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Aalto University
School of Science
Master’s Programme in Engineering Physics

Petteri Heliste

The Role of Electrification in the
Decarbonisation of the Finnish
Energy System

Master’s Thesis
Helsinki, April 26, 2021

Supervisor:        Professor Peter D. Lund
Advisor:           Professor Peter D. Lund

Aalto University
School of Science                                                   ABSTRACT OF
Master’s Programme in Engineering Physics                        MASTER’S THESIS
 Author:             Petteri Heliste
 Title:              The Role of Electrification in the Decarbonisation of the
                     Finnish Energy System
 Date:               April 26, 2021                             Pages: viii + 79
 Major:              Engineering Physics                        Code:     SCI3056
 Supervisor:         Professor Peter D. Lund
 Advisor:            Professor Peter D. Lund
 With the Paris Agreement, virtually every state in the world has agreed to limit
 global warming to well below 2o C and pursue efforts to limit it to 1.5o C above
 pre-industrial levels. However, current pledges are not enough to achieve that
 target and more effort is needed. In all sectors, a major source of climate-
 warming greenhouse gases is energy use.
 Electrification, i.e. the shifting of energy consumption from fuels such as oil
 and gas to electricity, is one potential solution to reducing greenhouse gas
 emissions. New low-emission alternatives such as wind and solar power have
 become competitive in many markets and complement existing low-carbon
 sources of energy such as nuclear and biomass use. Electrification may also
 offer gains in energy efficiency, i.e. reduce the amount of energy needed to
 provide everyday services.
 In this thesis, the role of electrification in the decarbonisation of the Finnish
 energy system was studied using the DEFEND model. The DEFEND model
 is capable of both simulating the Finnish energy system and finding cost- and
 emissions-minimising combinations of electricity and heat generation capac-
 ities for future energy systems. The model was used to study several 2050
 scenarios with different levels of electrification and compare them to the year
 2018.
 The results show that the decarbonisation of the Finnish energy system is pos-
 sible and that electrification will play a role in it. In most scenarios, electricity
 production grew by at least 33% by 2050 compared to 2018. In many scenar-
 ios with limited industrial wood residue availability, electricity was the largest
 source of heat. However, the results also showed that in some cases, further
 electrification is less cost-effective due to a higher demand for flexibility. Fur-
 ther studies might be useful for exploring the limitations of biomass use and
 potential new technologies such as hydrogen.
 Keywords:           energy system modelling, electrification, decarbonisation,
                     renewable energy, nuclear energy, flexibility
 Language:           English

                                         ii

Aalto-yliopisto
Perustieteiden korkeakoulu DIPLOMITYÖN
Teknillisen fysiikan maisteriohjelma TIIVISTELMÄ
Tekijä: Petteri Heliste
Työn nimi: Sähköistymisen rooli Suomen energiajärjestelmän de-
karbonisaatiossa
Päiväys: 26. huhtikuuta 2021 Sivumäärä: viii + 79
Pääaine: Teknillinen fysiikka Koodi: SCI3056
Valvoja: Professori Peter D. Lund
Ohjaaja: Professori Peter D. Lund
Pariisin sopimuksella maailman lähes kaikki maat ovat sitoutuneet rajoitta-
maan maapallon keskilämpötilan nousun selvästi alle kahteen asteeseen ja
tavoittelemaan sen rajoittamista 1.5 asteeseen. Maiden nykyiset sitoumuk-
set eivät kuitenkaan ole riittäviä kummankaan tavoitteen saavuttamiseen, jo-
ten lisätoimia tarvitaan. Yksi merkittävä ilmastoa lämmittävien kasvihuonekaa-
supäästöjen lähde kaikilla sektoreilla on energian käyttö.
Sähköistyminen, eli energian kulutuksen siirtyminen polttoaineista kuten
öljystä ja kaasusta sähköön, on yksi mahdollinen ratkaisu päästövähennyksiin.
Monista uusista matalapäästöisistä teknologioista kuten tuuli- ja aurinkovoi-
masta on tullut kilpailukykyisiä täydentäen olemassaolevia teknologioita kuten
ydinvoimaa ja biomassojen käyttöä. Sähköistyminen voi mahdollisesti myös
johtaa energiatehokkuuden parantumiseen eli vähentää jokapäiväisten palve-
luiden tuottamisen energiantarvetta.
Tässä diplomityössä tutkittiin sähköistymisen roolia siirtymässä lähes nol-
lapäästöiseen energiajärjestelmään DEFEND-mallilla. Se pystyy sekä simu-
loimaan Suomen energiajärjestelmää että löytämään kustannukset ja päästöt
minimoivia tuotantokapasiteettien yhdistelmiä. Tutkimuskohteina oli useita vuo-
den 2050 skenaarioita eri sähköistymisasteilla. Vuoden 2050 skenaarioita ver-
rattiin vuoden 2018 tuloksiin.
Tulokset osoittavat lähes nollapäästöisen energiajärjestelmän olevan mahdol-
linen ja sähköistymisellä olevan roolin sen rakentamisessa. Useimmissa ske-
naariossa sähkön tuotanto kasvoi vähintään 33 % vuoden 2018 tasosta. Mo-
nissa skenaariossa, joissa teollisuuden puujätteiden saatavuus oli rajallista,
sähkö oli suurin lämmön lähde. Kuitenkin tietyissä tapauksissa sähköistyminen
ei ollut kustannustehokasta johtuen muun muassa suuremmasta joustavuuden
tarpeesta. Biomassojen käytön rajoitukset sekä uudet teknologiat kuten vety
voisivat olla mahdollisia seuraavia tutkimuskohteita.
Asiasanat: energiajärjestelmien mallinnus, sähköistyminen,
vähähiilisyys, uusiutuva energia, ydinenergia, jousta-
vuus
Kieli: englanti

iii

Preface

Firstly, I would like to thank Professor Peter Lund for an excellent topic
and for guidance and support throughout the process. I found our con-
versations enlightening and entertaining, whether they were about energy
systems, EU policy or Christmas carols. Furthermore, I gratefully acknowl-
edge the funding received from the Finnish Climate Change Panel.
I am also grateful to the Fusion and Plasma Physics group, especially
Professor Mathias Groth and Dr Juuso Karhunen for many lovely summers
at the Department. I consider my bachelor’s thesis and the subsequent
special assignments some of the best learning experiences at Aalto.
The Guild of Physics and Raati3 also deserve my thanks. For the best
part of my studies, the Guild room was my second home and the Guild my
second family. In addition to all the friendly debates, enlightening discus-
sions and bad jokes I got to enjoy, the Guild also taught me how important
a supporting and welcoming community can be.
For a lovely two-year detour from my studies, I would also like to thank
AYY and SYL, especially the Boards of 2017 and 2018. Those two years
helped me find multiple ways to intertwine my interest in politics with my
background in research, including this thesis.
Finally, my deepest gratitude to my family for your support on this long
journey that started in late 2000. Your encouragement and belief in me
has helped me tremendously, not to speak of your readiness to offer a
helping hand whenever I needed it.

Helsinki, April 26, 2021

Petteri Heliste

                                     iv

Nomenclature

Symbols
CCAPEX       total capital expenses
COPEX        total operating expenses
Cfuel        total fuel costs
Cemissions   total cost of emissions
Cimport      net cost of imports and exports
De           demand for electricity
De           demand for heat
Ef           total amount of primary energy provided by fuel f
EECO2        total CO2 emissions
EE2018       total CO2 emissions in 2018
EFf          CO2 emission factor for fuel f
EFf          CO2 emission factor for fuel f
p            emissions reduction target
Se (t)       supply of electricity
Sh (t)       supply of heat
TSC          total system cost
WC           wind curtailment rate

Acronyms and abbreviations
B2B          biomass-to-biofuel
BAU          business as usual
CAPEX        capital expenses
CHP          combined heat and power
CO2          carbon dioxide
DH           district heating

                           v

DSM       demand-side management
ENTSO-E   European Network of Transmission System Opera-
          tors for Electricity
ETS       Emissions Trading System
EV        electric vehicle
EU        European Union
G2L       gas-to-liquid
GHG       greenhouse gas
GDP       gross domestic product
IEA       International Energy Agency
IPCC      Intergovernmental Panel on Climate Change
IRENA     International Renewable Energy Agency
JRC       Joint Research Centre
LC        low-carbon
LULUCF    land use, land use change and forestry
NDC       Nationally Determined Contribution
NETP      Nordic Energy Technology Perspectives
NPP       nuclear power plant
OECD      Organisation for Economic Co-operation and Devel-
          opment
OPEX      operating expenses
P2X       power to X, where X stands for, e.g., heat (P2H) or
          gas (P2G).
TFC       total final consumption
TPES      total primary energy supply
TYNDP     Ten-Year Network Development Plan
UNFCCC    United Nations Framework Convention on Climate
          Change
V2G       vehicle-to-grid
VRE       variable renewable energy
VTT       VTT Technical Research Centre of Finland Ltd

                        vi

Contents

Nomenclature                                                                                     v

1 Introduction                                                                                   1

2 Background                                                                                      3
  2.1 Climate change mitigation . . . . . . . . . . . . . . .                    .   .   .   .    3
  2.2 Climate policy framework . . . . . . . . . . . . . . .                     .   .   .   .    4
      2.2.1 Global framework . . . . . . . . . . . . . . .                       .   .   .   .    5
      2.2.2 EU energy and climate policies . . . . . . . .                       .   .   .   .    5
      2.2.3 Finnish climate targets and policies . . . . . .                     .   .   .   .    7
  2.3 Finnish energy system . . . . . . . . . . . . . . . . .                    .   .   .   .    8
  2.4 Electrification . . . . . . . . . . . . . . . . . . . . . .                .   .   .   .   12
      2.4.1 Overview of electrification . . . . . . . . . . .                    .   .   .   .   12
      2.4.2 Electrification and decarbonisation . . . . . .                      .   .   .   .   14
      2.4.3 Challenges and possibilities of electrification                      .   .   .   .   16

3 Energy system model                                                                            20
  3.1 Overview of energy system modelling .          .   .   .   .   .   .   .   .   .   .   .   20
  3.2 DEFEND energy system model . . . . .           .   .   .   .   .   .   .   .   .   .   .   22
      3.2.1 DEFEND simulation submodel .             .   .   .   .   .   .   .   .   .   .   .   24
      3.2.2 DEFEND optimisation submodel             .   .   .   .   .   .   .   .   .   .   .   28

4 Input data and scenarios                                                                       31
  4.1 Common input for all scenarios . . . . . . . . . . . . . . . .                             31
  4.2 Consumption scenarios . . . . . . . . . . . . . . . . . . . .                              35
  4.3 Transmission capacity and nuclear power capacity scenarios                                 39
  4.4 Biomass policy scenarios . . . . . . . . . . . . . . . . . . .                             40

5 Results                                                                                        41
  5.1 Year 2018 reference scenario . . . . . . . . . . . . . . . . .                             41

                                      vii

5.2   Year 2050 general scenarios . . . .     .   .   .   .   .   .   .   .   .   .   .   .   .   42
  5.3   Year 2050 electrification scenarios .   .   .   .   .   .   .   .   .   .   .   .   .   .   52
  5.4   Year 2050 hydrogen scenarios . . .      .   .   .   .   .   .   .   .   .   .   .   .   .   60
  5.5   Year 2050 biomass policy scenarios      .   .   .   .   .   .   .   .   .   .   .   .   .   63

6 Discussion                                                                                        66

7 Conclusions                                                                                       69

                                   viii

Chapter 1

Introduction

Climate change is an issue that societies across the world will have to deal
with. With the Paris Agreement, virtually every state in the world agreed
to limit global warming to well below 2o C and pursue efforts to limit it to
1.5o C above pre-industrial levels [1]. Subsequently, governments, indus-
tries, and international organisations have implemented or are planning
to implement measures to either mitigate the effects of human activity to
climate or adapt to the unavoidable changes in our environment.
Lately, many states have submitted their updated official emissions reduc-
tion targets under the agreement, known as Nationally Determined Con-
tributions (NDC), for post-2020 era. Several key players such as the EU,
China, Japan and South Korea, have made promises of reaching climate
neutrality by 2050 (EU, Japan, South Korea) or by 2060 (China). The
Government of Finland has set an even more ambitious target of reaching
climate neutrality by 2035. The Finnish Government is also revising the
Finnish Climate Act to set a new emissions reduction target for 2050. As
things stand, even the updated targets fall short of what is required to limit
global warming to 1.5o C or even 2o C [2].
Decarbonising the energy system is crucial as the sector accounts for a
large majority of global greenhouse gas emissions. Electricity and heat
production, manufacturing and transport are all major sources of emis-
sions, especially in advanced economies such as Finland. Electrification
of these sectors is a potential pathway to decarbonising these sectors.
Many new low-carbon sources of electricity such wind and solar are be-
coming increasingly competitive and will complement existing low-carbon
technologies such as nuclear and hydro power. Electrification might also

                                      1

CHAPTER 1. INTRODUCTION                                                       2

provide efficiency gains in some sectors, reducing overall demand for en-
ergy and thus avoiding the need for increasing energy production.
However, further electrification may also come with new challenges. Many
low-carbon technologies such as wind and solar are often intermittent due
to their dependence on suitable weather conditions. This increases the
demand of flexibility services, many of which are currently provided by fos-
sil fuel-based solutions. Nuclear power capacity, one of the cornerstones
of Finnish electricity production, is expected to reach its peak by 2030
[3]. Forest biomass use is under pressure due to the decreasing size of
Finnish greenhouse gas sinks, a trend the current Government aims to re-
verse. Thus it is evident that every source of energy comes with its own
trade-offs, all of which must be balanced. System-level modelling can help
in finding the optimal role for each technology.
In this thesis, the DEFEND model developed by Pilpola [4], was used to
simulate the Finnish energy system. It is a combined simulation and op-
timisation model, which can be used to reproduce historical data and find
optimal electricity and heat generation capacities for future scenarios. The
model incorporates all sectors of the energy system and a wide variety of
fuels and technologies. It is also capable of modelling electricity and heat
demand on a 1-hour timescale. This allows it to capture the characteristics
of variable renewable energy (VRE) generation.
Using the DEFEND model, several different scenarios with different levels
of electrification are studied. Close attention is paid to if and how electrifi-
cation can help deliver a more cost-effective transition to carbon-neutrality
or even negative emissions. Additionally, the role of nuclear power and
cross-border transmission capacity is also studied. Lastly, the role of hy-
drogen and the effects of potential changes in biomass policy are briefly
explored. Lessons learned from the modelling of the Finnish energy sys-
tem may also be helpful in paving out pathways for the decarbonisation of
the European Union and other societies.
Chapter 2 gives an introduction to global, European and Finnish climate
policies and an overview of the Finnish energy system. Electrification and
its role in decarbonisation is also discussed. In chapter 3, an overview
of energy system modelling is presented and the the DEFEND model is
introduced. Chapter 4, in turn, lays out the different scenarios and other
inputs for the modelling such as the technologies and fuels included. Re-
sults are presented in 5. Their implications and further questions to be
explored are discussed in Chapter 6. Finally, a summary of this thesis is
given in Chapter 7.

Chapter 2

Background

In this chapter, a summary of current efforts to mitigate climate change on
a global, European and Finnish level is given. Additionally, the concept
of electrification and its role in decarbonisation is presented. Lastly, a
number of challenges and possibilities that come with further electrification
are presented.

2.1     Climate change mitigation
Anthropogenic climate change is already taking place. Since pre-industrial
times, global average temperatures have risen by approximately 1.0o C due
to human activites alone [5]. If unmitigated, global warming and the sub-
sequent climate change threatens billions of people across the globe, es-
pecially in the global South. Limiting the temperature rise to 1.5o C or even
to below 2.0o C is vital for avoiding massive damage to ecosystems that
billions of people rely on.
Anthropogenic global warming and its effects on climate, ecosystems and
biodiversity is driven by greenhouse gases, which include a wide variety
of compounds such as carbon dioxide (CO2 ), methane (CH4 ), halogens
and nitrous oxide (N2 O). These gases are produced by a wide range of
human activities such as electricity and heat generation, transport and
agriculture.
These activities are also some of the cornerstones of modern societies.
Further electrification and industrialisation, especially in developing na-
tions, are necessary for improving the material wellbeing of billions. Yet
human-driven climate change is already threatening the livelihoods of many

                                     3

CHAPTER 2. BACKGROUND                                                       4

across the globe. Efforts to decarbonise societies, especially those with
high per capita emissions, have not been enough to halt global warming
and its effects.
In addition to sources of greenhouse gases, sinks are also important.
Many greenhouse gases are absorbed from the atmosphere by natural
processes and thus prevented from contributing to global warming. For ex-
ample, plants absorb CO2 from the atmosphere through photosynthesis,
storing it in the process. Thus forests, peatlands and other ecosystems
serve as important natural mechanisms for controlling global warming and
thus climate change.
Humankind is also discovering other equally pressing challenges such as
biodiversity loss and overconsumption of natural resources [6]. Human
activities directly harm biodiversity and result in a loss of natural capital,
e.g. natural resources like arable land, forest biomass and so on. This also
poses additional challenges to the decarbonisation of energy systems. For
example, the use of biomass, often considered a clean alternative to fos-
sil fuels, may be able to solve one problem, namely emissions. However,
consumption larger than Nature’s capacity to regenerate biomass is un-
sustainable and can also lead to second-order effects such as biodiversity
loss.
A recent UNFCCC report [2] states that current pledges to cut emissions
are not enough. IPCC predicts that if current trends continue, global warm-
ing will likely reach 1.5 o C already between 2030 and 2052 [5]. More action
is needed to limit the rise in temperature.
As modern and developing economies revolve around energy production
and consumption, a transition to low-carbon energy systems is urgently
needed. Yet all solutions come with their own trade-offs and thus capability
to predict developments and model potential pathways to decarbonisation
is vital.

2.2     Climate policy framework
Climate policies are implemented on many levels of government ranging
from intergovernmental organisations to municipalities and cities. Interna-
tional, regional and national decision making are the most relevant areas
in the context of this thesis. However, local policies can also be important,
especially when it comes to large cities and planning decisions.

CHAPTER 2. BACKGROUND                                                       5

2.2.1    Global framework
The Paris Agreement, reached in 2015, is the latest major development
in global climate policy and the first binding multilateral agreement to limit
global warming [1]. It builds on the earlier work under the United Nations
Framework Convention on Climate Change (UNFCCC) and the Kyoto Pro-
tocol, agreed in 1992 and 1997, respectively [7]. The agreement has been
signed by virtually every state including larger the European Union and its
member states, China, Japan and the United States, which rejoined under
the Biden-Harris Administration. Some signatories, however, have not rati-
fied the agreement or have since left it. These include major emitters such
as Iran and Turkey.
The agreement sets a global target for limiting the increase in the global
average temperature to well below 2o C above pre-industrial levels and pur-
suing efforts to limit the temperature increase to 1.5o C above pre-industrial
levels. This target is expected to be reached through major reductions in
greenhouse gas emissions. However, the agreement does not set a global
target for emissions reductions - parties to the agreement are expected to
submit individual Nationally Determined Contributions, i.e. their emission
reduction targets to the UNFCCC every five years.
As an EU member state, Finland coordinates the submission process to-
gether with EU member states. Instruments similar or related to the NDCs
have also been incorporated into EU legislation. For example, the Reg-
ulation (EU) 2018/1999 on the Governance of the Energy Union and Cli-
mate Action requires EU member states to submit National Energy and
Climate Plans to the European Commission, the executive body of the
Union. These plans are used as the basis for the EU’s Nationally Deter-
mined Contributions.
The Paris Agreement does not set a specific pathway for reaching the
targets presented in the Nationally Determined Contributions. Instead,
parties are quite free to implement whatever measures they consider the
most suitable. For EU member states such as Finland, the situation is
more complex, as much of the relevant legislation is decided on the EU
level.

2.2.2    EU energy and climate policies
The major cornerstone of the EU’s energy and climate policy is the EU
Emission Trading System (ETS), a cap-and-trade system intended to set
a price on carbon dioxide emissions. In cap-and-trade systems, the gov-

CHAPTER 2. BACKGROUND                                                       6

ernment or a similar body sets a cap for emissions, for example CO2 , and
subsequently allocates or sells a number of allowances corresponding to
that cap. Polluters, such as power plant operators, must acquire and sur-
render enough allowances to cover their emissions under a certain time
period, for example one year. Those who fail to do so are typically sanc-
tioned.
If the number of allowances is limited enough, the resulting prices should
subsequently incentivise the use of cleaner technologies. Sadly, after the
financial crisis, prices have remained low and the ETS has subsequently
been revised multiple times to put more pressure of GHG-emitting tech-
nologies. Luckily, the ETS has still managed to reduce emissions, justify-
ing its role even if work remains to make it more effective [8].
Many other policies are also set on the EU level. For example, the Renew-
able Energy Directive (RED) set a binding target for the share of renew-
able energy in consumed energy, currently standing at 32 % of by 2030 [9].
The directive also defines which biomasses, for example, are considered
renewable and sustainable. Another key piece of EU legislation is the En-
ergy Efficiency Directive (EED), which sets a target of 32.5 % reduction in
energy use in 2030 compared to projections of expected energy use [10].
Additionally, EU legislation sets a framework for reporting and monitoring
emissions from various sources. In other words, it establishes standards
for which emissions are counted and which are not.
The von der Leyen Commission, as a part of the European Green Deal, is
currently reviewing and revising the EU’s energy and climate policies [11].
EU leaders preliminarily agreed on reaching climate neutrality by 2050
already in late 2019 and work on revising 2030 greenhouse gas reduction
targets is currently underway. In April 2021, the European Commission,
member states and the European Parliament agreed to raise the 2030
target from the current -40 % to at least -55 % reduction in net emissions
by 2030 compared to 1990.
To align EU’s policy instruments with the updated target, the Commission
is also preparing a set of legislative initiatives. The so-called ”Fit for 55”
package, which will contain proposals for revising the ETS, RED and other
key policies. In addition to matching the updated 2030 target, the Com-
mission also intends to support budding technologies such as hydrogen
production with low-carbon or renewable energy sources.
In many cases, EU legislation establishes only a rather loose framework for
the member states to operate in. This gives member states considerable

CHAPTER 2. BACKGROUND                                                      7

freedom and responsibility to choose their own measures. Member states
are also usually able to pursue more ambitious targets than those set at
the EU level.
The role of national policies is especially important in sectors not covered
by the Emissions Trading System. For example, sectors such as transport
are covered by the Effort Sharing Regulation [12]. instead and no EU
level emissions pricing mechanism exist. The Regulation only establishes
a binding national emissions reduction target for each member state and
gives member states the freedom and responsibility to allocate the burden
between covered sectors and to choose the policies needed to reach that
target.

2.2.3    Finnish climate targets and policies
Lately, Finnish governments have indeed taken action on their own. The
2015 Climate Change Act (609/2015) set a long-term emissions reduc-
tion target of at least 80 % by 2050 compared to 1990 [13]. In 2018, the
government led by Prime Minister Juha Sipilä presented a legislative pro-
posal to ban coal-fired energy power and heat generation even though
such activities are covered by the EU ETS. The successive governments
led by Prime Ministers Antti Rinne and Sanna Marin have raised the level
of ambition and pledged that ”Finland is carbon neutral by 2035 and car-
bon negative soon after that.” [14]. Currently, the Government is preparing
key strategies and legislation to incorporate these targets into the existing
legislative framework.
The Paris Agreement strives to achieve a global state where anthropogenic
sources and sinks of greenhouse gas emissions are in balance. This is
one definition for climate-neutrality. According to the VTT’s Low Carbon
Finland 2035 report, carbon-neutrality, too, could be understood in such a
way even if the term seems to imply that only CO2 emissions and sinks
need to be in balance [15]
The pledge to reach climate neutrality by 2035 made by the Rinne and
Marin governments remains somewhat ambiguous. Emissions covered
are not explicitly defined and the target for emissions cuts beyond 2035 is
unclear. However, the work of the previous Sipilä Government might give
insight into how deep cuts to emissions the Marin Government will try to
achieve. As a part of the PITKO research project, the Sipilä Government
requested a greenhouse gas emissions reduction target of 85-90 %. This
has been used a preliminary guideline for modelling, including in the VTT’s

CHAPTER 2. BACKGROUND                                                         8

Low Carbon Finland 2035 report [15].
The Finnish Climate Panel studied potential pathways to climate-neutrality
in its report and found Finland would have to reduce its emissions by ap-
proximately 70 % compared to 1990 and increase the size of its carbon
sinks to around 21 Mt per year. Achieving negative emissions would re-
quire additional cuts to emissions and increases in sinks [15, 16].
To reach its target of climate neutrality by 2035, the Marin Government
has stated it would both ”[accelerate] emissions reduction measures and
[strengthen] carbon sinks” [14]. However, concrete measures needed to
reach the target were mostly left to be decided later on. For example, the
Government is currently preparing its strategy for the decarbonisation of
the transport sector, expected to lead to legislative initiatives.
In this thesis, even more ambitious emissions reduction targets are studied
for multiple reasons. Firstly, if current trends of insufficient climate pledges
continue in the short term, limiting climate change to 1.5o C or even below
will require more drastic cuts to emissions by 2050. Secondly, it is inter-
esting to study if and how the Finnish energy system could accommodate
even more ambitious targets.

2.3     Finnish energy system
To accurately model the Finnish energy system, it is necessary to un-
derstand its basic properties and trends in its development. Finland is
a energy-intensive country. According to World Bank data, the Finnish fi-
nal energy consumption per capita was one of the highest in the world and
the second highest in the EU. Many countries with similar economic output
are much less energy intensive than Finland. Finland has a highly indus-
trialised and open export-oriented economy with robust economic growth.
A cornerstone of its economy is its large manufacturing sector, which fo-
cuses particularly on pulp and paper, metals, engineering, telecommuni-
cations and electronics [17].
Finland’s total primary energy supply has remained rather stable in the last
decade. In 2018, Finland’s TPES was approximately 1380 PJ. The main
sources of energy were wood fuels, oil, nuclear and coal. A more detailed
breakdown of the TPES is shown in Figure 2.1.
Finnish electricity is relatively clean: most of the electricity comes from re-
newable and low-carbon sources such as nuclear, hydro power and wood

CHAPTER 2. BACKGROUND                                                                     9

       1
                      5%                                                   3%
                      2%                                                   7%
     0.9              3%
                      5%
                      4%                                                   15 %
     0.8
                      5%

     0.7              8%
                                                                           23 %
     0.6
                      17 %

     0.5                                                                   4%
                                                                           5%
     0.4                                                                   6%
                      22 %

     0.3
                                                                           25 %
     0.2
                      27 %                                                 0%
     0.1
                                                                           13 %
       0
                                   TPES               Electricity
                  wood                oil       nuclear                      coal
                  natural gas         peat      net imported electricity     hydro
                  wind                others

           2%         29 %        3%         23 %         15 %              27 % 0 %
   TFC

           0    0.1     0.2     0.3     0.4     0.5   0.6     0.7     0.8       0.9   1
                 Coal         Oil products     Natural gas     Biofuels and waste
                 Heat         Electricity      Others

Figure 2.1: Above, the share of different energy sources in Finnish total
primary supply and electricity in 2018. Below, the share of different energy
sources in Finnish total final consumption [18–20].

fuels. Finland is also a net importer of electricity, with 23 % electricity being
imported. Finland has cross-border interconnections with Sweden, Russia

CHAPTER 2. BACKGROUND                                                       10

and Estonia. Finland’s main grid is part of the synchronous inter-Nordic
system, which includes the transmission grids of Sweden, Norway and
eastern Denmark, in addition to Finland. Additionally, the Finnish power
market is a part of the Nord Pool, a power market of 16 European coun-
tries such as the Nordics, Germany and France. At the moment, Finland is
a net importer of electricity. Most of the electricity comes from the Nordic
electricity market, where over half of the electricity is generated with hydro
power [18, 21, 22].
Electricity plays an important role in the Finnish energy system: electricity
and oil account for the largest shares of total final consumption (TFC),
27 % and 29 %, respectively. Additionally, the shares of district heating
(DH) and direct use of bio-fuels are also significant. The full breakdown of
total final consumption is shown in Figure 2.1. In 2017, renewable energy
sources represented 33.4 % of the Finnish TPES, the fifth-highest share
among IEA member countries [17].
Despite its high energy intensity, Finland’s emissions per capita are not as
high as one could expect. Netherlands and Germany rank higher on the
metric in spite of lower energy consumption per capita, as can be seen in
Table 2.1. This is due to several factors such as the relatively abundant
availability of forest biomass. Additionally, wood-based fuels together with
hydro and nuclear power have helped Finland achieve one of the lowest
carbon intensities of electricity in Europe [23].
Table 2.1: Total primary energy supply and greenhouse gas emissions per
capita of selected EU countries in 2018 [24, 25].

         Country       TFC per capita (ktoe/cap)   GHG per capita (t/cap)

         Luxembourg              6.5                       16.5
         Finland                 5.9                        8.4
         Sweden                  5.1                        4.5
         Netherlands             4.2                       10.0
         Germany                 3.8                        9.6
         Poland                  2.5                        8.0
         Italy                   2.5                        6.0

Even though Finland performs well on some metrics like the share of re-
newable energy, its energy consumption and greenhouse gas emissions
per capita remain high. While some of the reasons behind this are beyond
human control such as the cold Northern climate, more effort is needed to
decarbonise the Finnish energy system.

CHAPTER 2. BACKGROUND                                                       11

Additionally, there are several challenges to further decarbonisation. First
of all, relying on biomass can only drive down emissions to a limit as it
is a limited resource. The best consensus estimate [26] for sustainable
global biomass use is approximately 20 GJ per person, whereas in 2018,
the Finnish consumption of biomass was approximately 50 GJ per per-
son. In the scenario where we only consider estimates of Finnish biomass
availability and population in 2050, the limit is around 90 GJ per person
[27].
Additionally, forest biomasses already represent a large part of the Finnish
energy mix. To reach climate neutrality and increasing negative emissions
after that, Finland must increase its carbon sinks, too. This creates pres-
sure to limit biomass use. After all, most of Finnish biomass comes from
forests which are also expected to serve as carbon sinks. As of late, the
size of the Finnish carbon sinks has been declining [16].
Additionally, the combustion of biomass does, in reality, cause greenhouse
gas emissions. In fact it’s emission factor is significantly higher than that
of gas and even larger than that of coal [28]. While it is in many cases
considered more environmentally friendly than fossil alternatives due to
and thus given a preferential treatment in emissions accounting, that might
change in the future. Political decisionmakers are alredy considering lim-
iting biomass use in the future: the Directorate-General for Financial Ser-
vices of the European Commission declared in its draft delegated act on
the taxonomy for sustainable finance that biomass use was to be consid-
ered transitional. This seems to imply that officials see it preferable to
phase out biomass in the future [29].
Combined heat and power (CHP) generation is at the heart of the Finnish
energy system. Cogeneration is very efficient and produces a large share
of both Nordic and Finnish district heating energy. Additionally, they pro-
vide important flexibility services which allow for further integration of VRE
sources [30].
However, the role of CHP may become less prominent. Even though it is
very efficient, its future is threatened by possible low electricity prices. If
prices become too low, CHP plants are expected to be retired and replaced
by heat pumps and heat-only boilers running on various fuels, including
electricity [30]. However, many studies predict that electricity prices will
rise in the future. The IEA and VTT predict that electricity prices will reach
55 e/MWh by 2030 whereas the Finnish government expects prices to rise
to 60 e/MWh [31–33].

CHAPTER 2. BACKGROUND                                                        12

At the same time, modelling of the Nordic energy system and experimen-
tal results from Germany seem to suggest that prices do not necessarily
increase in the future. If the future energy mix has a higher share of elec-
tricity sources with low marginal costs, i.e., nuclear and renewable energy
sources, prices might not rise as high as the previously mentioned sources
suggest [30, 34].
While the decarbonisation of electricity is well underway, industries that are
harder to electrify need more attention and possibly new solutions. These
include industry and road transport. In many cases, electrification and the
replacement of fossil fuels with biomass and, in the long run, synthetic
fuels. On longer timescales, carbon capture technologies may possibly
help reduce emissions from these sectors [15].

2.4     Electrification
2.4.1    Overview of electrification
Understanding electrification is important for studying its role in decarbon-
isation. Electrification can be defined in many ways. A useful simple defi-
nition in the context of this thesis is the replacement of non-electric energy
sources with electricity in final consumption [35]. For example, replac-
ing personal vehicles running on internal combustion engines with electric
ones falls under this definition of electrification. So does replacing oil-fired
boilers with electric heating. The examples above can also be described
as direct electrification.
In indirect electrification, electricity is consumed indirectly in the form of
synthetic fuels or e-fuels, which are produced with electricity [36]. For
example, hydrogen produced through electrolysis from water can be used
as a fuel as such or processed together with captured CO2 into methane
and other gases and fluids. These fuels can then be used to replace fossil
fuels such as oil and natural gas.
At its most simplest, electrification can simply mean access to electricity.
As access to electricity has been widespread in Finland for decades, this
definition is impractical in the Finnish context. It is however much more
important for many developing countries where access to electricity is not
given.
In the past, the share of electricity in final consumption has been growing
steadily. Electricity represented 15 % of global total final consumption in

CHAPTER 2. BACKGROUND                                                       13

2000. By 2018, its share had grown to to 19 %. The growth has been
the strongest in developing economies whereas in advanced economies
the growth has stalled. This development is set to continue with current
policies [37].
However, it is possible that further electrification of certain sectors such
as industry takes place resulting in the share of electricity rising. Addi-
tionally, if certain policies are implemented and the cost of electricity gen-
eration, especially using low-carbon technologies such as wind and solar,
decreases enough, it is possible that the demand for electricity grows even
in developing economies [37].
There is certainly a huge potential for the electrification of final consump-
tion. The IEA estimates that in 2040, 65 % of total final energy consump-
tion could be met with electricity whereas currently electricity accounts
for only 19 % of global TFC. Naturally, the estimate is subject to uncer-
tainties such as the speed at which access to electricity grows and how
quickly new uses for electricity are adopted in, e.g., transport and industry
[37].
However, the IEA’s scenarios do not necessarily lead to full utilisation of
electrification’s potential. Its high electrification scenario ”Future is Elec-
tric” explores a future where specific policies and technology cost reduc-
tions substantially increase the growth of electricity demand compared to
the IEAs other scenarios. In this scenario the share of electricity in total
final consumption is more than 30 % [37].
The study also shows the potential efficiency gains available through elec-
trification. Electricity-powered equipment typically has a higher conversion
efficiency. Hence, if instead of total final consumption we look at useful
energy, i.e., energy that is available to end-users to satisfy their needs, the
share of electricity is significantly higher, almost 48 %. In other words, less
energy in the form of electricity is needed to satisfy the needs of end-users
compared to other fuels [37].
The building and transport sectors have a large potential for electrification.
In the building sector, digitalised homes and rise in electric heating are
some of the key drivers in developed economies. Improved access to
electricity and uptake of appliances, too, are expected to play a role in
developing economies. Changes in the transport sector are largely driven
by widespread adoption of electric vehicles (EV) in road transport. The
IEA predicts that nearly 50 % of total car stock will be electric by 2040,
amounting to 950 million EVs [37].

CHAPTER 2. BACKGROUND                                                         14

However, as other low-carbon alternatives to space heating and road trans-
port exist in addition to electricity, technological and economic uncertainty
can cause especially long-term predictions to vary greatly. For example,
Ruhnau et al. found that electricity could satisfy 40–95 % of space heat
demand and 40–100 % of road transport energy demand in Germany by
2050 [36]. In Finland, the role of electricity is also expected to rise. In
the VTT’s low-carbon scenarios for 2035 and 2050, EVs form a majority of
the personal vehicle fleet and use of electrolyser-produced hydrogen and
hybrid electric furnaces, among other solutions, act as cornerstones of a
low-carbon Finnish industry [15].
While electrification has been identified as an important tool for decarbon-
ising space heating and personal vehicles, some industrial processes and
forms of transport remain hard to electrify. For example, high temperature
heat required by some processes is hard to produce using electric alter-
natives [38]. Similarly, electric propulsion is, at least at the moment, an
unsuitable alternative to combustion-based alternatives in heavy transport
such as heavy-duty vehicles and maritime vessels.

2.4.2    Electrification and decarbonisation
Increased electrification is identified by many as a key part of any path-
way to decarbonisation. The European Commission’s independent Joint
Research Centre (JRC), estimates that the share of electricity will double
from its current 20 % to 40 % by 2050 even in the baseline scenario, i.e.,
if the EU’s current climate and energy targets are not altered. In scenarios
with the most ambitious emissions cuts, the share of electricity in the EU’s
TFC is approximately 50 %. In some scenarios of higher electrification the
emissions remain higher – a reminder that it electrification is not a silver
bullet but that other measures are needed too [39]. Further electrification
is expected to take place in Finland, too. For example, the VTT’s Low Car-
bon Finland predicts that the use of electricity will need to grow in order to
decarbonise the Finnish energy system [15].
Naturally, electrification by itself will not offer a pathway to decarbonisation.
In fact, electrification driven by fossil-based power generation has done the
opposite. It is therefore necessary to replace existing power generation
capacity with renewable and low-carbon alternatives such as wind, solar,
nuclear and hydro power. Biomass, when sustainable, can also play an
important role in driving decarbonisation [26, 40].
Older technologies like hydro and nuclear power have already helped lower

CHAPTER 2. BACKGROUND                                                        15

the carbon intensity in many countries, for example France, Sweden and
Finland. Already in 1990, nuclear and hydro power had radically reduced
the carbon intensity of electricity: it was only 11 g CO2 e/kWh. No other
EU country can match that in 2018, not even Sweden itself. In 2018, Swe-
den had a carbon intensity of 13 g CO2 e/kWh whereas France and Fin-
land had a carbon intensity of 54 and 111 g CO2 e/kWh, respectively. At
the other end of the spectrum were EU member states such as Germany
(406 g CO2 e/kWh), the Netherlands (441 g CO2 e/kWh) and Estonia (900
g CO2 e/kWh) [23].
However, Sweden’s path to decarbonising electricity production is not avail-
able to everyone. The maximum capacity for hydro power is highly de-
pendent on geographical factors. Justifying investments into new nuclear
power is increasingly difficult due to its political unpopularity and increasing
economic competitiveness of renewable energy sources such as wind and
solar power. Similar geographic and political restrictions apply to many
other clean sources of electricity and energy. Thus, national trends are
likely to differ from global predictions.
In Finland, for example, environmental conditions make the use of wind
turbines more attractive than solar PVs. In fact, the construction of new
wind power plants has recently become economically feasible even without
government subsidies such as feed-in tariffs. These renewable and low-
carbon sources of electricity will most likely play a key role in decarbonising
the world’s electricity mixes and thus economies.
However, many renewable energy sources face sustainability issues. For
example, global decarbonisation cannot rely too heavily on biomass, as
there simply is not enough biomass to meet humankind’s needs. The best
consensus estimate for sustainable global biomass potential is approxi-
mately 100–200 EJ in 2050. This translates to an upper limit of 20 GJ
per person per year, where as a pure bioenergy approach would lead to a
biomass demand from around 120 GJ/cap/a to more than 200 GJ/cap/a.
Electrification and synthetic alternative fuels such as hydrogen, however,
can help break this biomass ”bottleneck” [26].
Forests and other sources of biomass are also expected to act as sinks
of greenhouse gas emissions to meet net-zero and negative emissions
targets, in Finland [14] and elsewhere. Thus, the pressure to reduce the
use of many biomasses is increasing.
While electrification via low-emissions technologies is key to successful
decarbonisation, massive energy efficiency gains and behaviour changes

CHAPTER 2. BACKGROUND                                                      16

are also needed. The IEA’s modelling predicts that all three are needed
to reach net zero emissions by 2050. For example, the global energy de-
mand will need to decrease by 17 % from its level in 2019 while supporting
a global economy double its size in 2019. This translates to annual effi-
ciency gains of 1.5–2.5 % in key industries such as cement production and
steelmaking [41].
Low-carbon fuels and new technologies are also needed. Shipping, avia-
tion and certain industrial processes are hard to electrify for several rea-
sons. Additionally, emissions inherent to some industrial processes are
also an issue. For instance, current cement production processes produce
CO2 as a side product. Thus, deployment of carbon capture technologies
is necessary to decarbonise these processes [15, 38, 41].

2.4.3    Challenges and possibilities of electrification
Further electrification will come with new challenges. Understanding these
challenges is key to accurate modelling of future energy systems, which
may encounter limitations not present in current systems.
Decarbonising the electricity mix is crucial for effective decarbonisation via
electrification. While electrification can drive further integration of VRE
[42], the demand for flexibility will grow as VRE sources such as wind and
solar power become a more prominent part of the energy mix. Thus, fur-
ther integration of VRE comes with challenges that need to be solved [43].
An overview of various flexibility scheme types is given in Table 2.2.
On short timescales, the challenges of VRE integration are related to grid
balance: the high variability of VRE production will increase the need for
ancillary services. On longer timescales, VRE integration will increase
the demand for supply and demand-side management (DSM), and energy
storage capacity to ensure that energy demand is fulfilled at all times. In
the future, supply side flexibility services must increasingly be provided
by renewable energy sources themselves as fossil-based alternatives are
phased out [40].
Grid infrastructure is also an important part of the future energy system.
Firstly, as the share of VRE grows, distributing VRE power generation over
a larger area can help reduce volatility, as e.g. wind conditions can vary be-
tween different locations. Interconnections between different areas, espe-
cially within the EU, can therefore prove important for maintaining the bal-
ance of the system [44]. Interconnections can, at least in some cases, also
help decarbonise energy systems. Bergaentzlé et al. found that strength-

CHAPTER 2. BACKGROUND                                                      17

Table 2.2: An overview of different categories of flexibility measures and
examples of technologies and services falling under each category [44].

        Flexibility scheme        Examples

        Ancillary services        power quality and regulation,
                                  power reserves, seasonal shifting
        Supply-side flexibility   power plant response, curtailment,
                                  gas turbines, CHP
        Energy storage            hydro power reservoirs, pumped hydro,
                                  batteries, flywheels
        Grid infrastructure       cross-border interconnections,
                                  micro grids, smart grids
        Demand-side management    load shifting via e.g. electric night
                                  storage heaters
        Advanced methods          P2G, P2H, hydrogen production
                                  via electrolysis

ening interconnections between neighbouring countries could speed up
the decarbonisation of the Danish electricity system compared to focusing
on sector coupling methods [45].
Different forms of energy storage will also play a role in both short-term and
long-term balancing of the system. Several different storage technologies
exist, some of which are more suited for either short-term or long-term
balancing. For example, flywheels typically have high discharge power ca-
pacities but relatively small storage capacities. Some, on the other hand,
are suitable for a wider range of needs but often have other downsides
such as cost [44].
Electrification of some sectors may also provide system-level capacity for
energy storage. For example, vehicle-to-grid (V2G) services, where the
batteries of EVs are charged and discharged to provide additional flexibil-
ity, can serve as an form of energy storage and reduce excess electricity
production [43, 46].
Sector coupling, i.e. the integration of the power sector with, e.g. heating,
cooling, mobility and gas, can also support further electrification and inte-
gration of VRE while also increasing energy efficiency. Smart electricity,
heating and gas grids, coupled with demand-side measures are some of
the key enablers of sector coupling [40, 43].
Power-to-heat (P2H), i.e., the conversion of electricity into heat via heat

CHAPTER 2. BACKGROUND                                                     18

pumps and electric boilers is one prominent method of sector coupling.
Heat generation from electricity can become more prominent as the de-
mand for heat represents a large share of the final energy demand espe-
cially in cold climates such as Finland, both currently and likely in the fu-
ture. Heat is also relatively cheap an easy to store. Finland and many other
European countries also have extensive existing DH networks [47].
Sector coupling in the form of new decarbonised fuels may also become
necessary for complete decarbonisation. As sustainability requirements
may pose challenges to biofuel use and electrification of some end uses
may not be viable, other fuels may be needed for deep enough cuts to
emissions. Electricity, excessive or not, can be used to produce many
of these gases. Hydrogen can be produced via electrolysis from water.
With the Sabatier process, hydrogen can be combined with CO2 , possibly
produced via carbon capture technology, to produce synthetic methane.
These power-to-hydrogen and power-to-gas technologies can produce de-
carbonised alternatives to biofuels and direct use of electricity [44].
Decarbonised and low-carbon hydrogen could also play an important role
in several sectors which are hard to decarbonise via other means such
as electrification. These sectors include transport, chemicals, and iron
and steel. Hydrogen is already used as feedstock in many of these sec-
tors. However, it is currently mostly produced via emissions-producing
steam methane reforming. Decarbonised hydrogen could help replace
fossil-based hydrogen and thus support the decarbonisation of industry
[48].
Energy efficiency is also important. In some cases, avoiding energy use
in the first place may be the wiser solution. In many other cases, providing
the same or similar services using less energy can reduce the pressure to
build up power or heat generation capacity.
In many cases, electrification of some services improves their energy ef-
ficiency at the same time. For example, electric vehicles are much more
efficient than their petrol-fuelled counterparts and thus thus a switch from
fossil fuel-consuming vehicles to EVs will reduce the primary energy de-
mand of the transport sector, ceteris paribus [49]. Similarly, energy effi-
ciency gains in space heating can be achieved with further electrification
via e.g. heat pumps [39]. However, while final consumption might fall, in-
creasing losses due to inefficiency of storage and conversion technologies
such as P2G [15] might mean that in some cases, total primary energy
supply increases.

CHAPTER 2. BACKGROUND                                                   19

Studies have shown that electrification can indeed reduce primary energy
consumption on a system level. Murphy et al. found that electrification
could reduce the primary demand in the United States by approximately
10 % on a system level. The energy savings were mainly driven by avoided
demand for oil in transport caused by electrification of vehicles [42].
Additionally, demand-side management can help in decarbonisation ef-
forts. DSM, for example through load shifting, can help reduce peak de-
mand, much of which is currently satisfied by fossil-fuel based peaking
power plants. Studies suggest that there may be sizable potential for cost-
effective DSM measures. However, their widespread use is hindered by
many factors, such as lack of ITC infrastructure, lack of understanding of
the benefits among key stakeholders such as consumers and limited influ-
ence of price information on consumer behaviour [44].

Chapter 3

Energy system model

In this chapter, an overview of energy system modelling is given. The
model and its two submodels, the simulation and optimisation submodel,
are introduced. Inputs, principles and outputs are discussed from a more
abstract perspective whereas input data used for the modelling and sub-
sequent results are presented in chapters 4 and 5, respectively.

3.1     Overview of energy system modelling
To explore electrification’s potential for cost-efficient decarbonisation, it is
necessary to be able to model future energy systems with different de-
grees of electrification. As energy is a cornerstone of modern economies,
such models are fortunately abundant in number. Driven by climate, en-
ergy security and economic development concerns, they are widely used
to analyse current energy and climate policies and support the formula-
tion of new ones. Some are designed to provide more general information
about the energy system whereas others can, for example, simulate the
effects of a single policy [50].
As energy is a multifaceted research topic, energy system models can be
based on a wide variety of theoretical and analytical methods from sev-
eral disciplines such as engineering, economics, operations research and
management science. Additionally, major changes in the operating envi-
ronment such as the liberalisation of energy markets and the emergence
of climate change as one of the major global issues have lead to incorpo-
ration of new approaches into energy system modelling [51–53].
Models can be categorised in multiple ways. A simple framework offered

                                      20

CHAPTER 3. ENERGY SYSTEM MODEL                                           21

by Nakata is that of top-down and bottom-up models. Top-down models
evaluate energy systems or parts of them based on an economic frame-
work. Typically, they use aggregate economic variables such as the GDP
to model the energy system. The need for data is high but typically not as
high as in bottom-up models but still quite high [51, 54].
Bottom-up models, in turn, include a more engineering-based approach
and consider technological options and project-specific climate policies.
For example, they usually take the capital and operating expenses, conver-
sion efficiencies, fuels used and other properties of different technologies
into account whereas top-down models typically do not [54].
Top-down models tend to use endogenised variables more often, relying
on trends in relationships between aggregated variables such as gross
domestic product (GDP) and total final consumption. However, similar re-
lationships are harder to include in bottom-up models because the disag-
gregated data and variables such as the demand profile of the modelled
system, tend to be exogenous [51, 54].
Bottom-up models can be further divided into simulation and optimisation
models. Naturally, hybrid models combining both approaches do exist.
Simulation approaches typically aim to accurately represent the energy
system and can use rather complex and computationally heavy modelling
to achieve that. Their solutions do not aim to achieve optimality [53]. Sim-
ulation models typically produce forecasts and predictions of future energy
systems [50].
Optimisation models, on the other hand, aim to find an optimal configura-
tion of the energy system. To keep computational requirements manage-
able, the models are typically less complex than simulation models or they
focus on only a certain sector [53]. Optimisation models typically produce
normative scenarios, i.e., instructions how to achieve certain energy and
climate policy objectives.
The increasing prominence of climate change and decarbonisation targets
as drivers for the need for energy system modelling is changing the land-
scape. As things stand, many of the widely used models are unable to
provide holistic solutions for greenhouse gas reduction strategies and thus
support the development of energy policy in line with the Paris Agreement
[53].
Increasing shares of renewable energy and decarbonisation targets also
lead to increasing dominance of optimisation-based bottom-up models.
One reason is the temporally variable nature of many renewable energy

CHAPTER 3. ENERGY SYSTEM MODEL                                           22

sources such as wind and solar, which necessitates more detailed mod-
elling to properly understand the opportunities and limitations of further
integration of renewables into the energy system. For example, wind
production can vary greatly on relatively short timescales of minutes and
hours. Hence, at least part of the model should be able to capture these
effects, i.e. have a time resolution of closer to minutes and hours than
years [40, 53].
Additionally, with an increasing share of renewables in the energy mix, is-
sues related to grid balance become more prominent. Solutions like grid
expansion, energy storage and demand side measures are vital for en-
suring a successful integration of VRE and thus need to be included in
the modelling. Most models do indeed take them into account [40]. Elec-
trification also poses challenges to modelling. Further electrification will
necessarily lead to stronger interdependencies between sectors and thus
single sector models can lead to misconclusions [55].
As Finland has consistently increased the ambitiousness of its climate tar-
gets in the recent years, its energy system has been extensively modelled
to predict its development and to inform policymakers on how to cut emis-
sions [4, 15]. Additionally, modelling has explored more specific questions
relevant for the Finnish energy systems, such as the future of CHP pro-
duction and the limits to VRE integration [30, 56].
For example, the VTT has explored potential pathways to the decarboni-
sation of the Finnish energy system using its VTT-TIMES model which is
based on the TIMES model, a bottom-up optimisation code developed by
the IEA [15]. Others such as Pilpola et al. have instead chosen a more
simulation-focused hybrid model [4].

3.2     DEFEND energy system model
The model used in this thesis is hybrid optimisation and simulation model,
developed by S. Pilpola and implemented in Matlab R . The model uses a
techno-economic approach to model the energy system. In this thesis and
in previous work, it has been used to simulate the Finnish energy system
on a national scale. The model could also be adapted to simulate energy
systems on different scales, for example those of cities [4].
The model consists of a simulation submodel and an optimisation sub-
model. Key characteristics of the energy system, such as capacities and
costs is given as input to the simulation submodel, which then models the

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