Example – geographical market for electricity
Generic product activity or name
Context and background
Electricity is a strategic product: This means that changes in capacity are often subject to political decisions on a national level, influenced by national plans and regulations. For this reason, electricity markets are normally regarded as national markets based on the national electricity production plus a limited import. Countries have national energy plans and regulations, which justifies this delimitation. For very large countries or countries with natural physical boundaries, several separate sub-national grids may be identified.
Presentation of example
Norway is one of the most often quoted examples of a national grid with a very large difference between the mainly hydro-power based average supply and the long-term marginal supply (the provider of increased capacity) in the form of imported electricity from coal-fired power plants.
Norway has hydro-power capacity that covers 95-99% of the demand. Construction of gas fired capacity is limited by a (politically enforced) obligation to use Carbon Capture and Storage (CCS) technology in all new plants. The 1991 Energy Act provides the legal base for Norway’s electricity sector regulating the construction and operation of electrical installations, district heating systems, electricity trading, electricity supply quality, energy planning and contingency planning for power supplies. The Norwegian Water Resources and Energy Directorate (NVE) is the national regulatory authority for the electricity market.
A relatively easy way to improve security of electricity supply, given Norway’s gas production, would be to add gas-fired capacity to the generating fleet. However, the fact that no new gas-fired plant can be built without CCS effectively rules out the gas option until CCS becomes more competitive. As stated in the country review on Norway: “In times of low hydropower availability in the Nordic market area, power is often imported from the region’s coal‐fired plants to meet demand in Norway. As a result, more CO2 is emitted than would be necessary. The regulation also limits the use of natural gas as backup for wind power” (IEA, 2011, p. 8). As a result, more CO2 is emitted to the atmosphere than would be necessary. The regulation also limits the use of gas as backup for wind power.
Information sources used
The International Energy Agency (IEA) report is based on reviews where review team met with government officials, energy suppliers, interest groups and various other organisations. Reports are drafted on the basis of these meetings as well as the government response to the IEA energy policy questionnaire and other information.
IEA (2011) Energy policies of IEA countries. Country Reviews – Norway 2011. http://www.iea.org/publications/freepublications/publication/Norway2011_web.pdf
Author of this example
How to reference this
Weidema B P (2017), Example – geographical market for electricity. Version: 2017-05-22 www.consequential-lca.org