As discussed in the previous section, Norway’s power production is mainly hy-dropower. This gives Norway some of the lowest electricity prices in Europe. Today, the electricity prices are divided into five bidding zones in Norway, which means the prices can vary from area to area. The bidding zones are made to reflect the transmission capacities between areas of production and consumption. Bottlenecks in the transmission capacity cause different prices. For example, suppose a power producer can supply cheap power in northern Norway. In that case, this will be of little help to power demand in southern Norway if there is not enough capacity to transmit it from producer to consumer.
2.3.1 Spot Market
The electricity bidding market is managed through NordPool2, a shared electrical market for all of northern Europe. A day before the production hours, the day-ahead market, also known as the spot market, holds an auction where bids are based on the predicted load demand. This auction sets the schedule and the power
2https://www.nordpoolgroup.com/
Oil and Gas Extraction
Emissions from Norwegian Territory - 2019
Figure 2.2: Percentage emissions in CO2-equivalents from Norway in 2019. Col-lected from Statistics Norway (Statistics 2021)
price for the next day. Closer to the hour of production, the intraday market al-lows further trading to correct imbalances. In the last hour before production, the balancing market tries to fix the previous imbalances between production and de-mand. In the balancing market, power producers can give bids for flexibility, where they offer possible up- or down-regulation of the power production. This regulation is handled by the transmission system operator (TSO), which buys reserve power to ensure the instantaneous power balance at all times.
2.3.2 Infrastructure and Effect Based Tariff
This section is based on the comprehensive report 3 ordered by The Norwegian Water Resources and Energy Directorate (NVE) on the current changes in the Norwegian power market, and specifically how the electrical infrastructure is fi-nanced.
The Norwegian transmission grid is part of a Nordic synchronous area that shares a standard frequency, including Sweden, Finland, and parts of Denmark.
This area has common frequency control and power balancing. The TSO handles the power balance. In Norway and the Nordic area, the TSO is Statnett with support from Svenska kraftn¨at. Statnett also owns the central transmission grid in Norway, which delivers electricity between regions. The regional transmission grids are regulated such that private companies can own them, but only a single company can operate in a given area (Regjeringen.no 2016). As this induces a monopoly, the companies owning the grid are forbidden to profit and only collect
3URL: https://publikasjoner.nve.no/rme hoeringsdokument/2020/rme hoeringsdokument2020 01.pdf
DK1 DK1
DK2 DK2
SE1 SE1
SE2 SE2
SE3 SE3
SE4 SE4 NO1
NO1
NO2 NO2
NO3 NO3
NO4 NO4
NO5 NO5
FI FI
E E
LV LV
LT LT
FR FR
Figure 2.3: Bidding zones for electrical spot prices.
fees to cover expenses associated with the transmission grid.
The current tariff system has two components. One is constant and is a pay-ment for being connected to the grid, and the other is a fixed cost for the amount of energy bought, measured in kWh. However, the way we use energy is changing.
As a measure to reduce greenhouse gas emissions, several sectors of society are get-ting electrified. The transition leads to higher consumption of electricity, as well as new ways to utilize the power. For example, over half of the private cars sold in 2020 in Norway were electric, according to Statistics Norway (Andresen 2021).
Although this is good in an environmental setting, it is raising challenges for the transmission grid, especially during peak-hours. These are hours where the most power is drawn from the grid and usually occurs in the morning as people wake up and in the afternoon when people get home from work.
The costs of the transmission grid can be separated into two components. The first istransmission loss, which are energy losses that occur as electricity is trans-ported from production to consumer. The losses are caused by electrical resistance
4 in the transmission lines, following the definition of electrical power
P =V I (2.1)
By inserting Ohms law
V =IR, (2.2)
and the resistance of the transmission line Rtrans we get
Ploss=I2Rtrans (2.3)
The losses increase with the square of the current, which is compensated in the transmission grid by having high voltage. However, as the demands for electrical power increase, the current has to increase, and therefore as a consequence the transmission losses also increase.
The other costs are related to grid capacity, either via investments or mainte-nance, and are responsible for 80-90% of all expenses. The main challenges occur in peak hours when the maximum energy is drawn from the grid. As the transmis-sion lines have a maximum capacity, they are continuously upgraded to keep up with the increasing energy demand. However, in the off-peak hours, much of the capacity is not being utilized.
Due to the described capacity situation, NVE is looking into the possibilities of changing the grid fee to reflect these changes and give incentives to use the transmission grid more effectively. The new fee is called effect-based tariff and will, if implemented, replace the current fixed price model. Instead of measuring the amount of energy used, the fee is determined by the peak power, which is the maximum energy drawn from the grid. As a customer, it will be economically
4Some losses also come from impedance. However, this is neglected in this thesis.
beneficial to spread the power consumption throughout the day, for example, by charging the electric car during the night. The intention behind effect-based tariffs is to reduce transmission losses and minimize the need for investments in the future.