Norway’s net generation surplus will decline towards 2030, and increase thereafter
The energy balance expresses the degree to which domestic power generation covers demand in years with normal precipitation, wind, and temperatures. An energy surplus is exported or saved, while a deficit is covered by savings, imports or demand response. Norway’s energy supply is worse in cold, dry years, when demand is high and generation low. Generation from wind is also typically lower in dry years.
Norway’s energy balance is expected to weaken over the remainder of the decade, with Norway potentially becoming a net importer of power in normal years. This change implies that there will be more years in which there is a larger and longer-lasting need to import power during the winter and spring.
If 2030 were to be as cold and dry as we experienced in 2010, Norway would need an additional 35 TWh to cover total annual demand. This shortfall could be covered through increases in hydropower generation linked to reservoirs capable of storing water from wet to dry years, as well as through imports. In any case, Norway would likely be reliant on substantial imports from its neighbours during the winter and developments in neighbouring markets would therefore affect Norwegian energy security to a greater extent than currently.
Alternatively, Norway will have to improve the domestic availability of power.
New power generation and more efficient energy consumption would help, as would more flexibility in industrial heating processes achieved by fuel switching in years with scarce power and high power prices.
The coming decade may well prove to be challenging because the lead times for investments in new large-scale power generation are relatively long. However, the large potential for offshore wind development after 2030 implies that we can expect a strengthening of Norway’s energy balance in the longer term.
Norway faces a lack of peak load capacity that cannot be resolved without imports or flexible demand
Periods of limited excess capacity in Norway coincide with peak demand from households and commercial buildings, with morning (7–11) and afternoon (17–19) peaks occurring on the coldest winter (week) days. Industry consumption is relatively flat year-round.
A tighter energy balance due to a strong growth in industrial electricity demand shifts the demand curve upwards and contributes to more frequent periods with a limited capacity margin. This increases the risk of insufficient peak load capacity in the event of a generation or network outage. In order to secure sufficient capacity when the wind is not blowing and Norway does not have access to imports, a further 1,000–5,000 MW of dispatchable generation or curtailable load would be needed in 2030.
The energy and capacity balance are closely related and a stronger energy balance would likely also reduce the risk of capacity shortages.
Electric boilers in industry that can switch to alternative energy sources during periods of scarcity (and high prices) would help secure sufficient capacity, particularly as a significant share of expected industrial electrification is connected to heating processes. Thermal storage can also facilitate the shifting of electric heating demand from peak hours.
More flexibility will be needed in Statnett’s balancing markets and Statnett is aware of its responsibilities
The need for balancing resources (and resources supporting other aspects of power system management) is also set to increase, for several reasons.
Firstly, the size of the largest single unit connected to the system has increased (currently the 1400 MW NorLink interconnector to Germany) and Statnett must have resources available to handle a sudden outage on this interconnector. The size of the largest unit is likely to increase again when offshore wind parks come online after 2030.
Secondly, system operation becomes less predictable as more intermittent generation and interconnector capacity is added. Generation and grid flows will change more often and more rapidly. A large share of available system flexibility will likely be used to manage these fluctuations, leaving less flexibility available to cover faults.
In addition, less predictable flows and more bottlenecks within the system imply the need to distribute sources of flexibility throughout Norway in order to ensure that these sources are accessible when and where the need arises.
Additional volumes and sources of frequency regulation will be needed in future.
Hydropower—which has traditionally been used in this role—is unable to provide some of the new services being introduced, frequency balancing is needed in areas that do not have dispatchable hydropower and the value of hydropower’s alternative uses, notably in balancing power between different price periods, is growing. Statnett has drawn up action plans aimed at ensuring that more flexibility is offered into its ancillary services markets.
Markets play an important role in helping to balance the power system
Effective market prices are needed to coordinate the efficient use of all types of capacity and flexibility.
- Market prices support energy balancing across areas and for the system as a whole. They determine imports and stimulate demand response in dry and cold years.
- Market prices provide valuable signals about the profitability of and the most appropriate locations for new generation and consumption, although investments are also strongly affected by the political context and by policy targets.
- Market prices that vary from hour to hour and that are fed through to consumers help to signal capacity scarcity and incentivise flexibility. Together with marked-based procurement of system services, price variations increase the attractiveness of investments in flexibility.
If sufficient flexibility is not available in the system, however, markets alone cannot balance the system. Markets works best when conditions are stable over time and market risks are manageable.
Rapid changes and greater uncertainty may justify stronger measures to secure flexibility and balance the system
In light of the extensive and rapid transformation of the energy system taking place both in Norway and neighbouring countries, and not least because of the uncertainty this creates, there may be grounds for introducing new instruments to help meet the system’s energy, capacity and balancing needs.
In the short term, solar cells, energy efficiency improvements and small-scale power generation are the main options available to strengthen the energy balance in normal years. In these areas, it is important that barriers are removed and the policy framework strengthened. To enable the rapid and efficient development of offshore wind power, the investment framework needs to be clarified, including the arrangements on area allocation, market organisation, network conditions and financial support. More streamlined licensing processes can increase investment and strengthen the energy balance, but the scope to accelerate large-scale project development has its limits.
The biggest concern related to the energy balance is how cold, dry and windless years can be managed. Security of supply in such years can be strengthened using measures that ensure that water is retained in reservoirs earlier, by making better use of the water available or by investing in reserve generation capacity.
Norway’s energy balance could also be strengthened by increasing both transmission capacity between price areas and consumption flexibility. Turn-down contracts, in which large industrial users are paid to reduce demand in times of energy scarcity, and conditional connection could be used more widely. Requirements could be introduced for large consumers to have access to alternative heating sources, or for new industry to accept curtailable network connections. Support or turn-down mechanisms could also be implemented.
Increased within-day price variation and the capacity charge element of grid tariffs can incentivise load reduction during peak hours and thereby help ensure capacity adequacy. In addition, regulatory requirements, support schemes and capacity markets could all potentially be used to increase the availability of flexible capacity.
Balancing the system will require additional sources of flexibility in the future. It is therefore important that resources are allocated to the development of the supply side and market solutions, and to R&D on demand flexibility, aggregated flexibility and coordination across grid levels. It is also important to develop solutions that allow sources of flexibility to be used to meet a variety of system needs, so that it becomes more attractive to offer flexibility.
The report was prepared for the Norwegian Ministry of Oil and Energy in collaboration with Multiconsult.