Norway as a provider of flexibility

nor agy as provider of flexibilitgy

Tuning in with a new paradigm

The transition towards a sustainable energy system will obviously not be completed overnight. There will be a transitory phase in which more traditional ways of producing energy will coexist along new, more sustainable methods. This implies the need for a form of ‘flexibility management’ since renewable energy is dependent on natural (and thus fluctuating) resources and the fossil-fuel based production methods will be gradually replaced, while societies need a reliable energy supply.

Over the next 30 years the European energy system will need more flexibility. This is mainly caused by the introduction of increasing amounts of intermittent renewable power generation capacity in wind and solar PV plants, leading to new requirements for capacity markets and reserve markets. Weather conditions like low or high wind generation with duration from a few days to a few weeks also creates the need for energy storage and flexibility. This need for flexibility arises on different time horizons and in different ways. First you have the opportunity to do energy exchange between markets as a consequence of price differences, for example short term energy exchange between spot markets and between balancing markets in different countries. Then you have the possibility to change the energy exchange profile between Norway and the rest of Europe depending on the season.

In addition come possibilities to develop flexibility services, for example by participating in markets for capacities or effect and for system services. In all these cases the flexibility and storage possibilities linked to the gas pipeline system and hydro reservoirs of Norway will be attractive solutions in terms of capacity and cost. This can generate a potentially high income for Norway. The flexibility of hydropower is well known, but the potential to provide the same kind of services in the natural gas systems (fields, storages and pipelines) is potentially equally high but more unexplored. Norwegian hydro power reservoirs and Pumped Storage Hydropower (PSH) can provide flexibility based on storage over the relevant time horizons. It will be necessary to build new PSH or to increase capacity in existing plants to provide the flexibility needed to handle weeks of low wind, but there is no need to build new reservoirs in order to offer this flexibility.

Natural gas also can be used for balancing the varying production from intermittent renewable energy sources. The natural gas value chain may offer flexibility from several sources, such as: flexible production fields with large reservoirs, conventional storages (for example abandoned reservoirs, aquifiers and salt caverns), LNGstorages and utilisation of the inventory in gas pipelines. Such sources may offer valuable flexibility.

Norway should take an active stance in identifying viable pathways for further development in Europe. In our opinion an increased focus on providing flexibility services and energy exchange from the Norwegian export system will be a way of securing hydropower and natural gas an important role in the European energy system. We recommend starting exploring business models for such flexibility services.

If Norway wants to take a role as a provider of flexibility, investments in HVDC cables to Europe are needed. The capacity needed is highly dependent on EU policy,

market access and the planned use of the cables for exchange and services. The main risk comes from political uncertainty regarding climate policy and the instruments used to create an environmentally friendly energy system. Capacity and effect markets will be established and it is of high importance to prevent that poor design makes them a barrier to the progress of cross-border market integration and competition. This is a major governance challenge that must be addressed actively by Norwegian stakeholders concerned with the provision of flexible energy services to Europe.

It is doubtful if investments in cables of the size needed to handle the future demand for flexibility will happen on the Norwegian side under today’s policy uncertainty. We recommend to enter into EU-wide or bilateral agreements that reduce this risk by addressing the division of costs, revenues and risk between the participants in the relevant value-chains and between the relevant countries.

The Norwegian natural gas pipelines are highly utilised and will be so the coming decade, providing a cost efficient energy supply network to Europe. Utilisation of the storage capacity in the pipelines may offer additional value in the future, provided a market for such services is developed. We recommend that the tradeoffs between increased costs and the potential value provided by these by such storage services is further investigated, and that relevant business models should be explored.