countries. The investment amount for the interconnectors has almost tripled over the last 20 years.
To help integrate power markets in Nordics, trading systems were technically harmonised in member countries to allow trading to be conducted in a centralised manner through the power exchange. All participants trading in the Nord Pool Power Exchange use the same front-end solutions to conduct trading. However, the technical solutions used by each market participant to undertake asset management and back-office functions are chosen freely by themselves.
In part 2 of our series we’ll explore the implications of integrated electricity networks in ASEAN.
Nord Pool is Europe’s leading power market and offers trading, clearing, settlement and associated services in both day-ahead and intraday markets across nine European countries.