As the price of renewables plummets and electrification goes from strength to strength, the head of Norway’s transmission system operator considers the inherent challenges and significant benefits, asking, how can we create most value to all Europeans?
Auke Lont is CEO of Statnett, Norway’s TSO, and is also a member of the European Commission Expert Group on electricity interconnection targets.
Life beyond the electric tipping point is busy. Renewables, new flexibility and digital solutions are becoming cheaper and smarter and are implemented across the power system.
Consumers take on new tasks and generate electricity and provide flexibility. Energy efficiency and electrification affects the demand side of the system. The political agenda supports all these changes, and building a renewable power system is key to achieve the Paris Agreement.
Finally, we experience that the flows we manage in the electricity grids are affected by the sum of all the developments above. We have passed a tipping point, and there is no way back and there is still much to do.
We TSOs who manage the power grids in the Nordics, integrate our networks to continental Europe and the UK, and they in turn integrate further to other European regions. With physical power lines we integrate both our markets and our operations.
The challenges are plentiful, and the benefits significant. The key question is how we can create most value to all Europeans? And where do we take it from here, now that we have passed the tipping point?
I think it is time to adapt to the realities we see beyond the tipping point and take a stronger system perspective. As system operators and planners we don’t have a choice. We have national responsibilities, but our perspectives have to be wider, spanning borders and regions, and the grid levels of distribution and transmission.
Policies and regulations have to follow suit. Three areas are key in a wider system perspective:
First, we have to make our markets work. We need efficient incentives across the system to all market participants, big and small, across technologies, borders and regions. Politicians with a national approach may insist on deciding power prices themselves, or on having one national price, even if this contradicts the realities of markets and physics.
These policies limit cross border competition and create huge risk to those who invest with a regional or European perspective. Beyond the tipping point, a system perspective will have to replace a national one, making markets truly reflect the physical realities of the power system.
Next, we have to activate the consumers. Smart meters and competitive retail markets will provide incentives for consumers to be flexible. This flexibility is a prerequisite for a decarbonised European power system. Thus, the consumers have to be empowered in parallel with new grid developments and the inclusion of renewables.
Finally, we have to limit regulatory risk. Volatile regulation and too much regulation, limits the willingness to invest in interconnectors. The discussions of the Clean Energy Package illustrates this. It is important for TSOs to e.g. use capacity efficiently.
We know that trading power reserves on interconnectors in some cases create much more value in terms of money, emission cuts and system security, than using the capacity for energy trading in the day-ahead market.
The risk of having regulation that limits our ability to optimise capacity is not very helpful. Efficient optimisation should instead be encouraged. Detailed regulation that interfere with grid operations, and that could limit system security, is another example.
A third example is regulation that makes it difficult to use income from interconnectors to reduce the tariffs of those who have paid for the investments. Just having these discussions from time to time creates uncertainty and risk and limits the incentive to invest in interconnectors.
Thus, we need a true system approach. We need to replace before-tipping-point-solutions that limited integration across technologies, grid levels and borders, and that also provided us with too high regulatory risk.
Past the tipping point we know the direction. The system approach ensures that markets reflect physics and that competition and cooperation take place across the system whenever possible and as much as possible.
I believe that life after the electric tipping point is a good life, provided we are letting markets work, activate consumers and reduce regulatory burden and risks. Then we will see ‘clean energy for all Europeans’ delivered in a much more efficient way.