Article from the webmagasine "Green Growth the Nordic Way" - see more on the Nordic green growth initiative.

Energy efficiency increases with flexible consumption

One of the eight focus areas under the Nordic Council of Ministers’ green growth initiative deals with the Nordic electricity market. The aim is to increase the flexibility for consumers in a market that is already among the most flexible and integrated on the supply side.

Large power quantities are already traded between the region’s transmission companies at the Nordic wholesale electricity market, whereas the retail market, that covers the sale of power to end-use customers, e.g. households and businesses, is not equally integrated.

Increased consumer flexibility and Nordic integration of the retail market will allow consumers to contribute actively to improved energy efficiency, and also create valuable opportunities for Nordic energy technology development companies.

Reserve capacity across the borders

Electricity exchange between the Nordic countries has been utilized to balance supply and demand for decades. Together, the joint electricity market and transmission grid, connecting Denmark, Norway, Sweden and Finland, enable a swift reaction to power shortages. If they arise, electricity can easily be transferred from areas with energy surplus.

The market was formalised in the Louisiana declaration in 1995 and has undergone continuous development since then. It has become a pilot case for regional electricity markets and cross-border energy cooperation, based on its success in connecting the countries’ complementary energy sources in order to guarantee stable electricity supply.

As opposed to the rest of Europe, the Nordics as a whole only to a very limited degree rely on coal, gas and oil to secure back-up capacity. This is primarily thanks to the region’s considerable hydroelectricity production and the highly effective cooperation between the national Nordic power grid companies.

Challenging integration of renewable energy

Even if two thirds of the entire Nordic electricity consumption already comes from renewables, an extensive expansion of renewable energy production is on the drawing board. Investment in the Nordic grid in the coming years will evolve around EU’s objectives of reaching a 20% share of energy from renewable sources by 2020.

The market’s flexibility becomes even more relevant with this increased integration of renewables, such as wind and solar power, in the Nordic grid. While the increase is necessary to react to the global climate issues, the intermittent character of these energy sources creates new challenges for the market.

“Due to the increase in the use of renewables, we will experience more periods with excess production from renewable energy sources, leading to lower prices, and periods where large consumer demand coincides with limited production, which results in higher prices,” says Mette Vingaard from the Danish Energy Agency.

Consumer flexibility in the Nordic electricity market

The Nordic Prime Ministers’ green growth task force identified more flexible consumption of electricity as one of their eight green growth priorities. The idea is to provide consumers with more transparent information on variations in electricity prices, and thus allow them to make informed choices about their consumption.

“Increased consumption flexibility is important for efficient use of our electricity and the electricity grid in two ways. Activating it will move consumption from periods with low renewable generation to periods with excess renewable energy generation, but also move consumption away from hours with high peak consumption to avoid strain in the grid capacity,” Vingaard explains.

A joint Nordic approach to this problem would not only minimise the price of electricity for the consumer, but also be of great benefit for both the market itself and the environment. Clear incentives to align electricity consumption with the current supply of renewables would improve energy efficiency considerably. As a result, the need for a costly expansion of the Nordic transmission infrastructure would be reduced.

Market opportunities for Nordic smart grid technologies

”Both in the Nordic countries and the EU, there is an increased need for a harmonised retail electricity market, where the right pricing signals are sent to the consumer through smart grid technologies,” Vingaard says.
“This will create significant incentives for flexible energy consumption, which supports the transition towards an energy system based on renewable energy sources.”

To facilitate this change, consumers need ready access to information about their consumption patterns and an overview of the electricity prices on an hour-to-hour basis. Here, smart electric meters are key to provide consumers with this knowledge.

“A common Nordic front position on the retail market represents important growth perspectives. It creates a much larger marketplace for the Nordic companies that are developing new smart grid technologies,” she says, adding that a combined Nordic home market opens a strong export pathway for Nordic businesses.

Taking the lead in Europe

Traditionally, the Nordic countries are among the frontrunners in Europe when it comes to market development of both the wholesale and retail markets within the electricity sector.

“A consolidated Nordic retail market has the potential of becoming an important pivot point for the development of the EU retail market. This could ensure that the coming harmonisation in the EU will take Nordic conditions and existing Nordic models into account,” says Mette Vingaard from the Danish Energy Agency.