How can the electricity market create the right conditions for substantially increased electricity production?
Sweden needs to increase its electricity production by the equivalent of about 300,000 electrically heated houses. Each year. An increase that is guaranteed to rattle electricity market producers and consumers alike.
– “Permit processes, market models and price areas may all need to be overhauled to create the right conditions for this increase,” says Jan Djurström, Unit Manager Electrical Power Systems at RISE.
Between six and eight terawatt hours, the equivalent of about 300,000 electrically heated houses – this is how much Swedish electricity production needs to increase each year for the next 30 years.
– “This is mainly due to industrial electrification, because to achieve our climate goals we need to replace the fossil fuels currently used by the process industry, which will take huge amounts of electricity,” Jan Djurström explains. Examples include fossil-free steel production in the north and new factories to produce battery cells around the country.
Consumption and production out of balance
As long as this increase in demand is balanced by increased production, it will not cause any major problems in the electricity market.
– “However, the challenge is that it takes a long time to build up production. Consumption has essentially remained the same for 30 years but is now increasing rapidly, which begs the question as to how investments in new production are to keep up with this increasing demand.”
One problem is price. A great deal of electricity is produced in northern Sweden, but demand there is currently relatively low. Bottlenecks in deliveries to southern Sweden mean that electricity prices in the north are too low to create good investment opportunities.
– “Parallel to this, we know that we’re facing an energy transition, not least in northern Sweden, so the question is when will investors dare to start expanding electricity production.”
Consumption has essentially remained the same for 30 years but is now increasing rapidly
Purchase agreements and risk management key
In southern Sweden, electricity prices are already interesting to investors, but permit processes and legal appeals are major obstacles. What, then, will it take to get energy market stakeholders to contribute to the energy transition in good time?
– “It’s a complicated issue with many facets. However, power purchase agreements, which are long-term power production agreements between a specific producer and a specific consumer, may become more common, for example.”
Another aspect that Jan Djurström raises is the need for electricity market stakeholders – consumers and producers – to reconsider their risk management.
– “An energy transition involves, for instance, financial risks, for buyers and sellers alike, and so it’s important to reconsider your risk exposure to prepare for different scenarios.”
Regulations need reviewing
In addition, the regulatory aspects also need to be reviewed, such as the regulations governing the expansion of the power grid.
– “The power grid owners haven’t been allowed to build grids on a speculative basis before. The reason for this is to prevent them from using their monopoly to over-invest, but it also means that they’re essentially prevented from being proactive. Until now, it’s been quite okay for increased grid capacity to take ten years to get in place, but this won’t be the case moving forwards.”
Support from RISE
In other words, regardless of role in the electricity market, there are many things to consider, and this is not always easy. This is why RISE offers a range of services for both private and public stakeholders.
– “We can help customers with, for example, forecasts regarding how the energy transition and the energy market will develop, risk assessments and analyses of how regulations and provisions may need to be amended to support the energy transition.”