Reliability in Sweden's electricity system - A project report IVA Electricity Crossroads project
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Reliability in Sweden’s electricity system A project report IVA Electricity Crossroads project
Foreword The IVA project called Electricity Crossroads, running from 2014 to 2017, has developed five recommendations which were presented in summer 2016. One of them involves setting a goal for delivery reliability. The work culminating in this report is an independent continuation of the Electricity Crossroads project with a specific focus on reliability in the electricity system. At first glance reliability may seem to be a relatively clear-cut concept. But it is in fact a complex issue. Delivery reliability in the electricity system is influenced by numerous, mutually dependent factors. The Electricity Crossroads Steering Committee therefore1 decided that there was an urgent need to understand and define the problems associated with different aspects of reliability in the electricity system. The project was carried out in cooperation with the work group members listed below. We held a total of six work group meetings in the form of workshops on various themes. We also conducted an independent survey in writing of the work group members, as well as interviews with various external players in the electricity market; representatives from Svenska kraftnät (The Swedish transmission system operator), the Swedish Energy Markets Inspectorate, HSB, LRF (The Federation of Swedish Farmers), Villaägarna (Swedish Homeowners Association) and Fastighetsägarna (Swedish Property Federation). We also referred to earlier reports and materials produced within Electricity Crossroads. See www.iva.se/en. The project work group: Bo Normark, Chairman of Electricity Crossroads, IVA Karin Byman, Project Manager, IVA Jan Nordling, Project Director, Electricity Crossroads, IVA Alf Larsen, E.ON Henrik Bergström, Ellevio Magnus Thorstensson, Swedenenergy Birgitta Resvik, Fortum Göran Hult, Fortum Maria Sandqvist, Forum for smart grids Patrik Carlén, Jernkontoret Lennart Söder, Royal Institute of Technology (KTH) Lina Bertling, Royal Institute of Technology (KTH) Maria Hagberg, Ramberg Advokater Anders Järvelä, Skellefteå Kraft Mats Gustavsson, SKGS/Boliden Maria Sunér Fleming, Confederation of Swedish Enterprise Pär Hermeren, The Association of Swedish Engineering Industries Runar Brännlund, Umeå University Lina Palm, Uniper Andreas Regnell, Vattenfall Lars Joelsson, Vattenfall Tomas Björnsson, Vattenfall The work group members took part as private individuals, based on their knowledge and experience, rather than representing any particular company or organisation. All the Steering Committee members stand behind the conclusions and recommendations as a whole, but not necessarily individual statements.
Contents Summary............................................................................................................................. 6 Goal and purpose.............................................................................................................. 10 The value of delivery reliability ......................................................................................... 11 What does reliability involve?............................................................................................ 12 The Nordic electricity market model................................................................................. 14 The EU and the Energy Union........................................................................................... 17 How the power balance is maintained in other markets..................................................... 19 Transition in the Swedish electricity system....................................................................... 21 Energy adequacy................................................................................................................ 23 Power adequacy..................................................................................................................25 Sweden’s power balance............................................................................................... 26 Hydropower is the most important regulating source.................................................. 28 Available power and future development..................................................................... 28 Increased power deficit risk.......................................................................................... 29 Access to integrated system services declining.....................................................................33 Frequency deviations.................................................................................................... 34 Alternative solutions for inertia ...................................................................................... 34 Adequate and secure access to the grid................................................................................35 Challenges facing local and regional grids................................................................... 36 Permit processes create bottlenecks.............................................................................. 36 Growing cities are challenging reliability..................................................................... 37 Demand flexibility and effective use of the grid............................................................ 38 Who will pay for reliability in sparsely populated areas?............................................. 38 The transmission grid is affected by changes in electricity production......................... 39 Regulation and players in the electricity market................................................................ 41 Energy adequacy.......................................................................................................... 41 Power adequacy........................................................................................................... 41 Grid adequacy and grid security.................................................................................. 42 Balance security........................................................................................................... 43 Analysis and observations.................................................................................................. 44 Points of departure – goal for reliability....................................................................... 44 Observations on the technical system and regulations.................................................. 44 Conclusions and recommendations.................................................................................... 47 Appendix 1: Power system properties................................................................................ 49 Appendix 2: Footnotes and references............................................................................... 51
Summary
“Sweden should have a robust electricity system ability unless we address the challenges in time.
with high reliability, low environmental impact Nuclear power, which for many years has ac-
and with access to electricity at competitive counted for almost half of Sweden’s electricity
prices. It creates long-term perspectives and production, is gradually being shut down due
clarity for market participants and brings new to poor profitability and ageing plants. New
jobs and investments to Sweden.” power plants is mainly intermittent wind pow-
(Energy Commission, 2016) er. This is changing the conditions within the
technical system, both in terms of the ability to
A reliable electricity system is essential in or- maintain the energy and power balance and the
der to maintain modern and efficient welfare stability of the grid. After 2030 new solutions
society. Sweden has a robust electricity system should be in place, but the transition will take
with high reliability, but the system is changing time. We therefore need to act now.
and this could negatively impact delivery reli-
THIS HAS AN IMPACT ON THE RELIABILITY
Reliability in the electricity system is affected In a slightly longer perspective, the transition
by the interplay between the technical system, involving a growing share of intermittent en-
the market model and rules that are designed to ergy in the system will affect both the ability
control the system in the short and long term. to maintain the power balance in the system
and its ability to withstand disruptions. Four
The technical system reactors will be closed by 2020. Meanwhile
Today power outages are the main factor af- the energy certificate system is being extended
fecting delivery reliability. Steps have been and is expected to add an additional 18 TWh of
taken to weatherproof the grid in recent years wind power by 2030. 2 This will deliver energy,
and this has improved the situation. The chal- but the system’s capacity value will be lower
lenge over the next few years will be the ageing than with nuclear power. Nuclear power deliv-
grids and the considerable reinvestment that ers important system services that are required
will be needed during a time of great uncer- to maintain stability in the electricity system.
tainty about where new electricity production When these plants disappear other solutions
will be located. Urbanisation is also impacting will be needed to keep the system robust.
delivery reliability. Urban infill is increasing the The trend we are seeing in Sweden is also hap-
power demand locally, resulting in local capac- pening in our neighbouring countries. As we ex-
ity deficits. In sparsely populated areas the op- amine delivery reliability it is therefore impor-
posite is true: there are fewer and fewer people tant to look at the electricity system as a whole,
paying for the grid, making it more expensive including in neighbouring countries and to pay
per household. attention to what is happening to their systems.
6
Figure 1: Illustration of reliability in the electricity system. The system needs to be both adequate under
normal operating conditions and able to withstand disruptions.
RELIABILITY
ADEQUACY SECURITY
ENERGY POWER GRID GRID BALANCE IT
ADEQUACY ADEQUACY ADEQUACY SECURITY SECURITY SECURITY
Regulations and market model The Nordic region has an energy-only mar-
Today there is no clear definition of a reliable ket, whereby the energy price is set by the spot
electricity system, and hence no clear goal for market. There are currently no strong economic
the electricity system’s delivery reliability. It is incentives for supplying power. Price elasticity
thus not possible to determine if political meas- is generally low on the electricity market. De-
ures are needed to maintain or achieve a certain mand flexibility mainly exists in certain types
level of reliability in the system. of energy-intensive industries that can produce
Electricity transmission (the grid) is regulated. and store inventory.
According to the Electricity Act a power outage In the longer term the market is expected to
as a rule is not permitted to exceed 24 hours. ensure an adequate power balance. Current
The Electricity Act is therefore clear about the market models have not yet been tested over a
grid owners’ responsibility for electricity trans- full investment cycle and the electricity system
mission. is in need of comprehensive replacement invest-
Svenska kraftnät (Sweden’s national grid) is the ment. Today the price of electricity is low due
agency responsible for ensuring that the electric- to low marginal costs for electricity production.
ity system is reliable and that a balance is main- This is an obstacle for investment in both new
tained at all times. To this end, Svenska kraftnät electricity production and in power, i.e. regulat-
buys and uses available production resources or a ing power. Over time this increases the risk of a
downward adjustment of consumption. If there is power deficit in the electricity system.
a risk of a power deficit the agency can ultimately The current investment climate and the level
disconnect customers. Svenska kraftnät is not re- of ambition being discussed with respect to in-
sponsible for managing power deficits that arise vestment in intermittent energy also increase the
if production does not correspond to the demand. risk of an energy shortage.
(Sweden’s Riksdag (a), 1997)
7FIVE PROPOSALS FOR FUTURE DELIVERY RELIABILITY
1
ENSURE THE • The market should determine when
ENERGY BALANCE new energy sources need to be built.
OVER THE LONG TERM Overhaul the support system to minimise the
The energy balance is not an acute problem impact on the market’s functions. Also, review
today, but the ability to ensure energy delivery the permit processes to ensure they are not
in dry years should remain a priority given the an unnecessarily barrier to the development of
shift that is happening towards a greater share renewable energy.
of intermittent energy in the electricity system.
• Expand international cooperation.
Recommendation: Expand cooperation with neighbouring countries
• Conduct a long-term analysis of the risk to guarantee the power balance.
of an energy deficit in the electricity
system and come up with possible
3
measures to ensure the energy balance. INVEST IN TECHNOLOGY
DEVELOPMENT FOR FLEXIBLE
GRIDS
2
ENSURE THE POWER Local grids are under great strain from urbani-
BALANCE USING MARKET sation and growing cities. Meanwhile it is be-
SOLUTIONS coming increasingly expensive to maintain re-
Market solutions should be used to the great- liability in sparely populated areas. The main
est extent possible. For the efficient use of avail- challenge for the transmission grid is the change
able production resources there should also be in the production mix, and over time it will also
more and deeper cooperation with Sweden’s be affected by changing consumption patterns.
Nordic neighbours and within the EU. The in- In the long-run the grid, production and usage
creased price volatility must be accompanied by of electricity, will be more integrated.
increased ability for customers to react to the Local grids with electricity production that
price signals. New technical solutions exist but will have limited exchange with the rest of the
may need to be developed and standardised. It electricity system, will be developed. There are
is important to be aware that a transition period also trends towards increased regional coopera-
may be needed before the technology is imple- tion over national borders, which is necessary
mented and widely available, i.e. before the de- in order to efficiently manage large amounts of
sired demand flexibility can be achieved. intermittent energy. Grid capacity will some-
times be limited and this should be reflected in
Recommendation: the electricity price.
• Price signals should have a
greater impact in times of deficit. Recommendation:
Design control mechanisms so they can support • The underlying power grids (regional and local
market functions in the long term, including grids) should have an expanded role in order to
pricing of load-balancing power and other manage the power balance locally.
system services. As price elasticity increases This could be done by creating incentives for
in the electricity system through increased cooperation with district heating systems with
consumption flexibility and regulating capacity, available CHP, and through control mechanisms
reliability will improve. that enable the use of consumption flexibility,
stored energy and production plants so that the
grids can be used more efficiently and capacity
deficits can be avoided.
85
• Price signals should have a greater GIVE SVENSKA KRAFTNÄT
impact in times of deficit, including for RESPONSIBILITY FOR
transmission capacity. MONITORING RELIABILITY
In the short term, power tariffs could be IN THE ELECTRICITY SYSTEM
introduced, but in a longer-term perspective, In the synthesis report entitled Five Crossroads
grid charges could also reflect transmission for Sweden (Byman (b), 2016), Electricity Cross-
capacity deficits. roads recommends creating a delivery reliabil-
ity goal and that Svenska kraftnät should be the
• Simplify the permit processes to facilitate agency responsible for ensuring it is reached.
an expansion of necessary transmission Svenska kraftnät is currently responsible for and
capacity at all levels. authorised to secure delivery reliability, but its
role may need to be defined in more detail and
• Pay attention to development trends in society developed to adapt to new circumstances.
and new technical solutions for flexibility
and storage technology that offers new Recommendation:
opportunities. • Give Svenska kraftnät overall responsibility
for monitoring delivery reliability in the
electricity system.
4
CREATE NEW SOLUTIONS Svenska kraftnät should have an expanded
FOR A ROBUST ELECTRICITY mandate to produce overall forecasts regarding
SYSTEM OF THE FUTURE the long-term energy and power balance and
Svenska kraftnät has overall responsibility for to predict the need for system services and
ensuring that the electricity system is reliable transition capacity, including at the regional and
and in balance. Svenska kraftnät has the formal local levels, and to propose necessary measures.
authority to impose requirements, purchase
system services and order the use of available
system-critical resources. The challenge is to
identify the scope and properties of the physical
facilities that may be needed and to determine
who can be responsible for building and operat-
ing them. At the same time it is important to de-
termine the economic consequences and ensure
that costs are shared appropriately.
Recommendation:
• Determine how inertia and other necessary
system services can be put to best use in the
electricity system, and find suitable means of
financing them.
9Goal and purpose
The purpose of this project is to provide a com- but we are also affected by geopolitical decisions
prehensive description of the factors that affect taken on other continents.
reliability in the electricity system, from “grids It is impossible to cover and study every aspect
to system services” and to provide recommenda- within the scope of this project, but we have dis-
tions of how to maintain delivery reliability. cussed and highlighted a series of factors that are
From the customer’s perspective the cause of a relevant to the Swedish electricity system. Our
disruption is not important. From the technical point of departure was the customer’s perspec-
system perspective, disruptions and outages can tive and the discussion is focused on the factors
arise for different reasons and in different parts that should be taken into account when setting a
of the system. The technical, highly complex sys- delivery reliability goal. Managing the transition
tem is controlled by laws and regulations, vari- in the electricity market will require both new
ous types of control mechanisms and to some technical solutions and an overhaul of the regula-
extent by market players. We are also greatly de- tions and the functions of the electricity market.
pendent on the world around us, especially our Our target group is politicians, other energy
neighbouring countries with whom we have a decision-makers and anyone else interested in
physical connection. We are to abide by EU laws this issue.
10The value of delivery reliability
→ An efficient electricity system with is creating many new opportunities, but is also
high reliability is essential for a increasing vulnerability and the risk of disrup-
modern welfare society. tions in the electricity supply.
All infrastructure and social services are de-
It is difficult, if not impossible, to place a finan- pendent on an efficient electricity system includ-
cial value on reliability in the electricity market. ing the pumps and fans in systems for district
It affects the whole of society, in both the short heating, water supply and ventilation in traffic
and long term. Historically an efficient electric- tunnels, in addition to visible electricity use in
ity system has been one of Sweden’s most im- street lighting, rail traffic and the electricity sys-
portant competitive advantages and a significant tem itself. If the electricity supply fails, homes
factor in the country’s industrial development. grow dark and cold and food goes to waste.
A reliable electricity system is vital for all of Even small disruptions can be very costly for
society and is becoming increasingly important heavy process industries if equipment is dam-
in light of the fast development of technology aged and materials destroyed. It is not possible
and the digitalisation that is essentially happen- for heavier electricity-intensive industries to
ing throughout our society. Examples of this have their own power back-up systems due to
are data centres and cloud services, payment their huge power needs. See fact box below.
streams, telecommunication, control systems See also IVA Electricity Crossroad’s report
and processes, the care sector, transport systems F uture Electricity Usage which can be down-
as well as in agriculture and forestry. This trend loaded at www.iva.se/en
EXAMPLES OF DISRUPTIONS IN INDUSTRY
Forest industry
The forest industry has production facilities with continuous processes in operation 24/7. If there were to be a
change in frequency in the grid supplying the energy, the revolutions in all pumps that are not specially adapted
would be altered. Pressure and flow from these pumps would be changed by 5–10 percent. This type of change
in pressure or flow would result in, among other things, water used for cooling and process water exceeding the
limits of what is permitted for the process. If this happens the entire process would be shut down and therefore
also the whole facility. Since the forest industry’s processes are continuous, even a very short disruption would
result in a production stoppage which could last for several days.
Iron and steel industry
One of the most sensitive processes in steel production is the blast furnace for which the blower (a very large
centrifugal fan) is a critical component. The blower drive system is a synchronous motor, the rotational speed
(rpm) of which is dependent on the power grid’s frequency. The rpm in turn determines the volume of air
passing through the fan. If the frequency were to fall below 49 Hz the air flow would go down by 10 percent.
A reduction or interruption in the air flow would disrupt the blast furnace processes. This could at best result
in reduced productivity and in a worst-case scenario, the steel smelting process would come to a stop, the
steel would harden and a restart could take from one day to several weeks. The cost of this type of disruption
could be several hundred million kronor.
Source: Confederation of Swedish EnterpriseWhat does
reliability involve?
→ From the customer’s perspective the cause large share of hydropower where electricity pro-
of a disruption in electricity delivery is duction can vary significantly from year to year
unimportant. depending on precipitation, energy adequacy is
an important issue. In dry years the electricity
→ Reliability is affected by the entire supply needs to include other energy sources
electricity system, i.e. the energy and within the country or imported energy. Histori-
power balance, secure transmission of cally fossil energy has been used as security for
electricity and a stable and high quality dry years in Sweden.
electricity supply.
Power adequacy
From the customer’s perspective delivery relia- In order to maintain a balance in the electricity
bility means having a reliable supply of electric- system, the electricity supply and consumption
ity with sufficiently high quality so that electric must match at every moment. There needs to
powered equipment and systems work satisfac- be adequate power in the system. The supply
torily with minimal unplanned power outages. can come from electricity production at power
From the customer’s perspective the cause of a plants within the country, power imported via
disruption is unimportant. cables from neighbouring countries or from
From the technical system perspective, dis- stored power.
ruptions and outages can arise for different rea- In order to maintain the power balance in the
sons and in different parts of the system. The short term, plants are needed that can follow the
illustration below shows the concept of deliv- variation in demand down to the second or de-
ery reliability based on the duality of adequacy mand must be adapted to the supply. In a longer
and security. Adequacy is the system’s ability perspective investments will be needed to main-
to maintain delivery under normal operating tain the power balance.
conditions within necessary security margins.
Security means the ability to handle deviations Grid adequacy
and disruptions and is affected by how wide the In order for electricity to reach the customers,
security margins are and what consequences are cables and cable networks must have sufficient
acceptable. capacity. Continuous investment is needed so
Reliability assessments must be based on that the grid can be adapted to the changes
analysis of the physical properties and perfor- taking place relating to population growth,
mance of electricity systems, not on in which technical development and the shift to more
way they are managed from an administrative dispersed and intermittent electricity produc-
or market-related perspective. tion. An efficient power grid is essential so that
production resources can be used cost effec-
Energy adequacy tively.
Energy adequacy is about how to make resourc-
es last over longer periods. In systems with a
12Figure 2: Illustration of reliability in the electricity system. The system needs to be both adequate
under normal operating conditions and able to withstand disruptions.
RELIABILITY
ADEQUACY SECURITY
ENERGY POWER GRID GRID BALANCE IT
ADEQUACY ADEQUACY ADEQUACY SECURITY SECURITY SECURITY
Grid security mains in balance throughout. Table 1 (page 26)
Grid security is about the ability to handle dis- shows the different mechanisms used to keep the
ruptions, major storms, lightning, sabotage or electricity system in balance.
failing components. Grid security is reflected in
the number of outages and how long they last, IT Safety
and how fast the problem is remedied. One im- Digitalisation is happening throughout society.
portant factor is the ability to get the grid up and More and more tasks are being automated and
running again after an outage. information is being digitalised. This is creat-
ing opportunities to improve efficiency and
Balance security new business models, which, importantly, is
The electricity system can only be in one of two generating new possibilities for energy systems
states: in balance or in a state of collapse. It is a as well. But it is also increasing vulnerability,
physical impossibility for the electricity system both to unintentional disruptions and conscious
to be out of balance. attacks. An example is Ukraine’s electricity sys-
Balance security is about resilience to events tem, part of which was taken out by a hacker
that disrupt the balance, such as a failure at a attack in December 2015 despite extensive fire
power station that must be disconnected. Since walls and security systems.
the system cannot be allowed to collapse, re- The issue of IT security is comprehensive and
serve power must be engaged. The first reserve complex and could not therefore be covered by
source used is “inertia” followed by automatic this project. However, IVA is starting a new pro-
regulating capacity. Usually hydropower is used ject in 2017 on the topic of digitalisation and
to bring the system up to speed again. This en- security.
tire process takes 20–30 seconds. The system re-
13The Nordic electricity
market model
→ In connection with the Swedish energy grid would be available to all producers and
market reform in 1996, a requirement electricity customers on equal terms. Electric-
for electricity producers to maintain a ity production and trading would take place in
certain level of delivery reliability relating a competitive environment with customers free
to adequate production capacity was to choose their electricity supplier. The inten-
removed. Today there is no defined goal for tion was for the electricity market to be treated
delivery reliability in the electricity system. like all other sectors of industry and regulated
through general industry legislation. The elec-
→ The market sets the price of energy hourly, tricity market reform created a framework
but does not explicitly demand power or whereby companies had quite a lot of freedom.
demand flexibility. Companies were expected to act in a way that
enabled the goal of an efficient electricity supply
→ Variations in solar and wind and in for consumers to be met. It was not considered
electricity consumption happen constantly, necessary regulate what companies could do to
which means that the timeframe of achieve this goal (Hagman & Heden, 2012).
hourly trading is too large for an efficient In connection with deregulation, the percep-
adjustment of the power balance. tion was that the electricity market expansion
was complete and an electricity market model
→ Today’s market model has not yet gone was therefore introduced to set prices efficiently
through a full investment cycle. There in a mature market. This led to an energy-only
is therefore uncertainty about whether market where market players set the price by
it can deliver the necessary investments bidding on the Nord Pool spot market. Nord
to maintain delivery reliability in the Pool Spot now covers the Nordic countries and
electricity system with the transition that the Baltics. Electricity is traded over borders and
is taking place. with countries that share borders with the Nord
Pool area, such as Germany, Poland and Russia.
→ Today’s market model in combination Cable capacity is also nominated for Nord Pool
with the energy certificate system is Spot every day and the flow is determined by
increasing the proportion of intermittent the hourly bids that players place. This results in
energy and forcing out baseload power. energy moving from the low-price to the high-
price areas. If there is capacity left over after
The Swedish electricity market was reformed in day-ahead trading, it is nominated for the intra-
1996. The purpose was to create a framework day market. See the fact box on the next page.
for an electricity market where production Before deregulation there was a system where-
competition and energy trading would result by electricity producers/suppliers undertook to
in improved efficiency and competitiveness for maintain sufficient delivery reliability. In con-
the benefit of Swedish society. One important nection with deregulation this system was re-
cornerstone in the electricity market reform moved and there are no longer any formal re-
was that companies producing and trading in quirements for any organisation to maintain a
electricity were no longer permitted to also be certain level of delivery reliability with respect
involved in electricity transmission. The power to adequate production capacity. There have,
14Electricity trading
Physical electricity trading takes place in three time perspectives as follows:
• Day-ahead trading on Elspot.
• Intraday trading on Elbas.
• Regulating power market, within the operating hour.
Elspot and Elbas are both managed within Nord Pool Spot, while Svenska kraftnät is responsible for the regulating
power market. Electricity trading is done directly through bilateral contracts but often uses the spot market as a
price reference.
Elspot
An exchange where electricity producers and electricity traders or large industries place selling and buying bids for the
upcoming 24-hour period. Trades are in megawatt-hours per hour. Elspot closes 12–36 hours before the delivery hour.
Elbas
Elbas is a physical “adjustment market” for continuous trading with hourly contracts. Trades can be placed up to
one hour before delivery 24 hours a day.
Balancing responsibility
An electricity supplier must deliver as much electricity as its customers consume and a producer must produce
the amount it has nominated. This is called balancing responsibility. Parties with balancing responsibility are
required to have an agreement with Svenska kraftnät. If an imbalance occurs the party responsible must pay
Svenska kraftnät the cost of maintaining the balance. Electricity suppliers and producers thus have financial
responsibility to Svenska kraftnät for any imbalances, but are not physically responsible.
Regulating power market
Svenska kraftnät (the transmission system operator, TSO) has physical responsibility for ensuring that the electricity
system is in balance. The companies with a balancing responsibility place bids for upward or downward adjustment
of electricity production and the TSO makes call-offs as needed. The regulating resources are largely made up of
hydropower. The regulating power market manages the regulating needs down to one or a few minutes. At the
secondary level, other solutions are used to ensure the electricity system is in balance, see fact box 1.
Futures trading
To manage risk and variations in the electricity price there is also the option to trade in financial contracts up to
ten years in the future. This futures trading takes place mainly on the Nasdaq Commodities exchange.
however, always been specific requirements re- Setting the price of
garding the distribution grid. electricity distribution
The current market model has not yet gone In connection with deregulation of the electric-
through a full investment cycle and the discus- ity market it was determined that the power
sion today is largely about whether the market grids should be operated in regulated monopo-
model will be able to handle the challenges faced lies including an obligation to connect all cus-
by the electricity system. The market sets the tomers in the respective grid area. The charges
price of electricity hourly, but does not explicitly customers pay grid operators are under the
call for power or demand flexibility. In a market supervision of the Swedish Energy Markets
with a large share of solar and wind, incentives Inspectorate (Ei). This involves, among other
are needed for power delivery and flexibility in things, Ei setting an upper limit, a “revenue
order to maintain delivery reliability in the elec- cap,” for the combined charges the grid compa-
tricity system. nies may charge their customers. The revenue
15cap is set in advance and for four years at a of the electricity system, the electricity market
time. was supplemented with a capacity reserve for
The revenue cap set by Ei is based on the pro- the coldest hours, in 2003. This involved having
visions in the Electricity Act stating that grid production facilities standing at the ready or big
charges must be reasonable and non-discrimina- electricity consumers being prepared to reduce
tory. Ei also considers the grid company’s costs their electricity use in a strained situation. Sven-
and investment needs. To simulate competition ska kraftnät purchases capacity reserves. Within
Ei has also established an efficiency improve- the Nordic system Fingrid5 purchases capacity
ment requirement and a good delivery reliability reserves in Finland. The resources in the capacity
requirement. (Swedish Energy Markets Inspec- reserves can only be activated in the spot market
torate, (a), 2016) once all commercial bids have been placed and
are not able to provide a balance between supply
Electricity market control mechanisms and demand. The price of the capacity reserve is
Control mechanisms such as the energy certifi- EUR 0.1/MWh above the highest commercial bid.
cate system, taxes and fees also affect the incen- In a longer perspective the question is how the
tive structure in the electricity market. In addi- market, in a situation where there is a larger share
tion to paying the actual cost of electricity, the of intermittent energy, will help bring about in-
end customer also pays an energy tax on elec- vestment in baseload electricity production. The
tricity, an energy certificate fee, a grid transmis- development of new production capacity is driven
sion fee and VAT on the total amount. today almost exclusively by the energy certificate
Through the energy certificate system pro- system and wind power is considered the most
ducers of new renewable electricity3 , such as profitable option. This affects the price on the
bioenergy, wind power and small-scale hydro- spot market since wind power has essentially
power, receive compensation per energy unit no marginal costs. Over time this will lead to a
irrespective of the electricity price in effect. In change in today’s price curve to a situation with
the case of intermittent energy, where the mar- both significantly more high-price hours, but also
ginal costs are very low, there are therefore in- more low-price hours. This analysis is described
centives to continue producing electricity even in the synthesis report Five Crossroads for Swe-
if the price is very low or even negative. You den (Byman (b), 2016). This reduces the profita-
can read more about electricity market control bility of existing plants and it does not encourage
mechanisms in the Electricity Crossroads pro- new investment in new baseload energy produc-
ject report entitled Electricity Market of the tion, which is needed to maintain delivery relia-
F uture (Bondesson & Brännlund, 2016) bility when the wind is not blowing. The number
of high-price hours is considered too small or too
Today’s market model uncertain to be able to be a basis for decisions to
and delivery reliability invest in, for example, a biofuel-fired CHP plant.
According to the current market model, reliabil- Up to now the market has mainly had to man-
ity is determined both in the short and the long age variations in electricity use, but as the pro-
term by market conditions. The idea is for the portion of intermittent energy increases, so too
electricity price on Nord Pool to generate suffi- will the need to be able to handle variations on
cient production per hour of operation and be the the production side. While electricity consump-
basis for investment decisions in existing and new tion follows a relative predictable pattern, wind
facilities to guarantee the electricity supply over power production in particular is more difficult
the longer term. No goal has been set for the level to predict. Power variations could also be larger.
of reliability the market is expected to deliver.4 The need for more flexible electricity consump-
In the medium-long term the market is ex- tion, in addition to a supplementary reserve pow-
pected to handle weather variations, such as er, is increasing. We also need to be able to store
dry/wet years and cold/mild winters. This has larger amounts of surplus electricity. These is-
worked in practice, but to ensure the efficiency sues are explored in more detail in later sections.
16The EU and the Energy Union
→ The EU is promoting a customer- changes taking place to promote more flexibility
centric approach to electricity system in the market and so that necessary investments
development. will be made across national borders. New tech-
nology and new market solutions will enable
→ Since EU nations are becoming customers to be more active in the electricity
increasingly integrated and dependent on market and have more opportunities to impact
each other for electricity transmission, their energy costs.
common solutions are needed to maintain The need for high delivery reliability in the
delivery reliability throughout the system. electricity market is emphasised in the proposal.
A few countries are already dependent on the
→ The EU is taking a cautious approach to transmission capacity in their neighbouring
capacity mechanisms. countries for their electricity supply, and deficit
areas are being linked to surplus areas at the
→ The Swedish power reserves are affected regional level. To increase delivery reliability an
by the proposal on limiting carbon EU-wide adequacy assessment of the electricity
emissions from plants that provide system is proposed, as well as a common meth-
a capacity reserve. odology to determine what measures are need-
ed. Capacity mechanisms are a last resort and
The Nordic electricity system is connected to the should be used with caution. If capacity mecha-
European system and is controlled by EU laws. nisms are deemed necessary in any country or
The EU’s so-called Winter Package was present- region, they should be designed so that they do
ed on 30 November 2016 and contains numer- not prevent the market from working or disrupt
ous proposals for new energy laws focused on the flow of electricity across borders. Capacity
better energy efficiency, renewable energy and mechanisms are not permitted for plants with
reduced climate impact. In the proposals, energy carbon emissions greater than 550 grams of CO2/
customers have a key role in terms of their abil- kWh. Existing plants with emissions greater
ity to compare prices, choose energy supplier than 550 gram CO2 /kWh may participate for a
and produce their own energy. (The European maximum of five years from the effective date
Commission (b), 2016) of the mechanism. (European Commission (b),
The Winter Packet contains 11 legal instru- 2016)
ments, one of which concerns the electricity Most variable electricity production is con-
market. (European Commission (a), 2016) The nected to the distribution grid and not to the
European Commission has determined that the transmission grid. To solve the problem of ca-
electricity market is changing and that the share pacity limitations locally, the EU proposes giving
of variable (intermittent) electricity production regional grids (distribution system operators,
will increase, at the same time as the member DSOs) an increased role in managing flexible re-
nations are becoming increasingly integrated sources. (European Commission (b), 2016)
and interdependent. The market models must Sweden has made good progress in the end-
therefore be developed and adapted in line with customer market and many of the proposals
17have already been implemented. The proposal to of Energy Regulators (ACER) and the European
limit carbon emissions from plants in the capac- Network of Transmission System Operators for
ity mechanism system would impact the Swedish Electricity (ENTSO-E). The purpose is to cre-
power reserve and a few of the older oil-fired ate a binding legal instrument to ensure there
plants from which capacity has been purchased. is adequate and harmonised delivery reliability
(Kellberg, 2016) in Europe. Sweden’s main focus is a regulatory
framework that has been built up over many
Cooperation between system years in the country and within the Nordic part-
operators in the Nordic region nership.
There are efforts under way to increase coop-
eration between the Nordic system operators. Coreso (COordination of
Svenska kraftnät, in cooperation with Statnett Electricity System Operators)
in Norway, Fingrid in Finland and Energinet. Coreso is an example of a regional cooperation
dk in Denmark, has prepared a report on the initiative for system operators in Europe. Its
challenges the Nordic electricity system will face purpose is to ensure delivery reliability in the
beyond 2025 and has determined that collabo- electricity system across the region. Coreso was
ration must be intensified in order to develop formed following the massive power outage in
and implement the necessary solutions. Techni- 2006 which affected 15 million Europeans. The
cal measures in the system, regulatory adjust- event was in part due to poor cooperation be-
ments and research and development are needed tween system operators in Western Europe. The
because new conditions. (Svenska kraftnät (e), initiative has grown since then and now includes
2016) seven system operators from as many countries.
The head office is in Brussels and in addition
Grid codes to its permanent staff, Coreso is also manned
At the European level there is a comprehensive by people from different system operators who
initiative to codify essential delivery and opera- work on a rolling schedule. This maximises
tional reliability-related performance require- efficiency in the process of supporting and de-
ments. This is a joint initiative of the European veloping cooperation between the countries.
Commission, the Agency for the Cooperation (Coresco, 2017)
18How the power balance is
maintained in other markets
→ Reliability is affected by deregulation for the focus on the area of deregulation of the
of electricity markets, integration of electricity market in the 1990s, integration of
previously isolated electricity markets previously relatively isolated national electricity
and strong growth of renewable markets and strong growth of renewable pro-
electricity production. duction.
This has led to a situation where it has be-
→ There is less interest in investing in or come risky for energy companies to invest in
retaining baseload energy sources. This baseload power plants. Uncertainty about pos-
in turn increases the risk of a power sible price ceilings and increasing competition
deficit in the system. from integrated neighbouring markets and
cheap wind power are rendering investment cal-
→ Many countries have produced concrete culations highly uncertain. As a result, many
goals for reliability and are working on existing reserve power plants are being put on
measures to achieve them. All electricity stand-by and no new power plants of a suffi-
markets are unique and have their own cient size are being built. This increases the risk
specific challenges. of insufficient capacity to handle extreme peak
loads in the future.
As part of the project we commissioned an In light of this situation, many countries have
analysis of how delivery reliability, with an em- decided to look for measures they can imple-
phasis on the power balance, is being managed ment to reduce the risks. In many cases this has
in some of the countries and electricity markets already resulted in concrete steps being taken.
around us. The study covers eight countries.
(Badano, 2016) The study uses the term re- The conclusions that can be drawn from the study
source adequacy, meaning the energy system’s can be summarised as follows:
ability to deliver the amount of energy required
by the customers at any given moment. For this • Concrete measures require concrete goals.
to happen, there needs to be both adequate pro- Many countries have therefore started to set
duction capacity and adequate transmission goals for the level of delivery reliability (resource
capacity to transport electricity from power adequacy) they want to achieve.
plants to customers. This report focuses on the
first aspect: adequate production capacity to • The countries moving forward with concrete
meet demand, i.e. the power balance. measures have used the goals they have set to
Delivery reliability in the electricity market determine how to implement the measures.
has gained a lot of attention in recent years in
many countries. The combination of three dif- • Most countries have created concrete numerical
ferent development trends is the main reason targets while a few have just set qualitative goals.
19• Most countries have also produced a framework • There is great interest in demand flexibility.
for continuous evaluation of goals and measures. Flexible electricity consumers are given the
chance to participate in capacity markets or the
• There is great interest in and a need for markets that system operators use to purchase
regional harmonisation of goals and measures services for system security. Demand flexibility
for electricity markets that are connected to is more widespread in markets that have
other electricity markets. This mainly applies to introduced capacity mechanisms.
countries in Europe.
The issues are similar, but studies show that all
• Some countries have decided to invest in so- electricity markets are unique and have their
called capacity markets where capacity owners own specific challenges. The measurements used
are compensated for making capacity available, to set goals for delivery reliability (resource ad-
thereby reducing the risks associated with equacy) in the respective market may seem simi-
investing in baseload energy. lar, but may also have different implications.
We should learn from and allow ourselves to
• A few countries have instead chosen to try to be inspired by other countries, but we also need
reduce investment risk by guaranteeing that they to understand the specific challenges we face in
will not use artificial low price ceilings. determining how to ensure delivery reliability in
Sweden and the Nordic electricity system. It is
• Resource adequacy goals are used regardless also important to understand the challenges in
of whether a capacity market has been or neighbouring countries because electricity mar-
will be introduced, but all countries that have kets will become more and more integrated, and
implemented a capacity mechanism have also dependence between countries will increase.
set resource adequacy goals that are used to
determine how much capacity to purchase.
• In energy-only markets, reserve margin forecasts
are considered to be indicators of when new
capacity will be needed.
20Transition in the Swedish
electricity system
→ The proportion of intermittent energy, European perspective based on model simula-
mainly wind power, is increasing in tions up to 2050. The simulations show that,
the Swedish electricity system, while from a European perspective, it pays to use the
nuclear power plants with substantial comparative benefits of renewable electricity
production capacity are being closed production that exist in Sweden and Norway to
down. This is affecting our ability to achieve the climate goals. (See the diagram in
maintain delivery reliability with the Figure 3 and 4 on the next page.) But there will
regulations in place today. be some consequences for the Swedish electricity
market. In order to be able to produce sufficient
Both current and past governments have pushed energy, a very large amount of installed capacity
for a transition of the electricity system towards is needed, especially in the form of wind pow-
more renewable electricity production. The main er. This could lead to a very volatile electricity
control mechanism has been the energy certifi- market with large fluctuations between surplus
cate system introduced in 2003. Energy certifi- and deficit situations. On a yearly basis, Sweden
cates bring an extra source of revenue for those is still a net exporter of electric energy, but the
investing in renewable electricity production. problem of delivery reliability arises in much
When the system was new, turbines for biofuel- shorter timeframes.
based electricity production were installed, but In order to handle a situation where there is
in recent years the energy certificate system has a large share of intermittent energy, alternative
mainly driven development towards more wind sources are needed through importing reserve
power in Sweden. In 2015 the amount of wind power when the wind is not producing energy,
power and CHP being produced was about the or more flexible consumption and the ability to
same. The trend is similar in our neighbouring store electricity when there is a surplus. This
countries. Denmark and Germany are big wind also requires considerable adjustment of power
power countries but Poland is investing heavily grids in the country.
in wind power as well. The transition to a significantly larger share
The increase in renewable energy production of intermittent energy in the electricity system in
is a positive trend, but a large share of wind combination with the closure of nuclear power
power in combination with the closure of nu- plants will affect the following:
clear power plants is also affecting the ability
to maintain delivery reliability in the electric- • The energy balance; dry years are more
ity system. The Electricity Crossroads synthe- difficult to manage.
sis report (Byman (b), 2016) provides a detailed
analysis of a production system in Sweden with • The power balance; there will be greater
100 percent renewable electricity in a Northern and more rapid volatility.
21Figure 3: Electricity 200
production and electricity SWEDEN Electricity demand
use moving towards a Solar energy
150
100-percent renewable Wind power
electricity system. Source
TWh/year
Biofuel, waste
NEPP/Electricity Crossroads 100 Oil
Synthesis report 2016.
Natural gas
50 Coal
Nuclear power
Hydropower
0
90
95
00
05
10
15
20
25
30
35
40
45
50
19
19
20
20
20
20
20
20
20
20
20
20
20
Figure 4: Installed capacity and 70
power use demand in Sweden SWEDEN
with development towards 60
a 100-percent renewable 50 Power demand
electricity system. Source: NEPP/ Solar energy
Electricity Crossroads Synthesis 40
GW
Wind power
report 2016. 30
Condensing power plant
20 CHP
10 Nuclear power
Hydropower
0
05
10
15
20
25
30
35
40
45
50
20
20
20
20
20
20
20
20
20
20
• Less access to integrated system services, These consequences will not automatically oc-
such as inertia and reactive power. cur; it will depend entirely on which regulations
are put in place. Intermittent energy encompass-
• The power grid; uncertainty about es both solar and wind power, but in the fore-
where and how the flows will change. seeable future, it is wind power that will impact
delivery reliability in Sweden.
• The market conditions; increased In the chapters that follow we discuss these
volatility changes the price curve on the factors and their consequences for delivery reli-
spot market. ability.
22Energy adequacy
→ Sweden today has a satisfactory energy timeframes are too short to motivate investment
balance, but it will deteriorate with the in new electricity production. The greatest chal-
closure of nuclear power plants. lenge is in dry years when the production capac-
ity of hydropower is lower.
→ Ensuring that there is a sustainable Within the next few years four nuclear power
supply of energy throughout the year blocks will be closed and this will have a nega-
could become a problem if we do not pay tive impact on the energy balance. With the clo-
attention to the issue and prepare for it. sure of another block, the energy supply may be-
come a problem. Climate change, whereby there
In Sweden, which has a large amount of hydro is a change in the water inflow distribution over
power, maintaining delivery reliability in elec- the year and therefore also the amount of water
tric energy has historically involved managing that can be stored, could also reduce the delivery
the electricity supply during dry years when capacity of hydropower.
hydropower production is limited. The regu- We do not know when the remaining nuclear
lations applied before the electricity market power plants will be closed or how sustainabil-
reform focused on dry year energy security. ity renewable energy will be from an energy
Norway, which has 100 percent hydropower, perspective. It is therefore important to pay
is heavily dependent on being able to import attention to this issue and not sit back and say
electricity during dry years. This is one of the “energy is not a problem,” because it very well
reasons it is building more connections to the could be.
continent and the UK.
Sweden has a good energy balance and has
been a net exporter over the past few years. Net
exports in 2015 amounted to 23 TWh. Forecasts
show that the energy balance on an annual basis
will be satisfactory in normal years, including
over the long term. The energy balance issue
is, however, not about the average situation for
one year, but about how sustainable the energy
supply is across seasons. The resources used to
maintain the short-term power balance are not
sufficiently sustainable to handle hundreds up to
a couple of thousand hours per year, and these
2324
Power adequacy
→ Today Sweden has a satisfactory power will be uncontrollably variable. Variations in
balance but the margins are small. wind power are also more difficult to predict
than electricity use which normally follows
→ The power balance is under threat today similar patterns.
from the fast expansion of wind power The ability of various power sources to pro-
in Sweden and surrounding countries. duce electricity based on the installed capacity,
Meanwhile, nuclear baseload power is varies. To be able produce the amount of en-
being decommissioned. This increases ergy required in a transition from nuclear power
the need for regulating power and flexible to wind power, the installed capacity needs to
electricity consumption. be increased significantly. This will mean that
sometimes there will be a large production sur-
→ Transmission capacity is not what is plus with very low electricity prices as a result,
limiting the ability to import energy, and sometimes there will be a deficit and the
but whether energy is available in price will increase substantially. The result is in-
neighbouring countries. creased volatility and uncertainty in the market.
The challenge is not the problem of maintain-
An adequate power balance means the ability ing the balance per se; that is a basic law of phys-
of the electricity system to match supply and ics, if the electricity system is not in balance it
demand. If electricity production and electric- will collapse. The challenge is to maintain the
ity consumption are not in balance, a worst balance in such a way that:
case scenario could be the collapse of parts or
all of the system, which could be every costly. • Consumers will not have to be
Svenska kraftnät is responsible for ensuring disconnected unless they choose to be.
that the system is constantly in balance and
may, as an emergency measure, be forced to • Sufficient margins are maintained so that
disconnect customers. Such an unannounced sudden faults will not result in consumers
and involuntary disconnection would infringe having to be disconnected.
on delivery reliability. Svenska kraftnät has up
to now never needed to order the disconnection • The balance is maintained in a manner
of customers. (Svenska kraftnät (c), 2015) that is financially and environmentally
Table 1 provides an overview of different acceptable.
measures to keep the electricity system in bal-
ance. The system cannot be 100-percent reliable. A
Since electricity consumption varies, produc- relevant question is therefore: What level should
tion resources are needed to handle the fluctua- be maintained? In the Nordic system a frequen-
tion. With the expansion of intermittent en- cy variation of 50.0+/-0.1 Hz is permitted. De-
ergy sources like solar and wind, the need for viations beyond these limits must be remedied
regulating capacity in the electricity system is within 15 minutes. If the frequency falls below
increased because some electricity production 48.8 Hz electricity consumers must be discon-
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