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The future of European grid integration

Interview with Bente Hagem, Executive Vice President Statnett SF and Chair of the board ENTSO-E

PA interviewed Bente Hagem, who was recently re-elected as chair of the Board of the European Network of Transmission System Operators (ENTSO-E), about her views on the current situation in Europe, technology and the future of the European grid industry.

The future of European grid integration

Global megatrends such as resource scarcity, climate change, urbanization and digitalization are encouraging considerable investments in renewable energy. Smart grids, energy storage and decentralized solutions are changing the conventional mechanisms of supply and demand making the customer both supplier and consumer.

In a market perspective, European energy supply have gone through a massive integration in the last years. The European commission launched their Energy Union Project to coordinate the transformation of European energy supply, as one of their top 10 priorities. At the same time, 2016 has been a year of turbulence and resistance to super national institutions, ending with Theresa May indicating that UK are going in the direction of a hard exit.

PA In terms of megatrends, the European TSO’s are faced with a magnitude of challenges. Big data, Renewables, storage and decentralised energy production – With the current development, should we continue investing in grid integration?

Bente In order to facilitate change and the megatrends, there is a need for a functional power market. We have to make sure that the market models are functioning and able to adapt to new conditions. If the prices are in place, the industry actors will adapt. Micro areas might help each other and disconnect from the grid, and batteries might be pooled together and deliver power to the grid – and this is good development. We just have to make sure that actors get the correct price when connecting to the grid – this is enabled trough interconnection.

In the future, the production will be decentralized and houses will be smarter and participate in the market through an aggregator or supplier that does it free of charge, but we still need the flexibility and back up.

We have not solved the flexibility needed to complement solar- and wind power. With increased renewable capacity in the energy mix, you need the flexibility from the grid. When there is no wind, sun or rain, you need to have the flexibility to switch on and off. The price signal must travel all the way to the end consumer, who delivers to the market system – This is why we need a stronger grid.

PA Stronger grid, where are we today – and what is coming next?

Bente The latest round of EU energy market legislation, the Third Energy Package, have eight network quotes. Three of the quotes are market related. We are progressing towards a common spot market with a common IT-platform. Today 85% of Europe are in a daily auction on spot. The prices are announced at 1 pm every day and are identical across entso-e, from Gibraltar to North Cape, if no bottlenecks occur. The code describes the difference between explicit and implicit auction. The spot auction is an implicit auction that includes bottlenecks between borders and have an auction in each bidding area. Unlike the previous explicit auction where you bid at 1pm and buy at 12pm, both supply and demand are released at the same time and you do not end up with capacity in the wrong direction. The algorithm includes constraints in each area and calculates the correct price. This is called flow based marked coupling, which gives more exact prices and better utilization of the grid. This common market results in €4-5bn in welfare gain yearly – the winner is society with lower electricity prices and a larger market for efficient producers.

"We have to make sure that the market models are functioning and able to adapt to new conditions. If the prices are in place, the industry actors will adapt."

PA You talk about the efficient market, but will it also enable the Paris treaty?

Bente We got more than we asked for in the European commission’s newly released vision for achieving a clean energy transition, referred to as the “Winter Package”. The split between DSO and TSO, end user, supplier, aggregator – all of this are being treated. A neutral part like Entso-e have to handle data in Elhub. We are organizing for the future and are setting high-level principles that each country have to internalize. The Entso-e member TSO’s are the infrastructure of an energy efficient Europe and supports the goals of the Paris treaty.

PA 2016 has been a year of turbulence, ending with Theresa May indicating that UK are going in the direction of a hard exit. Which implications does the turbulence in the markets give for Ensto-e?

Bente We have an agreement on guidelines for action with National Grid, but it creates uncertainty if UK are not a part of the internal market. We have agreements for how things should be handled, but BREXIT creates an uncertainty that we are following closely. Cables between countries operate in an open infrastructure and cannot be shut down. We have agreements between TSOs on each side of the cables and insurance in the common European legislation. Changes in the regulation creates uncertainty that we are following closely.

EU is still clear in their view on restructuring of energy markets and the progress for the renewable society. EU is loyal to the Paris Agreement by establishing the Energy Union project, which are focusing on the trilemma between climate issues, security of supply and cost competitiveness.

EU is a stabilizing factor in this work. It is important for investments decisions for both grid and power producers when a total of €150bn are to be invested.

PA So is Brexit and other nationalistic agendas a threat for European grid integration?

Bente Not everyone are strong believers in the new market. France does not want dynamic pricing and have included this in their legislation. However, the main problem lies in Germany. The Nordics are stopped at the German border, unable to transport electricity further south in Europe. The market can deliver spot prices, but the German grid does not have the capacity to transport electricity from North to South. Germany operates with one common price of energy that are higher than the prices from the Nordics, but still have too much supply due to high production from renewables in Northern Germany. Even after spot price is decided, they rather agree on re-dispatch due to high capacity from wind power. Germany has policies and industry in the south that are reluctant to higher prices. Expansion of the grid was supposed to solve the problem, but they have not approved building. Its like a wall in Germany that are dividing Europe.

Lately we have seen that the wholesale pricing is high while the end price is negotiated in advance. In the Nordic, Nordpool spot market accounts for approximately 90% compared to 30% traded in the spot market in Germany. The European power market is the largest multinational market in the world. A lot of our problems will be solved If we can solve the bidding-zone issues at the continent. Germany are in the middle of Europe and says no. Nationalistic agendas are holding us back, but we are moving in the right direction.

PA So if Germany says no, and battery technology is getting more competitive, can the Nordics become successful with the “Green Battery Strategy” and export its surplus?

Bente We have tripled the exchange capacity with newly announced Hansa Power Bridge, which are facilitating Norway’s battery capacity in many ways. We are expecting flat prices with low volatility. We have too much power today. Volatility will increase with reduction in coal power, increase in renewables and use of capacity market when needed. The prices are approaching zero and could even be negative. We believe that the Nordics can provide the exchange capacity. We have made good preparations for the green battery with the current cables, and have to get experience both on the market and operation side. Most people agree with former Minister of Petroleum and Energy, Tord Lien, when he says that we do not need more green certificates.

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