Five Crossroads for Sweden Synthesis Report

Five Crossroads for Sweden Synthesis report

IVA Electricity Crossroads project THE ROYAL SWEDISH ACADEMY OF ENGINEERING SCIENCES (IVA) is an independent academy whose mission is to promote the engineering and economic sciences and the advancement of business and industry. In cooperation with the business community and academia, IVA initiates and proposes measures to improve Sweden’s industrial expertise and competitiveness. For more information about IVA and the Academy’s projects, see the website www.iva.se.

Published by: The Royal Swedish Academy of Engineering Sciences (IVA), 2016 Box 5073, SE-102 42 Stockholm, Sweden Tel. +46 (0)8 791 29 00

IVA REPORTS: IVA publishes various types of reports within the framework of its activities. All reports are fact-checked by experts and then approved for publication by IVA’s President.

PROJECT REPORTS (IVA-M): A project report summarises a significant portion of a project. A project report can be a report generated during the course of a project or a final report produced at the end. A final report can be based on several project reports. Project reports contain fact-based analysis, observations and a discussion of consequences. Final reports contain clear conclusions and prioritised policy recommendations. Project reports are often the result of the work of a work group and contain limited conclusions and policy recommendations. The project Steering Committee approves all project reports for publication and they are fact-checked by IVA to guarantee their factual accu- racy and quality.

IVA-M 472 ISSN: 1102-8254 ISBN: 978-91-7082-931-4

Author: Karin Byman, IVA Project Manager: Jan Nordling, IVA Editor: Camilla Koebe, IVA Layout: Anna Lindberg & Pelle Isaksson, IVA

This report is available to download as a pdf file at IVA’s website www.iva.se Foreword

IVA’s Electricity Crossroads project has been in progress since 2014 and will end in 2016. The project has performed analysis to explore what the Nordic electricity system will look like in the period 2030 to 2050, with a focus on Sweden, to show the consequences of different paths in energy policy from the four perspectives: Ecological Sustainablity, Competitiveness, Investment Climate, Secure Supply. The vision is a sustainable electricity system that will provide a secure supply of energy at a competitive cost.

Over the course of the project, several changes have taken place in the electricity market. Vattenfall and E.ON have, for example, decided to close four nuclear reactors – two in Ringhals and two in Oskarshamn. They have also announced that the six remaining reactors may be closed by 2020 due to poor profitability. Together the reactors account for around 40 percent of Swedish electricity production.

Not long after the start of the project the Government appointed an Energy Commission. Electricity Crossroads has had a close dialogue with the politicians involved in the Energy Commission throughout the course of the project and has provided project results and conclusions on a regular basis to the Energy Commission’s administrative office as well as to members of the Commission.

The project work has been carried out by a Steering Committee and five work groups the members of which have examined the electricity market from various perspectives. The groups are:

• The Electricity Usage work group • The Electricity Production work group • The Transmission and Distribution work group • The Climate and Environment work group • The Public Finances and Electricity Market work group • The Steering Committee for the project as a whole and responsible for this synthesis report.

The work groups have each prepared a project report within their respective areas providing in-depth analysis and summarising the most important observations made. A number of special studies were also conducted. The project reports and special studies are listed in Appendix 2. To supplement the above, a separate analysis was conducted by the NEPP (North European Power Perspectives) network of researchers, aided by various model simulations of the electricity market.

The synthesis report is based on the project reports, but also contains separate information and analysis as well as conclusions and recommendations. The Electricity Crossroads Steering Committee is responsible for these. All members of the Steering Committee stand behind the conclusions and recommendations as a whole but not necessarily each individual statement.

Steering Committee Bo Normark, IVA Div. II (Chairman) Peter Nygårds, IVA Div. III (Vice Chairman) Lina Bertling Tjernberg, Royal Institute of Technology (KTH) Magnus Breidne, Royal Swedish Academy of Engineering Sciences (IVA) Runar Brännlund, Umeå University, IVA Div. IX Mikael Dahlgren, ABB Anders Ferbe, IF Metall Håkan Feuk, E.ON Mats Gustavsson, Boliden Kjell Jansson, Swedenergy Johan Kuylenstierna, SEI Ulf Moberg, Svenska kraftnät (SVK) Birgitta Resvik, Fortum, IVA Div. II Andreas Regnell, Vattenfall Gunilla Saltin, Södra Maria Sandqvist, Teknikföretagen Maria Sunér Fleming, Confederation of Swedish Enterprise Ulf Troedsson, Siemens

Adjunct members of the Steering Committee Pernilla Winnhed, Swedenergy Alf Larsen, E.ON Ellika Olsson Aas, IF Metall

Project administration Jan Nordling, IVA (Project Director) Karin Byman, IVA (Project Manager) Camilla Koebe, IVA (VP Business and Communications) Caroline Linden, IVA (Project Coordinator)

The project’s implementation method is described in Appendix 1. Contents

Introduction...... 7

Electricity Crossroads – project conclusions...... 9 Ecological sustainability...... 10 Competitiveness...... 11 Investment climate...... 11 Secure supply...... 12

Recommendations from Electricity Crossroads...... 13

External factors impacting electricity system development...... 17

Challenges facing the Swedish electricity system...... 25

Political control in today’s electricity market...... 27

Analysis of the production system...... 29 Characteristics of an energy system with a high percentage of intermittent energy...... 29 What does Sweden need to do to achieve a power balance?...... 35 What will happen if all Swedish reactors are closed early?...... 38

Observations and conclusions from the work groups...... 41 What factors affect future electricity use?...... 41 What will the electricity production system look like in the future?...... 43 What role will the electrical grid play in the electricity system of the future?...... 45 Investments in the electrical grid...... 46 What are the most important climate and environmental issues?...... 47 Public finances and the electricity market...... 49

Appendices...... 53 Appendix 1: Methods and criteria...... 53 Appendix 2: Reports produced within Electricity Crossroads...... 55 Appendix 3: Electricity Crossroads work groups...... 55 Appendix 4: Literature list...... 56 GLOSSARY

Balance responsibility – Companies contracted prevailing weather conditions, for example wind with Svenska kraftnät (SvK – Sweden’s national and solar. Often also called weather-dependent, grid) who have a balancing as well as a financial variable, or volatile energy. responsibility to ensure that the amount of electricity they add to and take out of the grid Capacity mechanism – A regulation that guarantees is always in balance. SvK has ultimate physical a certain availability of power. The available balance responsibility. capacity in the system over time is greater than it would have been in an energy-only market, Power balance – To maintain a stable frequency because it can be assumed that a political of 50 Hz, there needs to be a balance between objective relating to delivery reliability is higher production and consumption of electricity. If there than the actual market outcome. is an imbalance, the frequency in the system will increase or decrease. Quota obligation – A component in the energy certificate system whereby some electricity Power reserves – The Swedish power reserves suppliers and electricity users are required to hold currently consist of 660 MW of production energy certificates in proportion to the amount of capacity and 340 MW of consumption reduction. electricity they sell/use. Power reserves are used if it is not possible to balance supply and demand through other means, Nord Pool – the Nordic power market. The but they are not included in the market under member nations are Sweden, Norway, Denmark, normal circumstances. Finland and Estonia.

Energy certificate – A certificate allotted to Baseload power – Electricity production technology renewable energy producers based on the the output of which can be planned regardless of amount of energy they produce. These the weather conditions, such as nuclear power, gas certificates can be sold and transferred. Since turbines, CHP and hydropower. energy suppliers and some energy users are obliged to hold energy certificates corresponding Spot price – The variable electricity price set daily by to the amount of electricity they sell or use (see Nord Pool. quota obligation), a market for the certificates is created.

Energy-only market – A type of energy market where only energy is assigned a price.

EU ETS – The EU Emissions Trading System has been the EU’s system for trading emission allowances for greenhouse gases since 2005. The trading system encompasses all EU member nations, as well as Norway, Liechtenstein and Iceland. Within the EU around 13,000 installations are covered by the system, altogether accounting for 40 percent of the EU’s total carbon emissions.

Intermittent power – Electricity production technology where the output cannot be planned, but where production is determined by the

6 Introduction

Access to electricity is essential for all forms of The Electricity Crossroads project has involved development. By developing a sustainable elec- a process whereby the proposals presented in tricity system, Sweden can combine reduced this reports have developed from a dialogue be- environmental and climate impact with strong tween many players. The premise for the pro- competitiveness. ject was that Sweden’s electricity system should There are sweeping changes taking place in be designed according to the pillars in the the energy sector, creating a climate of great Swedish energy policy, i.e. ecological sustain- uncertainty for energy market players as well ability, competitiveness and supply security. as policy-makers. In light of this, IVA launched the Electricity Crossroads project to serve as a gathering point for ideas on how Sweden can design polices to transform its energy system with a focus on electricity. A reliable electricity system is essential in today’s digitalised society. A competitive electricity system also helps attract investments to Sweden. It reduces environmental impact while also benefitting the Swedish economy. Sweden’s energy policy has up to now focused on maintaining a relatively stable energy system. In the new era of rapid change and where it is difficult to determine which forces and development trends will endure, the Gov- ernment should act to minimise the political risks affecting electricity market players. The Government should also refrain from distorting the competitive situation between different energy sources. A holistic approach and flexibility are needed, involving analysis of the entire energy system on an ongoing basis within a comprehensive framework. Many policy areas are highly dependent on an efficient energy sector, and uncertainty over which path will be chosen for the electricity system will have repercussions in other areas.

7 8 Electricity Crossroads – project conclusions

In an international comparison, the Swedish en- of Sweden’s electricity system. This puts a lot ergy system has developed very well. Since 1970 of pressure on policy-makers to be flexible and Sweden’s total energy use has remained constant be able to adapt policies to constantly chang- and carbon emissions have decreased by 50 per- ing conditions without creating uncertainty for cent, at the same time as GDP has doubled and market players. the population has grown by 15 percent. The A reliable electricity system is essential for main reason for this is more efficient energy use modern and efficient systems in society. This is and a conscious investment in biofuels and fos- accentuated in a digitalised world where an ef- sil-free electricity production. ficient supply of electricity is critical in more and Nuclear power and hydropower have domi- more areas. Energy policy therefore provides the nated electricity production, and the infra- foundation for many other policy areas. A failed structure has been adapted to the production energy policy will have consequences in many apparatus and according to electricity demand areas and on basic social functions, jobs and ex- in different parts of the country. Sweden has port revenue for Sweden, also impacting jobs in had energy partnerships with the other Nordic other industries, as well as tax revenue, publicly countries since the 1950s but has still retained a funded welfare services, education, healthcare, large measure of freedom and pursued its own etc., and may result in negative consequences for national energy policy. the climate and the environment. Now big changes are taking place in the elec- Sweden’s electricity system should be designed tricity market and this is fundamentally chang- according to the pillars described in Sweden’s ing the energy policy debate. energy policy, i.e. ecological sustainability, Sweden is becoming increasingly dependent competitiveness and supply security. In recent on the world around it as electricity systems years the investment climate has also come to become interconnected. Thus the energy policy the fore as a separate issue, mainly due to the decisions of neighbouring countries are increas- great uncertainty and substantial future invest- ingly impacting production and use here in Swe- ment needs. den. Technology is being developed at an ever- These pillars, or guidelines, require a reduc- increasing pace and the prices of new technical tion in environmental impact and zero net emis- solutions for electricity production storage are sions of greenhouse gases into the atmosphere. falling. New players are entering the electricity They also require the electricity system to be market and more electricity users are choosing perceived as reliable and the cost of the system to produce their own electricity. to be competitive. The electricity system should Today it is very difficult to predict where de- not be considered in isolation, but as part of the velopment is heading, which means it is not easy whole energy system and society, in Sweden and to plot a course for the future. Our energy policy also in relation to other countries. needs to be able to handle the changes that are A premise is that the energy system should at taking place without jeopardising the efficiency least meet the following basic criteria:

9 Figure 1: The pillars described in Swedish energy policy are ecological sustainability, competitiveness and secure supply. In Electricity Crossroads we also including the investment climate. These pillars are interconnected and mutually supportive.

Ecological sustainability

Investment Competitiveness climate

Secure supply

1. The future electricity system must have at least Below is a presentation of the conclusions the same delivery reliability as today. reached in each of these areas. All aspects dis- 2. Fossil-free electricity production. cussed are interrelated and are essential for a 3. An electricity system that is cost-effective for long-term sustainable and competitive energy society. system.

ECOLOGICAL SUSTAINABILITY

The Swedish energy system has a relatively low today’s nuclear power technology and next gen- impact on the climate. However, there is lim- eration nuclear power plants. One assessment ited knowledge of its overall environmental im- method involves performing a life-cycle analysis pact. The impact on, for example, biodiversity for different types of production, taking into ac- is sometimes substantial, although it is hard to count the entire value chain – from raw material measure and not enough is known about it. This production and use to waste. Environmental is- is perhaps most relevant in the case of hydro- sues are complex which means there is no single power and biofuel-based electricity production, method for including all of the environmental but is also a concern with respect to wind power. aspects in the equation. We therefore need to Knowledge about the environmental impact of boost our environmental knowledge in general new and fast growing technologies, such as solar and from several different perspectives. cells and batteries, is limited. One of the main From a sustainability perspective the entire reasons for this is that much of the environmen- energy system – in which the electricity system is tal impact is outside Sweden’s borders. only one part – should be considered. A general In assessing the profitability of different ener- increase in resource and energy use efficiency gy sources, external environmental costs should could in the long-run lead to an increase in de- be taken into account, in Sweden as well as in mand for electricity, for example, in connec- other countries through imports. This could, tion with electrification of the transport sector. for example, change the equation between land- There should also be an international perspec- based and sea-based wind power, or between tive so that measures to reduce environmental

10 impact in Sweden do not lead to increased emis- petitive advantage for Sweden if it is one of the sions or other environmental impacts in the rest criteria that encourage businesses to invest here of the world. rather than elsewhere. Ecological sustainability can also be a com-

COMPETITIVENESS

Competitive electricity costs are of utmost im- up exporting electricity during periods when portance for Swedish industry. In addition to the electricity prices are low, at the same time as actual price of electricity, electricity costs include we will need to import electricity in shortage grid charges, taxes and other control mechanism situations when electricity prices are high (Ry- costs. A competitive energy system does, howev- dén, 2016). We are going to have an electricity er, involve more than just low electricity costs; it exchange with the world around us in any case, must also be perceived as being reliable and sus- but from an economic perspective it is better tainable over the long term, both from an ecologi- to aim for an energy policy that encourages cal and a financial perspective. There also need investments and production in Sweden, rather to be financial incentives and financial resources than one that creates a surplus of electricity for for essential investments in the electricity system. export. In the debate, we often hear people say that Sweden’s energy policy should therefore be Sweden should expand renewable electricity aimed at making Sweden attractive for invest- for the purpose of exporting electricity to other ments in development and production of prod- countries. There are certain weaknesses in this ucts where the value added is high. The greater strategy. If Sweden increases the percentage of the value added in Sweden, the better it is for intermittent energy without having a cost-effec- our economic development. An efficient energy tive solution for using the surplus, we will end system can play a role in this development.

INVESTMENT CLIMATE

A market model that ensures an efficient price mechanisms that are distorting the competitive formation process in the short term and ensures situation between different energy sources. In- that essential investments are made when they vestments in new production facilities have, over are needed is an important component in eco- the past few years, only taken place with the nomic sustainability. It is also important from support of subsidies. The facilities being built an environmental perspective, because it puts are mainly for intermittent energy with low vari- Sweden at the forefront. Players in the electricity able costs. This is driving development towards market and their customers must be able to rely even lower electricity prices, but is not lowering on the electricity market if they are to venture the total cost of the electricity system. Altogeth- into investments. Policy-makers have an impor- er this could lead to the need to close nuclear tant responsibility here to make decisions that power plants ahead of schedule. This situation ensure long-term stability. is affecting all energy sources. There are fewer Electricity producers are currently strug- incentives for modernising hydropower plants, gling with poor profitability as a result of exter- and older wind turbines are being decommis- nal circumstances as well as domestic control sioned due to poor profitability.

11 SECURE SUPPLY

Sweden today has a strong electric energy bal- local distribution systems will play an increas- ance and has been a net exporter of electricity ingly critical role as more consumers produce over the past few years. This is partly due to their own electricity. The need to store electric- the fast growth in wind power, but also to high ity and control consumption will also increase. availability of other energy sources. Within the Increased coordination will be needed between next few years the supply will go down when energy sources as well. Electric energy can be four nuclear power plants are decommissioned. stored in batteries and in the form of heat in Svenska kraftnät (Sweden’s national grid) is, district heating systems or chemically as gas in however, of the opinion that it will be possible a gas grid. This increases flexibility and reduces to manage the energy and power balance. vulnerability throughout the energy system. If, however, additional reactors shut down in the Technology development is moving fast and near future, the power balance will be weak- costs are falling in many energy-related areas. ened significantly – both in terms of energy and Today it is hard to predict how this progress power – and the system will also become less ro- may affect the conditions and address the chal- bust. Sweden will instead become dependent on lenges in the electricity market as soon as 10 to imported electricity, mainly from fossil-based 15 years from now. It is therefore important that electricity production. That will lead to both in- Sweden does not lock itself into one particular creased costs and increased climate impact, and solution, but that we are prepared and flexible to will reduce delivery reliability (see the chapter best take advantage of the development taking “Deeper analysis of the production system”). place with a focus on cost efficiency. From an electricity production perspective If the remaining six nuclear power plants re- Sweden has several opportunities to replace main in operation until the end of their planned today’s reactors with new fossil-free electricity life, Sweden will have a better chance of cost- production, based on hydropower, bioenergy, effectively taking advantage of Sweden’s com- solar and wind, or even new nuclear power. parative advantages and the positive technologi- Depending on how the production system is cal developments that are taking place. This will developed, the electrical grid will also need to reduce the environmental and climate impact be adapted, both within Sweden and in electric- while also helping to ensure a secure electricity ity exchange between countries. It is likely that supply and delivery reliability in the system.

12 Recommendations from Electricity Crossroads

Based on the conclusions above, the recommen-  Look at the electricity system from a broader dations are as follows: energy system perspective, with effective coordination between the electricity, heat and gas systems, with electricity being stored PATH 1: as hot water or chemically in the form of gas. Regard electricity as a facilitator for Recognise the opportunities for an overall industrial development and to reduce more efficient use of resources with electricity climate impact as an effective energy carrier.

Electricity use has been relatively constant over  Focus on climate-neutral electricity in climate the past 25 years, despite population and eco- policy, for example by investing in faster nomic growth, thanks to structural changes in electrification of the transport sector, and industry, more efficient electricity use in build- research and development to replace fossil ings and more efficient devices, equipment and inputs with electricity in industry. system solutions. Maintaining a focus on energy efficiency is important from a system perspec-  Invest in research, innovation, demonstration tive, but can also lead to increased electricity use. and business development in strategic areas The project has identified several factors that for Sweden to support industrial development may break the trend of stable, or even declining, and promote a sustainable electricity system. electricity use that we have seen in recent years (Liljeblad, 2016). Faster population growth is one factor that is difficult to predict and con- PATH 2: trol. More proactive measures that can lead to Create the right conditions for cost-effective increased electricity use while also reducing cli- development of the electricity system mate impact include electrification of the transport sector and the railway and steel industries, Technological development is happening fast continued digitalisation and opening more data and we cannot predict what options may be centres. available in 10 to 15 years. In order to avoid bee- A competitive electricity system can bring ing locked into today´s system, it is important to foreign investment into Sweden rather than to ensure that there is time available to take advan- countries with electricity production that is less tage of the current development. green. It can reduce environmental impact while One relevant issue is the possibility of the also benefitting the Swedish economy. early closure of the remaining six nuclear power plants. If they can be kept in operation until Electricity Crossroads’ recommendations: reaching the end of their working life, Sweden will have time to reinvest in new production  Create a competitive electricity system to capacity and in essential infrastructure, at the attract industrial investments to Sweden. same time as we will have flexibility while the

13 technology is being developed. A fast nuclear PATH 3: phase out will also make it more expensive to Focus on other environmental issues achieve climate goals at the European level. in addition to the climate Calculations made by Electricity Crossroads show that the closure of all reactors by 2020 All electricity production affects the environ- would cost just over SEK 200 billion and cause ment in varying degrees, from construction, op- increased carbon emissions in the range of 500 eration, and when plants are decommissioned. million tonnes from the power plants that re- The environmental issues are complex and dif- place the Swedish reactors. ficult to compare with each other. The debate about the energy system is often, rightly, focused Electricity Crossroads’ recommendations: on the climate issue. But it is important to consider other environmental aspects as well when  The energy policy should provide a clear assessing various energy sources and their im- and long-term framework for players in pact on the environment. Today we have limited the electricity market. The policy should knowledge of, for example, the impact on bio- involve using control mechanism when it is diversity and the environmental impact of new justified from a public finances perspective. materials and technologies. Otherwise, market solutions should be used. Electricity Crossroads’ recommendations:  Review taxes and subsidies that distort the electricity market and create the same  Increase knowledge about environmental conditions for all energy sources. Examples impacts in more areas, with the objective of taxes that distort the situation include the of, for example, conducting full life-cycle nuclear capacity tax and the higher property analysis or other types of environmental tax on hydropower plants. analysis for different energy sources. This will make it easier to put a price on  Review the subsidy system so that it does negative external effects and take this not subsidise electricity production when it into consideration when designing control is not needed. There also needs to be a way mechanisms and making investment to control the point when new production decisions. facilities are put into operation and enter the electricity system.  Systematic monitoring and an intensified dialogue are needed. This will put more  Analyse the need for and how to implement knowledge in the hands of various an expanded market for various types of parties on how different energy sources, system services, such as accessible capacity specifically hydropower and bioenergy, and frequency regulation. impact biodiversity. This is essential for a faster and more predictable permit review  Taxes that have a fiscal purpose should process. be imposed as close to the end consumer as possible. Taxes and other fees with a  More focus and analysis on how new materials controlling purpose, such as an environmental and technologies impact the environment, for tax, should be levied on products or activities example batteries and solar cells, including that need to be steered in a certain direction. raw material extraction, production, use and the ability to recycle the materials and what is  Invest in development of new solutions needed to make it happen. for a more flexible electricity system to enable an increase in the integration of solar and wind power.

14 PATH 4: resources efficiently and will generate new com- Set a goal for delivery reliability mercial opportunities. Sweden and many of the to maintain today’s high level nations around it are moving towards more renewables, but are also increasing the percentage Delivery reliability is in general very high in the of intermittent energy in their systems. This is in Swedish electricity system. Historically, it has many ways a positive trend, but it presents some been an important competitive advantage for in- challenges as well. New solutions are needed to dustry and has also benefitted society in general. maintain the balance in the system and to ensure The current development of the technical system delivery reliability. Sweden could be self-sufficient might reduce delivery reliability unless steps are in power and should be able to have increased taken. In order to evaluate and determine which capacity on days when there is no wind, but im- measures are needed in a changing electricity plementing this could be unreasonably expensive. system, a goal must be set for delivery reliability If all countries chose that path it would lead to in the system. unnecessary overcapacity in the electricity system which would seldom or never be used. The better Electricity Crossroads’ recommendations: the transmission capacity between countries in a larger electricity area, the more effectively joint  Set a measurable goal for delivery reliability resources can be used. in the electricity system to guarantee that at least today’s level can be maintained. This Electricity Crossroads’ recommendations: should be done in cooperation with our neighbouring countries.  Deeper regional cooperation for delivery reliability with surrounding countries for joint  Clarify who is responsible for ensuring that the and more efficient use of resources. goal is reached and that delivery reliability is maintained. Electricity Crossroads proposes  Take a longer term approach to investment that Svenska kraftnät (Sweden’s national grid) requirements for new transmission capacity be responsible for this. in cooperation with the countries around Sweden.  If control mechanisms to maintain delivery reliability are introduced, they should be  To guarantee delivery reliability and to technology-neutral to ensure that the most maintain the balance in the system – including competitive solutions are chosen. in extreme situations – joint regional studies and agreements are needed to determine how much capacity can be counted on in low PATH 5: capacity situations. Strengthen partnerships with neighbouring countries

Historically, Sweden has had effective energy partnerships with its Nordic neighbours. Now changes are taking place resulting in an increasingly interconnected energy market. The EU has, for example, presented a proposal for an Energy Union to ensure an efficient, secure and sustainable supply of energy. Sweden should therefore look at opportunities to increase energy cooperation. Increased cooperation will make it easier to use

15 16 External factors impacting electricity system development

Within the Electricity Crossroads project the TECHNOLOGY DEVELOPMENT status of Sweden's electricity market have been CHANGING THE GAME IN THE discussed and the project aims to provide rec- ELECTRICITY SYSTEM ommendations on how it should be developed. Sweden is highly dependent on developments in Solar cells and wind power produced around the world around it, and on what measures oth- 4 percent of all energy globally in 2013 and a er countries implement in their energy systems. lot has happened since then. The costs of these There are other factors too that have a great im- types of production are falling rapidly and in pact on our electricity system, such as population several places in the world, solar and wind are growth and technical development. Following the cheapest newly constructed electricity pro- chapter is an overview of the various external duction sources (IEA, 2015). factors impacting Sweden’s electricity system. The most cost-effective new electricity production in Sweden today is new wind power. As technologies continue to be developed, it is like- CHANGED ELECTRICITY ly that the relative cost benefits will increase. DEMAND IN THE FUTURE Wind power also has the type of annual varia- tion that fits electricity consumption in Sweden, Electricity use has been relatively constant over because it delivers the most during the coldest the past 25 years, despite population and eco- times of the year. It therefore makes sense to nomic growth, thanks to structural changes in continue to expand wind power production in industry, more efficient electricity use in buildings Sweden. and more efficient devices, equipment and system Interest in solar power is increasing steadily, solutions. among private individuals as well as property Demand for electricity may still increase due companies who have in common that they are to even faster population growth and electrifica- primarily electricity users and not commercial tion in industry and the transport sector where energy companies. The costs are falling and electricity is replacing fossil fuels. There should technological development is creating new pos- be a readiness to meet this demand for electricity sibilities, such as integration of solar energy pro- in a sustainable way (Liljeblad, 2016). The way in duction in building facades and roof coverings. which electricity use will develop in the future is These solutions could increase the supply of so- further discussed in the section: What will impact lar energy in Sweden. electricity use in the future? and in an associated Due to their dependence on weather and sea- report and a special report on scenarios for future sons, solar and wind energy are putting new electricity. pressure on the electricity system, and several

17 countries, such as China, Germany and the entitled Energy Storage – Technology for elec- USA, are increasing their transmission capacity tricity storage, published by Electricity Cross- to handle these variations. A higher percentage roads in September 2015. of weather-dependent production in Sweden Technology is being developed in all areas. will challenge the future electricity system as As an example, Figure 2 below shows the fast the amount of power produced will vary. Tech- development of battery technology, which is ac- nology is being developed to handle these chal- companied by falling prices. lenges. There is also fast development and a technol- The solutions can be roughly divided into ogy shift towards more efficient transmission three areas: storage, improved transmission be- of electricity over greater distances. The pre- tween locations with electricity surpluses and dominant technology in the electrical grid over deficits, and technology to handle the variations the past 100 years has been alternating current in weather-dependent electricity production. (AC). Now high voltage direct current (HVDC) Examples of storage technology are batteries, is being developed and installed at a fast pace, thermal storage where energy is stored as heat especially in Europe. HVDC takes up less space in hot water, or chemical storage of electricity as and makes it easier to control the power flow. hydrogen or possibly methane. These technolo- The technology is good for use over long dis- gies are described in more detail in the report tances and can also free up capacity in the ex-

Figure 2: Cost development for lithium-ion batteries. Source: Energy storage technologies, Electricity Crossroads, 2015.

SEK/kWh

17,500 Cost estimated in publications, highest and lowest Cost for Tesla Power Wall Publications, reports and journals Cost for Tesla Power Block 15,000

12,500

10,000

7,500

5,000

2,500

0 2005 2010 2015 2020 2025 2030

18 Figure 3: Falling prices on coal affect electricity prices, weekly average during the year, EUR/MWh. Source: Vattenfall

EUR/MWh

100 Electricity price development in Germany

Marginal cost of coal power plants in Germany

0 2008 2009 2010 2011 2012 2013 2014 2015

isting transmission grid to better manage local critical components and thereby reduce operat- variations in solar and wind power production ing costs. (Nordling, 2016). Constant energy efficiency improvements are Solar and wind are by nature unpredictable, driving down energy demand and reducing en- which means that various technical measures are ergy intensity. Electric motors and lighting are needed to maintain grid stability and to guaran- the highest consumption categories. Electric tee the electricity supply. Alternate production motors account for 40 percent of electricity use or imports are needed to meet the demand when in society and 65 percent of electricity use in there is no wind, as well as technology to main- industry. (Swedish Energy Agency, 2014). With tain stability in the grid. With modern current new, more efficient electric motors and better conversion technology, wind turbines and solar control of them, consumption could be reduced energy systems can be designed to help maintain by up to 60 percent (Siemens, 2016). Similarly, voltage and frequency regulation in the electri- new, efficient LED technology could cut elec- cal grid. tricity use for lighting by 50 percent. Industrial digitalisation is also helping to Energy efficiency improvement in combina- integrate more solar and wind power into the tion with solar energy produced by users them- system. Sensors in the grid are increasing trans- selves could reduce energy transportation in mission capacity temporarily, better weather the grid even if power variations are likely to forecasts and new trading systems are evening increase with solar and wind. out imbalances, and digitalisation is making it easier to control demand to match supply without appreciably compromising comfort. THE SHALE GAS REVOLUTION Digitalisation is also affecting how the electricity system operates. “Big data,” sensors and A technology breakthrough for extracting risk analysis are changing things like, mainte- natural gas and oil from shale in the USA and nance as it is now possible to focus on the most Canada has completely redrawn the geopoliti-

19 cal map. From a situation a few years ago where through the implementation of the EU directives it was preparing to become dependent on im- in Swedish legislation, and indirectly because ported oil and gas, the USA has instead become Sweden belong to the European market. self-sufficient and can now export fossil fuels. The European electricity market is in a period Meanwhile growth in China has slowed down. of transition involving a large-scale expansion One of the results of this is a global surplus of of renewable electricity production, reduced coal leading to falling prices. The cheap coal has demand for electricity and low prices on fossil had a major impact on the European electricity fuels, all of which is putting pressure on elec- markets. Production costs for coal power plants tricity prices. The trend towards an increased have a price-setting effect on margins, includ- proportion of intermittent electricity production ing in the Nordic and therefore also the Swedish and limited incentives for maintaining produc- electricity market, through electricity exchange tion of, or investing in, new baseload power has with countries like Germany and Poland. Fall- been driving the debate about supply security in ing coal prices are partly responsible for the low- Europe (European Commission, 2016). er prices on the Swedish electricity market. The As a result, several member nations have in- diagram in Figure 3 shows coal and electricity troduced so-called capacity mechanisms to se- prices in Germany 2008–2015. cure their electricity supply. This has created a need for supplementary market solutions to maintain the capacity in the system. The mecha- FUKUSHIMA nisms have been criticised for creating trade bar- riers, favouring certain types of technologies or The tsunami north of Tokyo on 11 March 2011 producers and possibly being contrary to the EU caused a series of nuclear meltdowns at the subsidy rules. The European Commission has Fukushima nuclear power plant, which resulted therefore appointed committees and councils to in radioactive emissions. The disaster prompted present proposals in 2016 on how and if capac- a renewed debate on the safety of nuclear power ity mechanisms can be used, and how electricity in Europe, and Germany decided to phase-out markets should be designed (European Com- nuclear power by 2022. Germany’s “Ener- mission, 2016). giewende” (Energy Transition) picked up speed To reduce emissions of climate-impacting gas- at the same time. One consequence of the Fuku- es, a trading system for emission allowances was shima disaster was a ruling by the EU requiring introduced in 2005 (EU-ETS). The system mainly all nuclear reactors to be fitted with separate covers facilities in energy intensive industry core cooling systems no later than 2020. For and energy production facilities. They are as- Swedish nuclear power plants this requirement signed an upper limit for their emissions, i.e. a involves significant investments. This, in combi- “cap” that is gradually lowered. In connection nation with low electricity prices and the addi- with the 2008 financial crisis, industrial carbon tional cost due to the nuclear capacity tax, may emissions were significantly reduced and this result in the early closure of reactors in Sweden. also lowered the price of emission allowances. This has reduced the controlling effect of the system with respect to the transition from fossil EU AFFECTING THE NORDIC to renewable electricity production, which has ELECTRICITY MARKET also had an indirect effect on electricity prices in Sweden. In 2015 the European Commission The EU’s energy initiatives are based on three presented a proposal to revise the system ahead pillars: environmental sustainability, competi- of the 2021–2030 trading period. This may re- tiveness and supply security. These have also sult in higher electricity prices. been adopted by the Swedish Government. The In February 2015 the European Commission EU’s energy and climate policy has a significant presented the EU Energy Union, a comprehen- influence on Swedish policies – both directly sive strategy aimed at ensuring a reasonable,

20 secure and sustainable energy supply within price of these energy sources globally. The in- the EU. The Energy Union strategy has a num- stalled capacity is now so large that Germany ber of components, including the electricity in- could theoretically during some individual terconnection target. Every member state is to hours of the day cover all if its electricity needs have a trading capacity of at least 10 percent with solar and wind. But in actuality other ener- of the country’s installed electricity production gy production must be in operation to maintain to trade with surrounding countries by 2020. stability in the system. The increase in the per- Sweden currently has 26 percent, while some centage of solar and wind can bring challenges countries have almost none. Some of the main in the form of substantial fluctuation in electric- reasons for the electricity interconnection target ity production. This puts a lot of pressure on the are to secure the supply of electricity, increase electrical grid and on surrounding countries to competition in the domestic market and facili- help relieve Germany of its electricity surplus. tate more effective climate policies. More effec- To meet these challenges, three different capac- tive electricity markets within the EU also have ity mechanisms have been introduced and an a positive effect on Sweden. auction for new facilities in southern Germany Despite efforts to create a common electric- is being discussed. ity market, the majority of the energy decisions Germany’s substantial investment in solar are decided on a national level, such as on their and wind is also impacting the Swedish electric- energy mix, subsidies for renewables and capacity market. Electricity prices in Germany are ity markets. The member nations are, however, more volatile and the need to increase energy required to follow the guidelines established by exchange with other countries is increasing, the EU’s Directorate General for Competition. partly when there is a surplus and partly during In July 2015, the European Commission pre- periods of low availability from solar and wind. sented a strategy for changes in, for example, the EU ETS (EU Emissions Trading System), a review Norway focusing on of the energy market directive and a new energy exporting electric power market design (European Commissions, 2015). Norway’s electricity production is almost fossil- free because 96 percent of it comes from hydropower. In 2012 Norway and Sweden established DEVELOPMENT IN a joint target of increasing renewable electricity SWEDEN’S VICINITY production in their countries by 28.4 TWh from 2012 to 2020. To reach this target the countries The Swedish electricity market has never been have a joint energy certificate system to support isolated and will now become more integrated new production of renewable energy (Ener- with the countries in its vicinity. gimyndigheten.se – Energy certificate system). This has resulted in an increase in wind power Germany’s “Energiewende” expansion in Norway. In 2015 wind power pro- (Energy Transition) duced 2.5 TWh. Norway’s energy minister has, Three months after the accident in Fukushima however, announced that Norway intends to the German government decided that its en- stop all financial support for wind power and ergy supply would be free from nuclear power discontinue the Norwegian-Swedish energy and would come mainly from renewable ener- certificate system as of 2021 (Olje- og energide- gy sources by 2022. Closure of nuclear power partmentet, 2016). Norway, which is already a plants, reduction of fossil fuels and an increase large net exporter of electricity, is planning a in renewable electricity production are all in- major expansion of the country’s export capac- cluded in the concept of “Energiewende” (En- ity to England, Scotland and Germany etc., with ergy Transition). The implications of this have planned completion of cables carrying 1,400 been included a major investment in wind power MW each by 2020–2021. Combined with the and solar energy, which has put pressure on the fourth cable between Norway and Denmark of

21 700 MW, the planned expansion represents close Denmark continuing its to 5,000 MW of transmission capacity. Norway’s expansion of wind power idea is to be able to export hydropower when Denmark invested early on in wind power. In it is not windy and when prices are high in the 2015 14.1 TWh or 42 percent of Denmark’s to- neighbouring countries, and to import cheap tal electricity requirement of 33.4 TWh was pro- power when the situation is the reverse. duced by wind power turbines, the highest per- Norway already has large transmission cables centage in the world (Energinet.dk). The target into Sweden, Denmark and the Netherlands, is for 50 percent of the electricity produced to and smaller ones to Finland and Russia. The come from wind power by 2020, a goal that it increased export capacity is intended for other is expects to reach (Energipolitisk redogörelse parts of Europe and may reduce Sweden’s ability 2015, Klima, energi- og bygningsministerens re- to import hydropower electricity from Norway, degörelse til Folketinget om energipolitikken). which could lead to higher prices in the Swedish Denmark is entirely dependent on the strong energy market. electricity exchange with Norway and Sweden for its wind power strategy to work. Finland investing in new nuclear Today fossil fuels (coal and gas) account for a power to increase self-sufficiency third of all electricity produced there. The vision The Finnish government's goal is “Cost-effective is for the Danish energy system to be entirely coal-free, clean and renewable energy.” The idea fossil-free by 2050. Wind power will continue is, among other things, for coal use to disappear to play a big role and a substantial expansion and energy self-sufficiency to increase (Arbets- in the North Sea area is in the cards. These sig- och näringsministeriet, 2015). nificant investments in wind power will require Today Finland imports around 20 percent of a major adjustment of the Danish electricity its energy needs from Sweden, Norway and Rus- system. Germany’s energy investments are also sia. Although the Finnish government rely on a impacting Denmark. In ten years’ time it is es- functioning Nordic electricty market, increased timated that the installed wind power capacity self-sufficiency is a priority. Finland also exports in northern Germany will amount to around 34 electricity, primarily to Estonia. Finnish electric- GW, compared to Denmark’s current 5 GW (En- ity production is based on about one third each ergikoncept 2030 – Energinet.dk). of hydropower, nuclear power and CHP. Wind The variable nature of electricity production power accounts for about 3 percent of the elec- from wind power requires significant transmis- tricity produced in Finland. sion capacity within the country and with other To increase the percentage of renewable en- countries in the region, but also puts pressure on ergy, Finland has introduced a so-called feed-in domestic load-balancing electricity production. tariff system with defined national prices, where To achieve the climate goal, the plan is to replace the difference is paid to producers to support fossil fuels for electricity production with biofu- production of electricity from wood chips, bi- els and waste. ogas, wood fuel and wind power (Ministry of Denmark is well connected, with transmis- Economic Affairs and Employment, 2015). Fin- sion cables to Sweden, Norway and Germany. land is also investing in new nuclear power to There are also plans to lay cables to the Nether- reduce its import dependence and replace older lands and England (Energinet.dk). plants that are being decommissioned. The nuclear power plant being constructed in Olkiluo- Baltics connected to the EU to is expected to be commissioned in 2018 and The Baltic energy market consists of Estonia, a planned reactor in Hanhikivi in 2024 (World Latvia and Lithuania and is currently part of Nuclear Association, 2016). An improved power the Nord Pool area. This means that the price balance in Finland will help delivery reliability of electricity is set on the Nordic electricity ex- in the Nordic region. change. To integrate the Nordic energy market with the rest of the EU, the EU has a project called

22 Baltic Energy Market Interconnection Plan (BE- bines are being erected, and southern Germany, MIP). Examples of cables covered by the project where the majority of the electricity consump- are NordBalt between Sweden and Lithuania, tion takes place. Much of Germany’s electricity LitPol Link between Lithuania and Poland, and transportation in a north-south direction goes Estlink 1 and 2 between Estonia and Finland through Poland (ACER, 2014) (Svenska kraft- (European Commission, 2016). nät, 2015). Today the Baltic countries are together a net The Swedish, Polish and Baltic electric- importer of electricity from Finland, Russia and ity markets have become more closely linked Belarus (ENTSO-E, 2015). The launch of Nord through the SwePol Link cable between Sweden Balt and LitPol Link is expected to increase and Poland, and the so-called “Baltic Ring” in- electricity imports from Sweden and Poland cluding LitPol and NordBalt (European Com- (European Commission, 2016). mission, 2015). This has, however, resulted in The production mix in the Baltics consists Sweden and the Baltics also being affected by mainly of fossil fuels. Latvia and Lithuania also the operational planning problems that can be have hydropower and Lithuania and Estonia caused by the cross-border power streams from have some wind power. Germany (Svenska kraftnät, 2015). The Baltics have not produced any nuclear To increase its self-sufficiency, Poland is now power since the closure of Lithuania’s Ignalina planning for its own nuclear power production nuclear power plant in 2009. Up until then elec- and construction is expected to start in 2020 tricity provided an important export income, (World Nuclear Association, 2016). Exploiting but the nuclear power plant was closed follow- Poland’s significant shale gas deposits has been ing pressure from the EU. To reduce its electricity discussed, but for the time being the country import needs there are plans to build a new nu- has no specific strategy for this (Maciazek, clear power plant. Russia and Belarus have also 2015). started building two reactors close to the Lithu- ania border (World Nuclear Association, 2016). Russia planning for new nuclear power Russia is connected to the Nordic and Baltic Poland heavily dependent electricity markets via Finland, Estonia, Lat- on coal power via and Lithuania, and Norway. The combined Polish electricity production is largely based on net imports are around 5 TWh (2012). (Energy- coal and the country has the biggest coal re- charts.de, Datasource: ENTSO-E). More than 60 serves in the EU. Coal power represents 76 per- percent of the electricity produced in Russia is cent of Poland’s electricity production. Electric- based on the fossil fuels gas and coal. Nuclear ity is also produced from natural gas, biofuels, power and hydropower account for just under wind power and hydropower. There has been a 20 percent each. big expansion of wind power in recent years and A substantial increase in nuclear power pro- it now represents almost 10 percent of all elec- duction is planned in Russia; partly to replace tricity production in Poland. According to the old nuclear power plants that need to be de- Polish government’s energy and climate policy, commissioned and partly to increase capacity. coal power production will be reduced by an Electricity exchange with Russia may indirectly expansion of nuclear power and through invest- impact availability and prices in Sweden via Fin- ments in renewables and natural gas (Maciazek, land and the Baltics, which are directly linked 2015) (Polish Ministry of Energy, 2015). Poland to Russia. has historically been a net exporter of electricity, mainly to the Czech Republic and Slovakia. Poland’s transmission capacity with neighbouring countries is being affected by Ger- many’s limited transmission capacity between northern Germany, where numerous wind tur-

23 Reactor hall at Forsmark 3, Source: Vattenfall.

24 Challenges facing the Swedish electricity system

Sweden has one of the world’s best electricity be have to be closed within the next five years. system in terms of environmental impact, sup- This would result in major challenges in the elec- ply security and competitive electricity prices. In tricity system, including a significant worsening Europe a transition is taking place from fossil- of the power balance and increased uncertainty in based electricity production to low carbon emis- the electricity market. Today’s electricity market sion energy sources, while the Swedish system is regulations are accelerating this. Energy sources already essentially fossil-free. that provide baseload power, such as hydropower Sweden has a high level of electricity use relative and nuclear power, are taxed, while intermittent to other countries, but it still has a lower percent- sources such as solar and wind power are being age of fossil fuels and low carbon emissions com- subsidised. pared to other industrial nations. A secure sup- Sweden is essentially in a strong position to ply of electricity at competitive prices has helped maintain a sustainable and competitive electric- boost technology development and support a ity system, even without current nuclear power competitive export industry, which has had a posi- plants, thanks to hydropower, large forests and tive impact on development in society in general. a forest industry that is delivering biofuel, as well Several factors indicate that electricity use may as coastlines that are available for an expansion of increase in the years ahead, one main factor being wind power. Solar may play a greater role in our population growth. Increased electricity use may latitudes and new nuclear power is also an option. be an important aspect of climate efforts as elec- But it is not just a case of replacing working tricity replaces fossil fuels in the transport sector power plants; the entire infrastructure needs to and industry. Electricity is also contributing to a be adapted to the new conditions. Fast develop- more efficient use of resources in general. ment of production, storage and flexible electricity Sweden today has a strong electric energy use are currently underway meanwhile costs are balance and has been a net exporter of electric- falling. The time provided for the transition will ity over the past few years. Four nuclear power impact the cost. More time means reduced costs. plants are going to be decommissioned before Calculations made by Electricity Crossroads 2020 and, although this will bring challenges, (Rydén, 2016) show that closure of the six remain- the electricity system has the ability to handle it. ing reactors by 2020, compared to using them for One concern is the poor profitability being the rest of their planned life, will cost around SEK experienced by electricity producers. External 200 billion. The power Sweden lose will mainly factors such as the low cost of coal and gas, low be replaced by fossil-based electricity imported prices on emission allowances and increased pro- from other countries. The closure of these plants duction mainly from solar and wind, are reduc- would lead to an overall increase in carbon emis- ing marginal costs in the system and thereby the sions of close to 500 million tonnes from the pow- amount of compensation for all produced elec- er plants replacing the power from the Swedish tricity. Various taxes are a factor in the increase reactors. A fast nuclear phase out will therefore in production costs for certain energy sources. make it more expensive to reach the climate goals The power industry has announced that there at the European level (see the chapter “What will is a risk that additional nuclear power plants will happen if all Swedish reactors are closed early?”).

25 26 Political control in today’s electricity market

The Swedish electricity market was reformed in The Nordic electricity market is characterised 1996. The purpose was to create a framework by large variations in precipitation from year for an electricity market where competition in to year, which impacts hydropower production production and energy trading would improve (“wet years” and “dry years”), and between cold efficiency and competitiveness for the benefit and milder winters on the consumption side. of Swedish society. One important cornerstone Before deregulation, delivery reliability was in the electricity market reform was that com- guaranteed by long-term planning at the central panies producing and trading electricity were level, but after the electricity market reform, it no longer permitted to also be involved in the was assumed that the market would address and electricity transmission business. The electri- solve the power supply issue. Price signals were cal grid would be available to all producers and expected to provide incentives for this, but in electricity customers on equal terms. Electricity fact proved to be insufficient. To ensure supply production and trading would take place in a security, during dry/cold years, a power reserve competitive environment and customers would were added to the electricity market in 2003, i.e. be free to choose their electricity supplier. The production facilities standing at the ready or big aim was for the electricity market to be treated electricity consumers being prepared to reduce like all other sectors of industry and regulated their electricity use in a stretched situation. Pro- through general industrial legislation. The elec- curement of the power reserve is the responsibil- tricity market reform created a framework that ity of Svenska kraftnät (Sweden’s national grid). gave companies quite a lot of freedom. Compa- When it was introduced it was a temporary so- nies were expected to act in a way that ensured lution. The objective was to develop the market the goal of an efficient electricity supply to ben- so that it could also handle the system’s delivery efit consumers would be achieved. It was not reliability. But the power reserve has gradually considered necessary to have any rules in place been extended – most recently to 2025. Today to control how companies would act to achieve we are still discussing which market solutions the goal (Hagman & Heden, 2012). are needed to ensure delivery reliability during In connection with this deregulation, the as- the coldest winter days. But it is fair to say that sumption was that the electricity market expan- delivery reliability has not been a problem since sion was complete and an electricity market deregulation. model was therefore introduced to set prices in In 2003 the electricity market was supple- a mature market. The amount of surplus capac- mented with an energy certificate market to ity that had been in the market fell when older drive an increase in the proportion of renewable plants were decommissioned. The current mar- electricity production. Energy certificates bring ket model has not yet gone through an invest- an extra source of revenue for those investing ment cycle, so it is difficult to assess how robust in renewable electricity production. To begin it is. with, biofuel-based industrial boilers and dis-

27 trict heating plants were supplemented with tur- market development is driven by the European bines producing electricity, but in recent years Commission. Continued European market de- the energy certificate system has mainly driven velopment will require greater harmonisation development towards more wind power in Swe- of methods and regulations. In March 2015 the den. Unlike thermal power, wind power has low European Council therefore approved the Com- variable costs. Having a large percentage of the mission’s proposal to create an Energy Union. wind power in the system therefore affects the The Energy Union is intended to create the nec- electricity market price structure. essary conditions for a reliable and economically In 2005 the EU’s trading system for emission viable energy supply for all and to enable the allowances (EU ETS) was introduced. Today the EU to be a world leader in renewable energy. To price of emission allowances is low, but in the achieve this, changes are needed in Europe’s en- first trading period (2005–2007) trade was af- ergy systems and the European electricity mar- fected by the price of electricity. Since fossil en- ket needs to be restructured (Moberg 2015). ergy (mainly coal power) in Denmark, Germany Political control and various types of mar- and Poland are usually at the margin of the spot ket models are being discussed by the project’s market, higher costs for fossil-based electricity Public Finances and Electricity Market working also means higher electricity prices on the spot group, see chapter “Public finances and electric- market. As existing nuclear power and hydro- ity market.” Control mechanisms are also dis- power were expected to see increased revenue cussed in more detail in a special report entitled as a result of EU ETS, an extra tax was levied Taxes and subsidies for electricity production. from them. Property tax for hydropower plants was increased as was the capacity tax on nuclear power. When the Swedish electricity market was reformed the aim was to have a common regional electricity market in the Nordic region. In many other countries electricity markets have been developed through national initiatives. Today

28 Analysis of the production system

The Electricity Crossroads work groups have tem’s technical functions and for the electricity presented options for electricity use develop- market. The model analysis covers the whole of ment in Sweden, as well as various production northern Europe, with an emphasis on the Nor- alternatives and what consequences these might dic countries as well as Germany and Poland. have for infrastructure, the climate and the en- It consists of theoretical simulations for a pos- vironment. There is also a discussion under way sible future electricity system scenario. This is about the status of the electricity market and the described in more detail in Appendix 1. What potential ramifications of today’s market model is interesting is not primarily the energy mix it- in the longer term. The work groups’ conclu- self, but what the electricity system would be sions have resulted in follow-up questions about like with different levels of intermittent energy, what is required in order to maintain delivery i.e. solar and wind power, and what the capac- reliability in the electricity market. ity situation would look like at different times The project has conducted an in-depth analy- during the year. The analysis is for a period after sis based on model simulations of different en- 2030, and includes an in-depth simulation for a ergy sources from an economic perspective to conceivable electricity system in the longer term, show the consequences for the electricity sys- during “Analysis Year 2045.”

CHARACTERISTICS OF AN ENERGY SYSTEM WITH A HIGH PERCENTAGE OF INTERMITTENT ENERGY

For the model calculations the assumption was mix for “Analysis Year 2045,” according to the that there would be a joint and politically ro- model simulations, is shown in Table 1. The bust investment in renewable electricity pro- electricity demand corresponds to the Produc- duction in northern Europe, with the objective tion work group’s average scenario of 160 TWh of achieving at least 75 percent renewable en- (Byman, 2016). ergy in the northern European system by 2050. This means that the percentage of intermit- The model simulations do not specifically take tent energy from solar and wind will make up into account national political objectives in almost half of the total electricity production. individual countries, such as Germany’s goal The progression from now until 2050 is shown of at least 80 percent renewable electricity in the diagram in Figure 4. Electricity produc- production by 2050. To achieve the goal it is tion amounts to around 180 TWh, compared to assumed that the EU subsidy system for re- demand of 160 TWh. newables will be maintained and expanded. Sweden and Norway will remain net export- The assumption means a 100-percent renew- ers of electric energy, because, from a northern able electricity system in Sweden. The energy European perspective, it is profitable to use re-

29 Table 1: Different energy sources in “Analysis Year Hydropower 70 TWh 2045” in Sweden to meet an energy requirement of 160 TWh according to model calculations. The result Bio-CHP 25–30 TWh indicates a net export of electricity from Sweden. Wind power 70 TWh Source: NEPP (Rydén, 2016) Solar power 10–15 TWh Total 175–185 TWh

Figure 4: Electricity production 200 developing towards a 100-percent SWEDEN Electricity demand renewable electricity system in Solar power 150 2050. Historical data given for Wind power 1990–2010 and model result Biofuel, waste for 2015–2050. Electricity use in 100 Oil Sweden is expected to increase at a moderate pace and reach 160 TWh TWh/year Natural gas (including distribution losses) by 50 Coal 2050. Source: NEPP 2016 Nuclear power (Rydén, 2016). Hydropower 0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Figure 5: The diagram below shows how the electricity systems in northern Europe could be developed with a strong joint initiative for renewable energy. Overall, the Nordic countries will be net exporters of electricity, while Germany and Poland will be net importers. Source: NEPP.

700 250 GERMANY EfterfråganPOLAND Efterfrågan 600 Sol200 Sol 500 Vindkraft Vindkraft

400 Biobränsle,150 avfall Biobränsle, avfall Olja Olja 300

TWh/year TWh/year Naturgas100 Naturgas 200 Kol Kol 50 100 Kärnkraft Kärnkraft Vattenkraft Vattenkraft 0 0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

600 1,400 NORDICS EfterfråganNORTHERN EUROPE Efterfrågan 1,200 500 Sol Sol 1,000Vindkraft Vindkraft 400 Biobränsle,800 avfall Biobränsle, avfall 300 Olja Olja 600

TWh/year TWh/year Naturgas Naturgas 200 Kol400 Kol 100 Kärnkraft200 Kärnkraft Vattenkraft Vattenkraft 0 0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 30 70 Figure 6: Available production SWEDEN capacity in the Swedish 60 electricity system in the renewable scenario described 50 Power demand Solar power above. The maximum electrical 40 power requirement in Sweden Wind power GW 30 is expected to increase at a Condensing power slow pace and reach just over 20 CHP 30 GW (including distribution Nuclear power losses) by 2050. 10 Hydropower 0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Table 2: Installed capacity in Sweden in “Analysis Hydropower 14 GW Year 2045” in a system with 100 percent renewable electricity production producing at least 160 TWh. CHP and condensing power 8 GW Source: NEPP Wind power 28 GW Solar power 12 GW Total installed capacity 62 GW

newable energy resources in Sweden and Nor- DETAILED MODELLING way to a greater extent. According to the model OF “ANALYSIS YEAR 2045” simulations, both Norway and Denmark will reach 100 percent renewable electricity, while To better understand how the system will work the percentage in, for example, Finland, Ger- technically, model simulations have been per- many and Poland is smaller. In these countries formed at the hourly level for a hypothetical it is profitable to invest in both renewable and analysis year during the period 2040–2050: non-renewable production because the overall “Analysis Year 2045.” The model (EPOD – see goal for northern Europe is 75 percent renew- Appendix 1) simulates a power year with opti- able and it allows for other alternatives. misation of the order of operation and optimal Installed capacity is increasing very rapidly in management of hydropower reservoirs. There all countries, in line with increased investment are big differences between summer and winter, in wind and solar energy, which quickly results partly due to a greater electric power demand in in a surplus of installed capacity. For Sweden the the cold and dark winter, and partly due to that model analysis shows an installed capacity of fact that solar produces more during the sum- over 60 GW, while the maximum power require- mer. The models do not include any price elastic- ment in 30 GW. During the summer demand is ity, but show the need for a more flexible use of significantly lower, less than 10 GW. A capacity electricity or supplementary power reserves. deficit may still occur during periods when wind The model analysis results show an installed and solar cannot produce. production capacity in Sweden totalling 62 GW, distributed according to Table 2 above. The installed capacity is double the amount of the

31 GW Euro/MWh 100 50 90 GW 45 Euro/MWh 80 40 100 GW 50 Euro/MWh 70 35 Electricity price (right axis) 90 100 45 50 60 Electricity demand 80 30 40 90 GW 45 Euro/MWh 50 25 CHP Electricity price (right axis) 70 80 Figure 7: Analysis of two weeks in June 352045, in an electricity system40 based on 100 percent renewables. 40 100 50 60 20 Wind power 30 Electricity demand Electricity price (right axis) 70 90 Source: NEPP. 35 30 15 45 50 60 Solar power 25 CHP Electricity demand 80 30 40 20 40 10 50 Hydropower 20 Wind power 25 CHP Electricity price (right axis) 10 70 35 30 5 15 40 60 Back pressure and condensing power Solar power 20 Wind power Electricity demand 0 0 30 20 30 10 15 4600 4750 50 4900 Hydropower Solar power25 CHP 10 20 5 10 40 GW Back pressure and condensingHydropower power20 Wind power Euro/MWh 0 10 0 30 40 5 15 50 4600 4750 4900 Back pressure andSolar condensing power power 0 20 0 10 45 4600 4750 4900 Hydropower 10 5 40 Back pressure and condensing power 0 0 35 Elpris (höger axel) 4600 4750 4900 30 Last 20 25 Kraftvärme 20 Vindkraft 15 Solkraft 10 Vattenkraft 5 Mottryck och kondens 0 0 4,600 4,750 4,900 Hour

maximum power demand in the winter, and six tricity produced in other countries is cheaper than times the size of the demand in the summer. A ours. The diagram shows that this is especially power shortage may still arise. true for hours when the electricity price is relatively high. Imports may also be necessary dur- Modelling of two summer weeks ing hours when there is a surplus of wind power The diagram in Figure 7 shows a detailed analy- electricity and prices are low in other countries. sis for two weeks in June. The model calculations show that Sweden is a net exporter of elec- Modelling of two winter weeks tricity during both of these weeks and that there The diagram in Figure 8 shows a detailed analysis are hours when only solar and wind are needed for two weeks in January/February in “Analysis to cover Sweden’s electricity consumption. The Year 2045.” The model calculations show Sweden last scenario could present big challenges in the as a net importer for both of these weeks. This ability to balance and achieve stability in the means that it is more profitable to import electric power system. To handle these challenges, a energy from neighbouring countries than to build series of steps are necessary; for example, new up reserve capacity here and allow it to cover the technology to enable and speed up load balanc- deficit. At most the import requirement is 7–8 ing for wind power, load balancing using cable GW, which is equivalent to one third of the de- links with other countries and in existing plants, mand on the coldest winter day. The assumption and more flexible use where electricity consump- here is, however, that the capacity is available in tion is adapted to production. practice, which cannot be taken for granted. The Figure 7 also shows how the variable produc- situation could be similar in neighbouring coun- tion costs – which determine the price of electrici- tries. To be self-sufficient, investments in reserve ty – fluctuate. When there is surplus production of power would be needed equivalent to 7–8 GW. wind and solar energy the price falls, and it goes For both of the winter weeks Sweden needs to up when these energy sources do not produce. import energy 75 percent of the time. The energy During certain hours it is profitable for Sweden to imported during these hours is 50 percent from import a certain amount of electricity, when elec- renewable sources – primarily hydropower from

32 GW Euro/MWh 100 50 90 GW 45 Euro/MWh 80 100 40 50 70 90 35 Electricity price (right axis) GW 45 Euro/MWh 60 Electricity demand 80 100 30 40 GW 50 Euro/MWh 50 70 25 Solar power Electricity price (right axis) 90 100 35 45 40 Figure 8: Analysis of two weeks in January/February 2045, in an electricity system based50 on 100 percent renewables. 60 80 20 Back pressure and condensing30 powerElectricity demand 90 Source: NEPP. 40 45 30 15 50 70 CHP 25 Solar power Electricity price (right axis) 80 35 40 20 40 10 60 70 Wind power 20 Back pressure and condensing 30power Electricity demand 10 35 Electricity price (right axis) 30 50 5 15 60 Hydropower CHP 25 Solar power 30 Electricity demand 0 20 0 40 10 20 526 50 826 Wind power Back pressure25 and condensingSolar power power 10 30 5 40 GW 15 20 Euro/MWh 0 Hydropower CHP Back pressure and condensing power 20 30 40 0 10 526 826 Wind power 15 50 10 CHP 20 5 10 45 0 Hydropower Wind power 10 0 5 40 526 826 Hydropower 0 0 35 Elpris (höger axel) 526 826 30 Last 20 25 Solkraft 20 Mottryck och kondens 15 Kraftvärme 10 Vindkraft 5 Vattenkraft 0 0 526 Hour 826

Norway and Denmark – and 50 percent non- places purchased electricity, the price of which renewable – coal and gas power from Germany includes grid costs, tax and fees, which means the and Poland. Imports are thus split between dif- ability to pay is higher. On the other hand, dur- ferent energy sources and different countries, ing periods when there is no wind or sunshine, according to the scenario modelling. the electricity price can rise sharply. At that point For the full-year perspective, the largest share baseload power is used instead, potentially ben- of imports take place during the winter when efitting from the higher electricity prices. The there is a high demand for electrical power. earning capacity of different energy sources has Altogether Sweden needs to import 8 TWh in been analysed for “Analysis Year 2045,” as well “Analysis Year 2045.” This is an entirely differ- as how market prices change when the percent- ent situation than the one we have today where age of intermittent energy in the system is higher. we mainly import during low load periods and Since price volatility increases, the total number during the summer, equivalent to around 2 TWh. of both low-price hours and high-price hours increases. Table 3 shows what each energy source is Earning capacity for paid on average during the year and an estimate different energy sources of what the total production cost can be for each Although all the energy sources are in the same energy source in the longer term. The estimate market their earning capacity varies. Wind power was made by the project's Electricity Production has very low variable costs. An increase in the working group (Byman, 2016). percentage of wind power in the system results in Long term information on revenue and costs is high pressure on electricity prices when there is uncertain, but analysis indicates that wind power a lot of wind. This in turn results in wind power and solar cannot fully cover their costs with the undermining its own ability to make a profit. The system price, but will still need subsidies, while situation is the same for solar energy, although CHP could generate a surplus. Production costs the market conditions are slightly different. Solar per kilowatt hour will also be higher if wind energy is usually produced by property owners power producers are forced to waste their elec- for their own use, so called “prosumers,” and re- tricity during periods with big surpluses, since

33 Table 3: Earnings capacity Annual average replacement Production cost, for different energy sources for produced electricity via the incl. cost of capital ("2045," with 50 percent intermittent spot market. today's price level) electricity production compared to the estimated Solar power Approx. SEK 250–300/MWh Approx. SEK 770/MWh production cost. Wind power Approx. SEK 250–300/MWh Approx. SEK 350/MWh Source: NEPP, the Electricity Production work group CHP Approx. SEK 1,000/MWh Approx. SEK 570/MWh

Figure 9: Description of how the price curve over the year is changed from today’s situation to a scenario with a significantly increased percentage of intermittent power according to the model simulations above. Source: NEPP 2016

SEK/MWh

1,000 Future price curve 900

800

700

600 Smaller thermal power → More high price hours 500

400 Smaller wind power (& solar) → More price hours 300

200 Today's price curve 100

0 0 % 20 % 40 % 60 % 80 % 100 % %

there are fewer kilowatt hours to share the total CONCLUSIONS FROM THE costs between. For property owners investing in MODEL SIMULATIONS FOR solar energy the alternative costs for purchased “ANALYSIS YEAR 2045” electricity are higher than the electricity price alone, because they also avoid grid costs, electric- The model simulations show that a common ity tax and VAT, depending on how the politicians European goal of at least 75 percent renewable decide to design the regulations. electricity will lead to an electricity system that The price curve in Figure 9 shows the short- is 100 percent renewable in Sweden with Sweden term margin costs in the electricity system (i.e. and Norway being net exporters of electricity to the system price on Nord Pool) over the 8,760 the continent. But the analysis also shows that hours of the year (100 percent), displayed in or- Sweden, in such a system, would not be self-suf- der of size. The diagram shows the price curve ficient in power, and that the power deficit may getting steeper than the one we have today. reach 7–8 GW during the winter when electric- The average system price over the whole year is ity demand is at its highest. The model simula- around 300–350 SEK/MWh. The price is for an tions do not answer the question of whether this “energy only” market. power is available through imports.

34 Electricity prices will be significantly more will be dependent on subsidies or if it can be prof- volatile. When it is windy and the sun is shining, itable on its own merits. the marginal cost approaches zero, while elec- The challenges – both in Sweden and in north- tricity prices will be high when the situation is ern Europe as a whole – are increasing on all the reverse. There is a risk that wind power will levels. They relate to delivery reliability, load- undermine its own earning capacity. Technology balancing ability, market regulation and the development and falling production costs make it ability to and cost of securing investments and difficult today to say if wind power in the future implementing other measures.

WHAT DOES SWEDEN NEED TO DO TO ACHIEVE A POWER BALANCE?

The model calculations show that from an elec- 2. Design political control mechanisms for a higher tricity system perspective it would pay to sig- percentage of baseload power. nificantly expand intermittent energy in Sweden, 3. Not being self-sufficient in power, but having given the northern European goal of at least 75 more regional cooperation aimed at increased percent renewable/climate neutral electricity by security of supply. 2050. To achieve the goal it is assumed that the EU subsidy system for renewables will be main- The Electricity Crossroads project believe it is a tained and expanded. The calculations include fundamental prerequisite to maintain security hydropower, biofuel-based CHP, solar and wind of supply at least at the same level as today. The power and condensing power, which is produc- Swedish system has a high security of supply tion based on incineration or nuclear fission with- currently but lacks measurable goals that can out the simultaneous production of heat. Con- be followed up. Nor is any party identified as densing power in Sweden is, however, usually responsible for ensuring the goal is reached. A given low priority by the model because it is more discussion on how power self-sufficient Sweden expensive than power production in the northern should be must include setting such a goal and European electricity system. The model prioritis- deciding who should be responsible for it. es importing electricity. From a northern Euro- pean and theoretically ideal market perspective, it is the most cost-effective solution. In practice it SELF-SUFFICIENCY IN POWER WITH has limitations. According to expert assessments AN “INSURANCE SOLUTION” from the Electricity Crossroads Steering Com- mittee it is improbable that there will be sufficient To be on the safe side Sweden should invest in capacity approaching 8 GW for importing during gas turbines to ensure that the country’s power cold winter days when the electricity system is requirement is met. The gas turbines should be stretched to its limits. It is therefore necessary to run on renewable fuels in either liquid or gas have a discussion about how dependent Sweden form. Model calculations have been carried out should be on imports from other countries and for installation in Sweden of 8 GW gas turbines what our level of self-sufficiency should be. in the system. The modelling for “Analysis Year In general, there are three alternatives. A suita- 2045” shows, however, that these gas turbines ble solution probably involves a mix of measures. will essentially never be used as the model calculations are based on the lowest production costs 1. Install reserve power sources, for example gas and assuming there is power available to import. turbines that provide a form of “insurance” Gas turbines have relatively high variable costs. against a power deficit in the country. But this analysis presents a theoretical scenario; in practice in practice the risk of power deficit

35 Figure 10: Development of the 200 electricity system in Sweden with SWEDEN Electricity demand a higher percentage of baseload Solar power 150 power, here exemplified as Wind power new nuclear power. Electricity Biofuel, waste production includes 20 percent 100 Oil intermittent power in “Analysis

TWh/year Natural gas Year 2045.” Source: NEPP 2016 50 Coal Nuclear power Hydropower 0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Figure 11: Analysis of two summer weeks with an electricity system with a large percentage of thermal power, here exemplified as new nuclear power. Source: NEPP 2016

GW Euro/MWh 40 50 45 40 GW Euro/MWh 35 Elpris (höger axel) 100 50 30 Elefterfrågan 90 GW 2045 Euro/MWh 25 Solkraft 80 40 100 GW 50 Euro/MWh 20 Vattenkraft 70 90 35 Elpris (höger axel) 15 100 45 50 Kraftvärme m.m. 60 Elefterfrågan 80 90 30 40 10 GW 45 Euro/MWh Kärnkraft 50 70 25 Solar power Elpris (höger axel) 5 80 100 35 40 40 0 50 Vindkraft 60 70 20 Hydropower 30 Elefterfrågan Elpris (höger axel) 0 90 4,600 4,750 35 45 4,900 Hour 30 15 50 60 CHP etc. 25 Solar power Elefterfrågan 80 30 40 20 40 10 50 70 Nuclear power 20 Hydropower 25 Solar power Electricity price (right axis) 10 35 30 40 5 15 60 Wind power CHP etc. 20 Hydropower 30 Electricity demand 0 20 0 30 10 15 4600 4750 50 4900 Nuclear power CHP etc. 25 Solar power 10 20 5 40 10 20 0 Wind power Nuclear power Hydropower 10 Figure 12: Analysis of two winter0 weeks with an electricity5 system with a large percentage of thermal power, 4600 304750 4900 15 0 Wind power CHP etc. 20 here exemplified as new nuclear power. Source: NEPP 2016.0 10 4600 4750 4900 Nuclear power 10 5 GW Wind power Euro/MWh 0 0 4600 40 4750 4900 50 45 40 GW Euro/MWh 35 Elpris (höger axel) 100 50 30 Elefterfrågan 90 20 GW 45 Euro/MWh 25 Solkraft 80 40 100 GW 50 Euro/MWh 20 Vattenkraft 70 90 35 Elpris (höger axel) 15 100 45 50 Kraftvärme m.m. 60 Elefterfrågan 80 90 30 40 10 GW 45 Euro/MWh Kärnkraft 50 70 25 Solar power Elpris (höger axel) 5 80 100 35 40 40 0 50 Vindkraft 60 70 20 Hydropower 30 Elefterfrågan Elpris (höger axel) 0 90 526 Hour35 45 826 30 15 50 60 CHP etc. 25 Solar power Elefterfrågan 80 30 40 20 40 10 50 70 Nuclear power 20 Hydropower 25 Solar power Electricity price (right axis) 10 35 30 40 5 15 60 Wind power CHP etc. 20 Hydropower 30 Electricity demand 0 20 0 30 10 15 4600 4750 50 4900 Nuclear power CHP etc. 25 Solar power 10 20 5 40 10 20 0 Wind power Nuclear power Hydropower 10 0 5 4600 304750 4900 15 0 Wind power CHP etc. 20 0 10 4600 36 4750 4900 Nuclear power 10 5 Wind power 0 0 4600 4750 4900 Table 4: A comparison between a system with “50 percent intermittent energy” and “20 percent intermittent energy.” Source: NEPP 2016.

"50 percent intermittent" "20 percent intermittent" Maximum demand for baseload power 25 GW 25 GW Maximum imported electric power 7–8 GW 6–7 GW Total imported electric energy 8 TWh 2 TWh When do imports take place? During high load, winter. During medium load, summer. Shortage of baseload power in There is baseload power in the country, What drives imports? the country, we must import. but electricity prices are lower elsewhere.

cannot be ignored. Some form of “insurance tricity price is lower in the neighbouring coun- solution” should therefore be discussed, e.g. an tries of Sweden. investment in gas turbines. A comparison between a system with a high share of intermittent power (50 percent) and a system with a low share of intermittent power SELF-SUFFICIENCY IN POWER BY (20 percent) is summarised in Table 4 above. INCREASING THE PERCENTAGE OF Electricity imports occur when Sweden has a BASELOAD POWER IN THE SYSTEM low percentage of intermittent power and neighbouring countries have a low electricity price, External factors and control mechanisms could probably because they have a good supply of sun lead to construction of a higher percentage of and wind during those hours. Electricity is also baseload power in the form of bio-CHP and con- imported during periods when the electricity densing power based on biofuels, or new nuclear system is not stretched, i.e. during the summer. power. External factors that could prompt the When there is a high percentage (50 percent) of addition of new nuclear power include a signifi- intermittent power, electricity is imported when cant increase in the price of emission allowances the capacity within the country is insufficient. within the EU’s trading system for climate gases In terms of power, the imports are almost the and an increased acceptance of nuclear power in same size, but in terms of energy the difference Sweden. Bio-CHP and condensing power could is great, 8 TWh in the case of 50 percent intermit- be encouraged if control mechanisms are intro- tent power compared to 2 TWh with 20 percent duced that promote the supply of power. intermittent power. A deeper model analysis has been performed for a system in “Analysis Year 2045” with a higher percentage of thermal energy, in this case GUARANTEE DELIVERY RELIABILITY exemplified by new nuclear power. IN COOPERATION WITH NEIGHBOUR- The deeper analysis for two summer weeks ING COUNTRIES and for two winter weeks is illustrated in the diagrams in Figure 11 and 12. According to From a theoretical economic perspective, the the analysis, Sweden is self-sufficient in power, most-cost effective solution is optimising the producing the same amount of electricity as we electricity system across a larger region than in consume, i.e. our net exports of electricity are an individual country. If each country is to be limited. Electricity is imported when the elec- self-sufficient in power there will be considerable

37 surplus capacity in the system which will seldom later than 2020. Sweden currently has 26 percent, be used. Problems will arise if all countries rely while some countries have almost none. on imports because neighbouring countries also Based on the common ambitions within the EU have a very high percentage of intermittent pow- in combination with the technological develop- er in their systems, and if it is not available at the ment taking place in electricity transmission us- same time. There may be technical bottlenecks, ing HVDC, making it possible to transport larger but even if the percentage of installed solar and volumes of electricity over greater distances, it wind power sources is high, there may be capac- makes sense to expand regional cooperation so ity in the system somewhere in the region. that it is not necessary for every country to be To facilitate greater cooperation, the EU, self-sufficient in power. It is a joint political pro- through its Energy Union, has set a goal whereby ject and Sweden needs to take a stance on how all EU nations are to have a trading capacity of at to guarantee a power balance in the future. least 10 percent of the country’s installed power no

WHAT WILL HAPPEN IF ALL SWEDISH REACTORS ARE CLOSED EARLY?

The remaining planned life of the Swedish nu- bination with taxes and the need for large invest- clear power plants has changed since the project ments in new safety systems may, however, result started. This has also changed the situation with in more, perhaps all, of the remaining six reac- respect to the transition in the electricity system. tors being decommissioned early. To assess the Although the Electricity Crossroads project’s ob- consequences of this in terms of costs and carbon jective is to analyse the period from 2030 to 2050, emissions, a sensitivity analysis was performed new circumstances cannot be ignored. An analysis using model simulations made by NEPP (North of the consequences of an accelerated closure of all European Power Perspectives) in May 2016. This reactors have therefore been made (see Appendix 1 involved an initial analysis of the consequences of for a description of the method used). all reactors being closed by 2020, with addition- Today there are discussions taking place on the al analysis for closure in 2025, 2030, 2035 and future of Sweden’s existing nuclear power. Four 2040. Although delivery reliability would also be of the ten reactors will be closed before 2020. Al- threatened in the event of fast closure, this was though this will impact delivery reliability nega- not studied in the model simulations. tively, experts believe it will be possible to manage Figure 13 shows the development of electricity the power balance. Low electricity prices in com- production in Sweden in a scenario where all ten

Figure 13: Electricity 200 production in Sweden in SWEDEN Electricity demand the scenario described Solar power 150 above. The figure shows Wind power historical data for 1990–2010 Biofuel, waste and results from model 100 Oil calculations for 2015–2050. TWh/year Natural gas Electricity demand in Sweden is expected to increase at 50 Coal a moderate rate and reach Nuclear power Hydropower 160 TWh by 2050. 0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 38 Figure 14: The diagram 60 shows which type of electricity ELECTRICITY PRODUCTION TO REPLACE NUCLEAR POWER 50 production in the northern European electricity system 40 including Sweden would replace Solar power nuclear power if the six reactors 30 Wind power are closed by 2020.

TWh/year Biofuel, waste 20 Natural gas 10 Coal Hydropower 0

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Figure 15 and 16: Total system costs (left) and total carbon emissions (right) in the northern European electricity system in the event of early closure of the remaining six Swedish nuclear power reactors at different times, compared to the outcome if these reactors were in operation until the end of their technical life.

200 500 205 490 400 150 160

300 340 115 100 emissions 2 200 SEK billion 75 190 50 Mt CO 100 40 100 40 0 0 2020 2025 2030 2035 2040 2045 2020 2025 2030 2035 2040 2045

reactors are closed by 2020. Despite the continued northern European electricity system. The first expansion of renewable energy sources, the import column in each diagram shows the total costs and need would be great, for both electric energy and the total carbon emissions if all reactors were to electric power for many years to come. In 2020 close by 2020, compared to a scenario where the Sweden would need to import between 40–50 six reactors are allowed to remain in operation TWh/year (with normal hydropower production) for their planned life, which is 60 years. based on the amount of electricity beeing used. The Closure of all reactors by 2020 would cost just diagram in Figure 14 shows the electric energy re- over SEK 200 billion and cause increased carbon placing Swedish nuclear power through other/new emissions in the range of 500 million tonnes at production in Sweden or via imports according to power plants replacing Swedish nuclear power. the model analysis. Over the next ten years (2020– A fast nuclear phase out will also make it more 2030) this replacement energy will predominantly expensive to achieve the climate goals at the Eu- (80–90 percent) come from coal and natural gas ropean level. If the reactors are decomissiones by fuelled power production in our neighbouring 2035 instead it would cost SEK 75 billion and the countries, primarily Germany and Poland. early closure would result in emissions of 105 bil- Figure 15 shows the costs (left) and the total lion tonnes of carbon dioxide, compared to the carbon emissions (right) that early closure of the scenario where all six reactors are allowed to op- six remaining rectors would give rise to in the erate their full life.

39 Framtidens Sveriges framtida elanvändning elproduktion En delrapport En delrapport

IVA-projektet Vägval el IVA-projektet Vägval el

Sveriges Framtidens el framtida elnät – så påverkas En delrapport klimat och miljö

IVA-projektet Vägval el En delrapport IVA-projektet Vägval el

Framtidens elmarknad En delrapport

IVA-projektet Vägval el

40 Observations and conclusions from the work groups

The following chapter summerize conclusions For more detailed presentations, refer to the re- and recommendations from the work groups. spective project reports (see list in Appendix 2).

WHAT FACTORS AFFECT FUTURE ELECTRICITY USE?

Electricity is an efficient energy carrier that has • Economic development, including development enabled technological development to take place of industry and structural transformation, may and helped improve resource use efficiency. Elec- both increase and decrease electricity usage. The tricity can play an important role in replacing use of electricity to improve efficiency in the use fossil energy carriers to meet higher standards of other resources or fossil fuels could lead to an for reducing greenhouse gas emissions. Mean- increase electricity use. An example of this is the while society is being digitalised and IT use is in- possibility of replacing coal in steel processes with creasing rapidly, which requires more electricity. hydrogen gas produced using fossil-free electricity. The Electricity Crossroads Electricity Usage work group has identified various factors that • Population development has significance for future impact how electricity usage may develop be- electricity use, but there is considerable uncertain- yond 2040. The work group has concluded that ty about the extent of population growth. There electricity use may increase from today’s 128 is a difference of 3–4 million people between the TWh to 165 TWh, excluding losses. Demand for highest and lowest estimates of the number of power is also expected to increase to the same residents in Sweden in 2050. For every million, the degree unless the amount of electricity beeing estimated increase in electricity use is 8–10 TWh. used for heating is reduced. Including distribution losses, the electricity requirement is equiva- • Technological development in the form of lent to 140–180 TWh, with an estimated maxi- constant improvement and technology break- mum power of 26–30 GW, compared to today’s throughs will lead to more efficient electricity use. Framtidens elanvändning 27 GW. En delrapport IVA-projektet Vägval el The potential for demand flexibility in the sys- • Political decisions and control mechanisms could tem is expected to be 3.0–4.5 GW, but will differ both directly and indirectly impact future elec- in terms of endurance and how often it is avail- tricity use. able, and which incentives and price signals will be required to make it happen. Some important observations: The amount of electricity used in the future in Sweden will depend on a number of factors. • Continued economic growth is considered Read more in Future Electricity Use Those believed to have the greatest significance important for improved energy efficiency. It is – a project report can be grouped as follows: investments made by households and industries (IVA-M 461).

41 that have resulted in efficiency improvements during the winter. It should be emphasised that and these investments have historically mainly electricity could play an important role in future been made during periods of higher growth. heating systems through, for example, heat There is therefore a positive link between energy pumps that run on electricity. efficiency improvement and economic growth. • The demand for maximum power determines • Electrification of the transport sector can have the dimensions of the electricity system. It is significant climate and environmental benefits therefore important to encourage behaviour and contribute greatly to energy efficiency that can reduce the maximum power demand improvement in society when electricity replaces and in doing so permanently reduce power fossil fuels and because electric motors are more peaks, especially as these only occur a few hours efficient than combustion engines. Today around a year. In the long run this would lead to lower 70 TWh of petrol and diesel are used for road costs for consumers. transportation. If this were to be replaced by 13 TWh of electricity, electricity use would increase, • There is high technological potential to control but overall energy use would be more efficient. and shift demand (demand flexibility) from hours With smart charging strategies the power needs of high loads and thereby lower the highest peaks, would not need to increase to the same extent. without compromising comfort. This could change the usage profile compared to today. It could be • In the iron and steel industry, carbon emissions further improved by using storage technologies could be reduced significantly if coal-based iron that can cost-effectively even out the demand production could be replaced by new technology profile over a 24-hour period. based on electricity. Table 5 shows the impact of different factors on • The way in which Sweden will meet its heating future electricity use. needs in the future will have an impact on Estimates of future electricity use from 2030 future electricity demand, especially in respect to 2050 indicate a total of 128–165 TWh, exclud- of the large seasonal variations and peak loads ing distribution losses, see Table 6.

Table 5: The extent of future electricity use in Sweden will depend on various factors. Source: The Electricity Usage work group, Electricity Crossroads, 2016.

Factors Change 2030–2050 Increase in population of one million people Increase 8–11 TWh* Full electrification of the transport sector Increase around 13 TWh Phase-out of all mechanical pulp production (~2 TWh per mill) Reduction around 10 TWh Large scale CCS Increase 2–5 TWh Total electrification of the steel industry Increase 15–20 TWh Large-scale establishment of data centres Increase 6–10** TWh

* The higher range, in addition to the direct impact of electricity use of the “number of residents in Sweden,” also includes the impact the number of residents have on “the number of households” and “size of premises in the service sector.” Based on the information from special reports Scenarios for future electricity use, NEPP 2015. ** Erik Lundström, The Node Pole, expects that if data centres have the same electricity tax as manufacturing industry, it is reasonable to assume a potential of 1,000 MW by 2020, which is equivalent to an increase in electricity use of around 6–7 TWh from data centres. He has also determined that up to 10 TWh may be a reasonable estimate in the time perspective 2030–2050.

42 Table 6: Collective assessment of future electricity use (excluding distribution losses) beyond 2030 by sector. Source: The Electricity Usage work group, Electricity Crossroads, 2016.

Electricity use 2013 Estimated electricity use after 2030 Sector [TWh] [TWh] Households and services 71 65–85 Industry* (including data centres) 51 50–60 Transport 3 10–16 Other electricity use** 4 3–4 Total, excluding losses 129 128–165 Total, including losses 140 140–180

* Including electricity relating to data centre activity, i.e. parts of the IT sector’s electricity use. Other electricity use from the IT sector is included in the housing and service sector. ** Includes electricity use in district heating production and refineries..

WHAT WILL THE ELECTRICITY PRODUCTION SYSTEM LOOK LIKE IN THE FUTURE?

Sweden’s electricity system today is almost fossil- of hydropower. All of the alternatives contain a free and there is a good chance that it will also mix of energy sources, but each one has a differ- be fossil-free in 2050, based on hydropower, bio ent main focus. They are: fuels, solar and wind power or new nuclear. The project’s Electricity Production work 1. “More solar and wind” group has described four conceivable electric- 2. “More bioenergy” ity production systems that could meet Sweden’s 3. “New nuclear power” electric energy needs, but that to varying degrees 4. “More Hydropower” may need to be complemented by an expansion of the domestic electrical grid, cables to other One early conclusion reached in the project was countries, reserve capacity and stocks as well as that there are several paths for Sweden to choose flexible electricity usage. to attain a fossil-free power system. One assump- Theoretically there is great potential for sev- tion is that production in the country must be eral energy sources, but the actual potential is equivalent to consumption over a year. This in- Sveriges framtida elproduktion dependent on the availability of technical system volves Sweden being self-sufficient in energy, but En delrapport IVA-projektet Vägval el solutions to maintain a balance in the electric- not necessary in power. The diagram in Figure ity system, and to protect the environment and 17 illustrates the various production alternatives. the economy. Four different extreme alternatives An electricity system with a large percentage of have been created for the electricity system’s de- solar and wind is able to generate a lot of energy, sign in 2050. All of them involve at least 65 TWh but the ability to guarantee power is limited. Such hydropower, continued expansion of wind pow- a system would to a greater extent require various er and solar, and increased biofuel-based power types of technical supplementary systems to han- Read more in Sweden’s future electricity production. One alternative involves developing dle situations when solar and wind power pro- production – a project new nuclear power and another of an expansion duction is low but electricity consumption is high. report (IVA-M 463).

43 "More "More "New "More solar and wind" bioenergy" nuclear power" hydropower"

Figure 17: Illustration of the four production alternatives developed by the Electricity Production work group, TWh.

oeer or poer ropoer

er poer poer o ro oeer

pre

ore ropoer

ore er poer

ore oeer

ore or

The reverse situation also needs to be dealt with, storage is not necessary to even out variations i.e. when there is a large surplus of electricity. in wind power production. Examples of supplementary technical measures in a system with plenty of solar and wind are: • In addition to hydropower and CHP, additional baseload production capacity is needed in • Expansion of transfer capacity – both within the form of gas turbines or similar flexible Sweden and to surrounding countries. A production solutions that can be on hand and general plan for northern Europe is also needed used during consumption peaks. More flexible to handle deficits and surpluses of electricity electricity consumption is also necessary. between different regions. An electricity system with a large percentage of • There is a need to be able to store energy, bioenergy has the potential to create a situation preferably over a period of at least a few weeks, where Sweden is self-sufficient in energy and in order to save energy produced on windy power. This would be a system primarily based days to be used on less windy days. Seasonal on domestic fuel, and production being close to

44 consumption, which would reduce the need for Generation 4 could come after that. If new nu- new transmission capacity. clear is to be an option, Sweden should monitor To reach full potential, technical development the technology development and the experiences and demonstration plants are needed for new gained internationally to ensure necessary ex- CHP technology – both large scale plants with pertise to make well-informed decisions on significantly higher efficiency levels than today’s which technology to choose. plants, and small-scale CHP plants. An alternative involving further expansion To increase energy production from biofuel- of hydropower could create a system where based CHP, electricity production needs to be Sweden is self-sufficient in energy and power. independent of the heat source through installa- Hydropower is the most flexible energy source tion of extra cooling and/or larger heat accumu- and can also be stored. Annual energy produc- lators. Conventional condensing power plants tion depends on precipitation, but the available are a more expensive solution and are not as fuel power is not affected in the short term. efficient. More investment in larger scale bioen- A significant portion of the new hydropower ergy solutions could be restricted by competition capacity is in northern Sweden and investment for biomass and the impact on biodiversity. will be needed in transmission capacity south- An alternative involving new nuclear power wards. An increased amount of hydropower will is the one that is the most similar to the cur- result in large differences in domestic energy rent system. The system will require some sub- production between wet years and dry years, stantial investments in new supplementary sys- which will require an increased energy exchange tems. Technology for a number of new concepts with surrounding countries. A change in the leg- is being developed. It is likely that generation islation is needed to bring about an expansion in 3+ technology will be available in 2030–2040. hydropower.

WHAT ROLE WILL THE ELECTRICAL GRID PLAY IN THE ELECTRICITY SYSTEM OF THE FUTURE?

The electrical grid links electricity production Changes are taking place on the user side that and use, the future production mix and future may reduce the power demand (devices, revo- usage will therefore influence how the electrical lution control, user flexibility) or increase the grid is developed. The electrical grid also needs power demand (transport electrification, new to be adjusted to meet EU guidelines, such as grid or more devices/machines run on electricity). codes and electricity export and import levels. Energy storage may also impact the design of The Transmission and Distribution work group the grid. It might be necessary be a necessary to has analysed the factors effecting development reduce power demand through load control or Sveriges framtida elnät of the electrical grid. increase it to receive the surplus from variable En delrapport The role of the grid will be more complex in electricity production. IVA-projektet Vägval el the future. The nature of production will change In general the demand for flexible solutions for when more decentralised plants and facilities re- the grid is increasing. Below are a few observa- place larger ones, and as electricity production tions about the factors that will have the greatest flows in the opposite direction – from users out effect on grid development. into the grid again – as more and more users start Urbanisation will increase the pressure on the producing their own electricity. There could also electrical grid in and around cities. Depopulation Read more in be more pressure on the grid as the consequences will result in grids in sparsely populated areas Sweden's Future Electrical Grid – a of power cuts will be even greater in a society supplying fewer people and thus becoming more project report that is increasingly dependent on electricity. expensive for the people still there. Similarly, a (IVA-M 464).

45 change in the industrial structure could result in Both high and low levels of self-sufficiency will great geographic changes and thereby significant require more transmission capacity between changes to the electrical grid. Sweden and other countries. Without control or incentives, electrified transportation will probably result in higher peak loads and the challenges will be the great- INVESTMENTS IN THE est in local and regional grids. But through con- ELECTRICAL GRID trol or incentives, electric vehicles could instead reduce the pressure on the electrical grid. The electrical grid is constantly being renewed Constant and guaranteed user flexibility could and improved, partly by replacement of ageing help to reduce capacity needs and thereby reduce equipment, but also due to new producers be- the need for transmission capacity. Local energy ing connected and other changes in electricity storage could, on the other hand, have a substan- use and electricity production. Overhead lines tial impact on the electrical grid dimensioning. in local grids are, for example, being replaced The emergence of so-called prosumers, i.e. by underground cables so that the grid will be consumers who produce electricity, could result able to better withstand an increasing number in the development of self-sufficient units. The of storms. electrical grid of the future may, in such a situ- Regardless of the changes in the energy sys- ation, have a different role and only serve as a tem, the big investment programmes will have back-up. a clear focus on the electrical grids that are ap- The cost of adapting the electrical grid for vari- proaching the age of 50. Investments will be ous production alternatives is small compared to driven by a combination of the need to maintain the cost of the electricity production facilities. But delivery reliability and to increase capacity in developing the grid is by no means a simple pro- regions with strong population growth, or the cess; it is important to plan ahead, and efficient emergence for new electricity production. planning and permit processes are also essential. The behaviour of electrical grid companies is The value of a well-developed electrical grid can- controlled by the incentives that exist in regu- not be underestimated as it is important to ensure latory frameworks. Because the regulations are that, at any given moment, the cheapest produc- changed every four years to include different tion options are available in northern Europe. incentives, it is hard to say if the electrical grid The Swedish electricity system today can han- developing in the right direction. A clear, overall dle both the sudden closure of a large produc- political vision for regulation is necessary if the tion facility and a production that fluctuates electrical grid is to be a facilitator and to develop depending on access to wind and sunlight. One the grid in the right direction. important resource for the future is the avail- Today’s permit processes are a bottleneck in ability of hydropower and reservoirs to help many necessary change processes. The length of balance variations over most timeframes – from the permit process should be more predictable. seconds and minutes up to months. The installation of smaller plants, such as solar Most of the plants that contribute significant energy and local energy storage, could be done balancing capacity are in nothern parts of Swe- quickly compared to the multi-year processes of den. This, in combination with the likelihood building large conventional power plants. The that large wind farms will be built in northern faster pace of change among producers shortens Sweden due to good land availability and wind the grid operators’ planning horizon, and will conditions, will increase the need for transmis- increase the need for fast project planning and sion capacity from northern to mid-Sweden. implementation, as well as fast permit processes The consequences of Sweden’s self-sufficiency with the authorities. Another aspect is that the level, depending on whether we are discussing lifespan of these types of small plants is shorter power or energy, will vary, with self-sufficiency than the life of electrical grid, which creates a in power having an impact on the electrical grid. discrepancy in the planning horizon.

46 WHAT ARE THE MOST IMPORTANT Framtidens el – så påverkas klimat och miljö CLIMATE AND ENVIRONMENTAL ISSUES? En delrapport IVA-projektet Vägval el

The Climate and Environment work group has • Emissions of fossil greenhouse gases from aimed to study the climate and environmental electricity production within Sweden’s aspects with respect to the future electricity borders are limited, but there are indirect system from a life-cycle perspective. The group greenhouse gas emissions in construction, started by analysing the climate and environ- transport and production in countries that Read more in Electricity in the mental consequences of the alternatives de- use fossil fuels. Future – effect scribed by the project’s Production, Transmis- on the climate and sion & Distribution and User work groups. The • Several environmental issues will be able environment objective has been to highlight the main chal- to be managed through technological – a project report (IVA-M 467). lenges for the climate and the environment, to development, for example, most of the identify large and small challenges, and which emissions to air. of Sweden's 16 national environmental quality objectives will primarily be affected by the al- • Biodiversity has proven to be difficult to ternatives. appraise. More knowledge is needed in this area and this could be achieved through The work group’s observations. systematic monitoring, and ongoing and intensified dialogue between different parties. • Biodiversity, resource use and climate change are important future climate and • Views on biodiversity vary and the impact environmental challenges for the electricity of various activities may be difficult to judge system. objectively. This is an area where more knowledge is needed among all stakehold- • It is not possible for the electricity system ers for more predictable assessments in, for to have zero impact on the climate and example, permit processes. the environment, but its impact should be minimised. From a sustainability perspective • Biodiversity – both in terms of extraction the entire energy system should be of biomass and the effects of hydropower considered in an international context. production – is an area where political consideration is needed. • The temperature increase for the northern hemisphere is expected to be more • With today’s technology it will be difficult substantial than at the global level. The to sustainably achieve a substantial increase temperature is expected to increase by in electricity production from bioenergy two to six degrees in Sweden by 2100 using only domestic forest residues. Other compared to the pre-industrial age. This biomass may be needed, such as other for- increase in temperature will potentially be est raw materials, agricultural residues and one of the most important causes of losses organic waste, as well as imported biomass. in biodiversity and changes in the ecosystem. Ultimately, the end the issue of how agricultural resources are used is a question of • An increase in temperature will reduce the economics. need for heating and increase precipitation, which will create the necessary conditions • The Swedish view of the climate neutrality of for increased hydropower production and biomass and sustainable forestry is not the for greater biomass growth. same as the one apparently being expressed by certain European NGO’s. The European

47 Commission’s sustainability criteria for solid particularly great in the case of technologies biofuels may growth the development of that are being rapidly developed today, such biomass in the energy sector. as solar cells and batteries. Development is moving fast and the data in today’s • Improving the efficiency of different literature on environmental aspects in a sectors is an important aspect from a life-cycle perspective is unreliable. However, system perspective and has a bearing on environmental aspects in general needs the resource issue, for example, through to be highlighted and especially relating to technical development of products and in newly developed technologies. the actual electricity system, as well as the transport sector with the transition from One observation is that environmental impacts fossil fuels to electric vehicles as electric vary in nature in the four alternatives defined power is significantly more efficient. by the Production group (Byman, 2016), rang- ing from a significant local impact on the en- • In terms of use of resources such as rare vironment to indirect effects of production in earth metals, other metals and uranium in other countries. We have determined that the the electricity system, it is important, from four “alternatives” have different environmental an environmental perspective, to assess impacts and that it is impossible to easily rank whether they can be recycled or if the them in terms of a climate and environmental resource is consumed. As everyting else, perspective. the electricity system is part of the circular In the “More wind and solar” alternative economy. it is very important to follow development of the components and systems produced in other • Uncertainty in environmental assessments countries to gain insights into the environmen- for the 2030 to 2050 timeframe is tal impact of manufacturing things like solar

Figure 18: Interpretation of how a sustainable framework for the electrical power • Economic stability system could be described. Source: The Climate and Environment working group • Innovation/technological development • Good Investment climate • Good competitiveness • High security • High availability • High efficiency level • High reliability 1. Economics • High resource efficiency • Strong resistance against • Limited and circular use of sabotage finite resources • Uses resources in such a Socio Environmental way so that no risky state economics economics of dependence among • Low environmentally harmful individual countries or Sustain- emissions from a life-cycle individual suppliers arises ability perspective • Equal access to energy 3. Society 2. Environment • Low collective negative impact on biodiversity and Social the ecosystem (national environment environmental objectives) • Good working conditions • Residual products returned • Low risk of accidents, good to the cycle health & safety • Low negative climate impact • Equality • Diversity • Human rights The balance between economic, environmental and social factors from • Social acceptance (noise, • Cultural environment a life-cycle perspective in a way that benefits various stakeholders. landscape, aesthetics)

48 cells and wind turbine components. This al- The “New nuclear power” alternative essen- ternative requires substantial storage capacity, tially replaces today’s system with equivalent demand flexibility and load-balancing power. nuclear power production with upgraded The environmental impact depends to a large technology. From an environmental perspec- extent on how the load-balancing resource is tive this alternative gives rise to emissions designed. A significant expansion of the trans- in fuel extraction, transportation and plant mission grid is also necessary, which could construction, as well as a higher volume of impact the local environment when cables are nuclear waste that today that will need to be laid. dealt with. The “More bioenergy” alternative requires The “More hydropower” alternative would high levels of biomass use, coming mainly from have a significant impact on biodiversity as residual products from the forest industry. It has some, or all, untouched rivers in Sweden would been concluded, however that it will be difficult need to be used. It is essentially impossible to to deliver this volume in a sustainable way based find a way to construct hydropower in unspoiled on domestic forest residuals alone. A higher ex- countryside – which creates migration obstacles traction rate would have a higher environmen- – in a way that is acceptable in terms of the im- tal impact on things like biodiversity and more pact on biodiversity. A substantial expansion of traceability is therefore required. This alterna- the transmission grid would also be necessary tive also involves more transportation, also im- and this could impact the local environment pacting the environment. when cables are laid.

PUBLIC FINANCES AND THE ELECTRICITY MARKET

An energy supply system that is efficient from REGULATION, TAXES AND CONTROL a public finances perspective is essential for MECHANISMS HAVE A CRITICAL both Swedish households and for the competi- IMPACT ON TECHNICAL SOLUTIONS, tiveness of Swedish industry. The paths chosen THE ENERGY SYSTEM’S EFFICIENCY could therefore have a big impact on the Swed- AND COSTS ish economy as a whole. In the following section is a summary of observations and conclu- Today’s control mechanisms, which are mainly sions relating to electricity market challenges justified by climate considerations and renew- from the Public Finances and Electricity Mar- able energy targets, have had a critical impact on ket work group. the composition of the system. There are clear The electricity market is facing challenging production targets for renewable energy, but no but technically implementable changes for a target for available and baseload power. Exist- system with a significantly altered production ing control mechanisms have generated invest- Framtidens elmarknad structure. The conversion process must take ments in intermittent power production, mainly En delrapport IVA-projektet Vägval el into account that electricity is produced and wind power. This has led to a situation where consumed at the same moment in a physically electricity is not necessarily being produced connected system and that the electricity system when needed, resulting in fears that the system’s is characterised by long investment cycles. The long-term delivery reliability is threatened by goal for the transition must be a cost-effective current subsidy systems. energy system with maintained delivery reliabil- The intermittent energy sources will account ity and low environmental impact. for a growing percentage of future energy pro- Read more in Future Electricity duction. Sweden is currently investing in the Market – a project type of production that results in an increased report (IVA-M 470).

49 energy surplus, and this surplus may end up of the current conditions. The nuclear capacity being exported for a price that is significantly tax may lead to reactors that supply baseload lower than the long-term cost of new produc- power being closed early, which would impact tion. Meanwhile, nuclear power is facing signif- the electricity supply. The work group has de- icant reinvestment needs. The subsidy system is termined that the property tax on hydropower essentially forcing this change to happen. The plants in individual cases is likewise prevent- result is higher costs for society compared to ing necessary investments from being made if the age structure of the existing production for the renewal needed to handle future chal- system had been taken into account. A market lenges. Today’s subsidy structure also distorts model that provides long-term and predictable the situation to the extent that it differentiates signals to players could result in significant sav- between technologies and whether production ings for society by avoiding over-investment in takes place on a large or small scale. production, transmission grids and research For an efficient price structure to exist is it capacity. essential for all products and services as well as system services and flexibility to be compen- sated in relation to their value. This happens if NEW SUPPLY AND USE STRUCTURE marginal pricing is not only used for electric CHANGING THE GAME energy but also for the functions in the system for which no price is set today, such as inertia The transition taking place is changing the and reactive power. structure of the electricity market. The number of players in the electricity market has increased since the re-regulation, and as both SETTING FLEXIBLE TARGETS AND supply and use are associated with increasingly PROVIDING INCENTIVES TO INCREASE decentralised decision-making, the number of AVAILABLE POWER ARE WAYS TO players will continue to grow. This will in- ACHIEVE A MORE APPROPRIATE crease dependence between the different parts SYSTEM of the system as well as coordination between them. There is consensus in the sector that the Adapting the scope of society’s renewable tar- demand side needs to have a more active role in gets according to how the market in general is the electricity market of the future. New tech- developing could make the system more flex- nical solutions will facilitate this. ible. One important aspect to consider is that a To maintain a structure that steers players subsidy system should not result in lower deliv- towards cost-effective and technology neutral ery reliability or require other steps to be taken solutions, it is important to clearly define who to guarantee delivery reliability. is responsible for maintaining the balance and New environmental requirements resulting to develop effective cooperation between those from the EU’s Water Framework Directive may responsible for the systems in the Nordic re- affect the ability of hydropower to facilitate an gion. efficient transition. Today’s hydropower system is the result of careful planning to meet the demand that was predicted when the plants were IT IS NOT POSSIBLE TO DEVELOP built. Today the situation is different. THE SYSTEM OF THE FUTURE WITH TODAY’S REGULATIONS A CLEAR DELIVERY Current production taxes and subsidy systems RELIABILITY GOAL IS NEEDED are obstructing cost-effective solutions and flexibility. Taxes and fee structures developed A clear delivery reliability goal would pro- for fiscal purposes need to be reviewed in light mote transparency and predictability regard-

50 ing the basis on which any intervention to en- 1. Sweden has very high electricity use per sure delivery reliability is made. This should capita, and important sectors of industry be supplemented by an established method to are dependent on an electricity supply at a evaluate whether the system can handle what is competitive cost for their survival. demanded of it. A strategic reserve works well at the moment, but in the future an alternative 2. Sweden is moving from an electricity capacity mechanism may be needed to ensure production system dominated by large and delivery reliability through incentives for con- predictable nuclear power to a system with sumption flexibility, energy storage and base- an increasing amount of intermittent power load production. production and small power production If society is looking for cheap energy, the units. market should be left to find the most inexpen- sive solutions. The more the energy mix and 3. The energy certificate system has been cost- other aspects are controlled, the more the mar- effective and has contributed to a significant ket needs to be regulated and the higher the amount of new, mainly land-based wind total cost of the system will tend to get. power. This is now mature technology.

4. Continued subsidies for renewable energy OBSERVATIONS/CONCLUSIONS will create lock-in effects and distort the market to the detriment of predictable The observations and conclusions can be sum- and dispatchable energy sources that can marised under the following points: contribute available power in the winter.

Figure 19: Overview of economic control mechanisms for electricity use. Source: Edfeldt & Damsgaard, 2015

ropoer re e - er poer - o - o - te - - ropoer e pet poer re e oer o tre e oer or poer re e oer poer re e o e tre e o e or poer et e ope o e or poer prte o e or poer et e ope otpt or poer prte otpt

51 Combined with similar subsidies in other 8. The nuclear capacity tax is an unwarranted member nations, this could result in a burden that came about when the margins situation where the price of emission were large and the price of emission allowances under EU ETS is not in line the allowances was expected to be high. long-term marginal cost to achieve the The same applies to the property tax on climate goal. hydropower, which is higher than for other energy sources. 5. The continued use of subsidies increases the need to supplement today’s energy-only 9. If a specific target is desired for renewable market with a capacity mechanism. There energy production, the subsidies that may are several conceivable models for how to be needed to achieve the target should be design this mechanism, all of which have pros designed so that high availability is rewarded and cons and involve a cost. at times when a power shortage is possible. There are several possible ways to change or 6. It is the earning capacity of the energy source replace the current energy certificate system and subsidy systems created that will limit in order to achieve this. This would reduce how much solar and wind power that can the need for a capacity mechanism. be profitably produced. It will be reduced during periods with a lot of sunshine and 10. A clear delivery reliability goal would wind, particularly if the supply continues to promote transparency and predictability increase. Storage costs money, but it could with respect to the basis on which any probably to some extent be used to bridge intervention to ensure delivery reliability is gaps between day and night or individual made. 24-hour periods.

7. The Swedish system of taxes and subsidies in general supports intermittent power and imposes a net tax on baseload power.

52 Appendices

APPENDIX 1: METHODS AND CRITERIA

BASIC CRITERIA FOR ELECTRICITY society. The electricity system should provide the CROSSROADS greatest possible benefit for society, and a holistic approach should be taken when assessing the The electricity system has been analysed from cost of the system – not just for the electricity different perspectives, but some basic criteria system but for the entire energy system. must at least be met. They are: A safe and effective electricity supply is cru- cial for a modern, high-tech welfare society. 1. The future electricity system must have at least The best possible benefit for society means the same delivery reliability as today. competitiveness for the country, jobs, growth 2. Fossil-free electricity production. and a good standard of living. 3. An electricity system that is cost-effective A holistic approach should be employed for society. to determine what the various system alternatives will involve and what they can be al- At least the same delivery lowed to cost. It is not possible to only focus reliability as today on what the various electricity production “At least the same delivery reliability as today” facilities cost; we also need to look at other means that the electricity system needs to pro- investments that are necessary in infrastruc- vide at least the average delivery reliability as ex- ture, storage technology, flexible production ists in today’s electricity system. Delivery quality capacity and use, R&D and demonstration. includes voltage quality and delivery reliability. Voltage quality is very important for industry. There are discussions under way within the EU NEPP’S ANALYSIS AND MODELS on reducing the criteria (including frequency stability) to bring in more volatile energy. This is For complex analysis using models for an electric- not consistent with maintaining today’s level of ity system over a longer period, Electricity Cross- delivery reliability. roads enlisted the help of NEPP (North European Power Perspectives). NEPP’s work is largely based Fossil-free electricity production on compiling syntheses of research, results and “Fossil-free electricity production” refers to conclusions from extensive clusters of research, Sweden producing as much fossil-free electric- projects and studies, including the results and ity during normal years as it consumes. This conclusions from NEPP’s own analysis. NEPP means that Sweden can if necessary import therefore has access to both senior and experi- fossil-based energy, or energy with unspecified enced analysts and to customised analysis tools. origins, if the equivalent amount of fossil-free NEPP has been asked to assist IVA in the synthesis energy can be exported. work within Electricity Crossroads by providing both modelling tools and experienced analysts. An electricity system that is cost-effective for society TIMES/MARKAL is a dynamic optimisation model In considering which path to take, it is impor- designed for detailed analysis of energy systems tant to analyse and prioritise cost-efficiency for including the entire energy system in the model

53 description. The model was developed by IEA ergy sources and cables that are the most cost- ETSAP and is widely used throughout the world effective in the short or long term. This means in different versions and with various levels of that power from closed reactors in Sweden could detail, and with geographical and sector limits be replaced by imported electricity or new pro- etc. for the systems. The users, who have also duction capacity in Sweden. developed their own customised versions, in- The model contains data on fuel prices, avail- clude Chalmers University of Technology, LTU, able plants, efficiency levels for different energy IVL and Profu. sources, emissions factors for different fuels and energy sources, price trends for emission allow- EPOD (European POwer Dispatch) is a power ances in the EU, forecasts of electricity demand in production model based on a given system and Sweden, and taxes and fees. All key figures are a given year, and describes up to 53 different based on official sources, such the IEA, EU and electricity price areas within EU-27, Norway Swedish Energy Agency. and Switzerland, separated by large bottlenecks The model calculates a “system cost” to supply in the transmission grid. The production facili- Sweden with electricity for the period 2020–2050. ties are placed in the model according to rising “System cost” means the total cost of the elec- variable production costs, taking into account tricity supply, including production in Sweden, different production limitations such as load imports, exports, and investments in new pro- balancing ability and availability. EPOD is used duction facilities and electrical grids. Two models in combination with the ELIN model in an in- were produced – one including and one excluding tegrated model package for analysis of the de- the six reactors. All other factors are the same. velopment of the European power system up to The difference between the system costs in the 2050. The EPOD model is being developed and two scenarios is around SEK 200 billion. managed by Chalmers and Profu. If the six reactors remain in operation throughout their life of 60 years, they will produce 1,100 In report dated May 2016, Profu has produced TWh of electricity during the period 2020–2050. a synthesis of about 15 pages of a number of If they are decommissioned this electricity would important calculation criteria for model cal- have to be supplied to the Swedish electricity culations. Some of these were produced while market in some other way. Initially it would be working with Electricity Crossroads, while oth- imported because it would take time to expand ers were updated or defined in connection with energy sources in Sweden. The model choses to other calculation assignments, mainly within gradually replace the loss of nuclear power with NEPP and in forecast assignments for the Swed- new power in Sweden (see diagram in Figure 14 ish Energy Agency. which shows which type of electricity production in the northern European electricity system would replace nuclear power if the six reactors THE CONSEQUENCES OF EARLY are closed in 2020). CLOSURE OF NUCLEAR POWER PLANTS Of the costs that arise, 80 percent could be for replacement power and 20 percent for adaptation Calculations made by Electricity Crossroads of the grid and reserve capacity. A current value show that closure of the six remaining reactors calculation has been made for the costs with a by 2020, compared to keeping them in opera- cost of capital of 4 percent. The SEK 200 billion tion for the rest of their planned life of 60 years consists of increased production costs/imported per reactor, would cost around SEK 200 billion. electricity for around SEK 150 billion. and grid These calculations were made using model simu- development and other adaptations for around lations which include data for the whole of the SEK 50 billion (Rydén 2015). northern European electricity system. There is As nuclear power in Sweden is closed down data for both production facilities and transmis- we will import energy from other countries in a sion capacity, and the model “invests” in the en- gradually decreasing amount to cover the short-

54 fall. Initially this power will largely come from system, including Sweden, would replace nuclear fossil-based sources, see the diagram in Figure power with the closure of the six reactors in 2020. 14. The figure shows which type of electricity Accumulated over the period, this would involve production in the northern European electricity carbon emissions of close to 500 million tonnes.

APPENDIX 2: REPORTS PRODUCED WITHIN ELECTRICITY CROSSROADS

2015 2016

Special studies Special studies Energy Storage – Technology for electricity Electricity Markets – an international view storage The role of inertia in the future electricity system Energy Storage – Technology for electricity production IVA reports Taxes and subsidies for electricity production Future electricity use Scenarios for future electricity use Sweden’s future electricity production Sweden’s future electrical grid Electricity in the future – Effect on the climate and environment Electricity market of the future

APPENDIX 3: ELECTRICITY CROSSROADS WORK GROUPS

Electricity Usage Electricity Production Maria Sunér Fleming, Confederation of Andreas Regnell, Vattenfall (Chairman) Swedish Enterprise (Chairman) Karin Byman, IVA (Project Manager) Anna Liljeblad, WSP (Project Manager) Hans Carlsson, Siemens Charlotte Bergqvist, Power Circle Bengt Göran Dahlman, BG-Konsult Thomas Björkman, Swedish Energy Agency Lars Gustafsson, Swedegas Tomas Björnsson, Vattenfall Göran Hult, Fortum Maria Brogren, Swedish Construction Lars Joelsson, Vattenfall Federation (BI) Johanna Lakso, Swedish Energy Agency Bo Dahlbom, Sustainable Innovation, IVA Lars-Gunnar Larsson, SIP Nuclear Div. XII Consulting, IVA Div. VII Tomas Hallén, IVA Div. III Knut Omholt, Södra Tomas Hirsch, SSAB Johan Paradis, Paradisenergi Stefan Montin, Energiforsk Inge Pierre, Swedenergy Lina Palm, SCA Lars Strömberg, Chalmers, IVA’s Div. I Göran Persson, Siemens Lennart Söder, KTH Erik Thornström, Svensk Fjärrvärme Helena Wänlund, Swedenergy

55 Electricity Distribution Helle Herk-Hansen, Vattenfall and Transmission Karin Jönsson, E.ON Alf Larsen, E.ON (Chairman) Cecilia Kellberg, Swedenergy Anna Nordling, WSP (Project Manager) Måns Nilsson, Stockholm Environment Institute, Karl Bergman, Vattenfall, IVA Div. II SEI Henrik Bergström, Ellevio Hanna Paradis, Swedegas Pär Hermeren, Teknikföretagen Lennart Sorby, Swedish Agency for Marine and Tomas Kåberger, Chalmers University of Water Management Technology, IVA Div. III Lena Westerholm, ABB Mikael Möller, IKEM Anna Wolf, Swedish Society for Nature Magnus Olofsson, Energiforsk, IVA Div. II Conservation (SSNC) Anders Pettersson, Swedenergy Asoos Rasool, Mälarenergi Public Finances and Electricity Market Ulla Sandborgh, Svenska kraftnät Runar Brännlund, Umeå University Stefan Thorburn, ABB IVA Div. IX (Chairman) Mats Ählberg, Siemens Tobias Bondesson, ÅF (Project Manager) Niclas Damsgaard, Sweco Climate and Environment Håkan Feuk, E.ON Birgitta Resvik, Fortum, IVA Div. II (Chairman) Klaus Hammes, Swedish Energy Agency Rose-Marie Ågren, Sweco (Project Manager) Anders Heldemar, Stora Enso Helen Axelsson, Jernkontoret Per Kågeson, Nature Associates, IVA Div. IX Jenny Gode, IVL Swedish Environmental Maria Malmkvist, Swedish Gas Association Research Institute Magnus Thorstensson, Swedenergy Dag Henning, Swedish Environmental Protection Sebastian Waldenström, Vattenfall Agency Hans-Erik Wiborgh, Fortum

APPENDIX 4: LITERATURE LIST

ACER, 2014. Annual Report on the Results Brännlund, R. & Bondesson, T., 2016. Public of Monitoring the Internal Electricity and Finances and Electricity Market, Electricity Natural Gas markets in 2013, Ljubljana: ACER. Crossroads, Stockholm: IVA.

Ministry of Economic Affairs and Employment Byman, K., 2015. Sweden’s future electricity 2015. Energi- och klimatmålen bakom production, Stockholm: Electricity Crossroads, strategiarbetet; Arbets- och näringsministeriet. IVA. Available at: https://www.tem.fi/sv/aktuellt/ under_behandling/spetsprojekt_och_program/ Edfeldt, E. & Damsgaard, N., 2015. energi-_och_klimatstrategi_2016/energi-_och_ Skatter och subventioner vid elproduktion, klimatmal [Used 27 April 2016]. Stockholm: IVA.

Brandel, M., 2016. Översiktlig Swedish Energy Agency, 2014. Statens sammanställning/analys av energipolitiska energimyndighet. Available at: http://www. beslut mellan 1975 och 2009 i Sverige, energimyndigheten.se/nyhetsarkiv/2011/ Stockholm: MBenergistrategi AB. energieffektiva-elmotorer-sparar-ett-helt- sverige/ [Used 2016].

56 Swedish Energy Agency, 2015. Energiläget i European Commission, 2016. Press release: siffror, Eskilstuna: Swedish Energy Agency. Government subsidies: The Commission is tarting a sector study on mechanisms to secure ENTSO, 2016. Country Packages. Available the electricity supply. Available at: http:// at: https://www.entsoe.eu/db-query/country- europa.eu/rapid/press-release_IP-15-4891_ packages/production-consumption-exchange- sv.htm package [Used 29 April 2016]. European Council, 2016. Energy Union: ENTSO-E, 2015. Electricity in Europe 2014, European Council. Available at: http://www. Bryssel: ENTSO-E. consilium.europa.eu/sv/policies/energy-union/ [Used 27 April 2016]. ENTSO-E, 2016. ENTSO-E Scenario Outlook & Adequacy Forecast (SO&AF) 2015. Available Federal Ministry for Economic Affairs and at: https://www.entsoe.eu/publications/system- Energy, 2015. Making a success of the Energy development-reports/adequacy-forecasts/Pages/ Transition, Berlin: Federal Ministry for default.aspx Economic Affairs and Energy.

European Commission, 2015. Country Federal Ministry for Economic Affairs and Factsheet Finland: State of the Energy Union, Energy, 2015. The Energy of the Future-4th Bryssel: European Commission. "Energy Transition" Monitoring Report, Berlin: Federal Ministry for Economic Affairs European Commission, 2015. New electricity and Energy. connections between Lithuania, Poland and Sweden create "Baltic Ring". Available at: Federal Ministry for Economic Affairs https://ec.europa.eu/energy/en/news/new- and Energy, 2016. EEG 2016. Available electricity-connections-between-lithuania- at: http://www.bmwi.de/DE/Themen/ poland-and-sweden-create-baltic-ring [Used 27 Energie/Erneuerbare-Energien/eeg-2016- April 2016]. wettbewerbliche-foerderung.html [Used 27 April 2016]. European Commission, 2015. State of the Energy Union – Sweden, Bryssel: European Finsk Energiindustri, 2016. Energiåret 2015 Commission. EL: Finsk Energiindustri. Available at: http:// energia.fi/sv/aktuellt/lehdistotiedotteet/ European Commission, 2016. Baltic Energy energiaret-2015-el-rekordlaga- Market Interconnection Plan: European koldioxidutslapp-fran-elproduktionen [Used Commission Energy. Available at: https:// 27 April 2016]. ec.europa.eu/energy/en/topics/infrastructure/ baltic-energy-market-interconnection-plan Fraunhofer ISE, 2016. Import and Export in [Used 27 April 2016]. Germany/Europe: Fraunhofer ISE. Available at: https://www.energy-charts.de/exchange. European Commission 2015. Press release – htm [Used 27 April 2016]. Transformation off Europe’s Energy System: European Commission. Available at: http:// Hagman, B. & Heden, H., 2012. europa.eu/rapid/press-release_IP-15-5358_ Elmarknadsreformen – behöver den sv.htm [Used 27 April 2016]. reformeras?, Stockholm: Elforsk.

European Commission, 2016. Report on IEA, 2015. World Energy Outlook 2015, Paris: sector study on capacity mechanisms, Brussels: International Energy Agency. European Commission.

57 Liljeblad, A., 2016. Framtidens elanvändning, Rydén, B., 2016. Supplemental Stockholm: IVA. short memorandum. Ett urval beräkningsförutsättningar och modellresultat Maciazek, P., 2015. Polish Energy Policy Until för beräkning av systemkostnad vid 2050 – Nuclear Energy Replaces Coal; End Of en förtida avveckling av de sex yngsta The Shale Revolution, u.o.: Defence24. kärnkraftreaktorerna i Sverige, Gothenburg: North European Power Perspective. Ministry of the Environment and Energy, 2015. Meddelande om sammanlänkningsmål Šefcovic, M., 2015. The Energy Union i elsektorn. Available at: https://data. [Interview] (25 Februariy2015). riksdagen.se/fil/9C759050-6A7A-4BDC-9FF5- 1933DD9E5847 Siemens, 2016. Experts within the project [Interview] 2016. Moberg, U., 1987. Svensk Energipolitik, en studie i offentligt beslutsfattande, Stockholm: Svenska kraftnät, 2015. Anpassning av el Svensk Energiförsörjning. systemet med en stor mängd förnybar el produktion, Sundbyberg: Svenska kraftnät. Moberg, U., 2015. Anpassning av elsystemet med en stor mängd förnybar elproduktion, Embassy of Germany in Stockholm, 2016. Sundbyberg: Svenska kraftnät. Energiewende: Embassy of Germany in Stockholm Available at: http://www. Nordling, A., 2016. Sveriges framtida elnät, stockholm.diplo.de/Vertretung/stockholm/ Stockholm: IVA Electricity Crossroads. sv/05/Aktuelles_20Wirtschaft/seite__ energiewende__12.html [Used 27 April 2016]. Olje- og energidepartmentet, 2016. https://www.regjeringen.no/no/aktuelt/ World Nuclear Association, 2016. Nuclear energimeldingen-elsertifikatsystemet- Power in Finland: World Nuclear Association. viderefores-ikke-etter-2021/id2484266/. Available at: http://www.world-nuclear.org/ information-library/country-profiles/countries- Polish Ministry of Energy, 2015. Energy a-f/finland.aspx [Used 27 April 2016]. Policy, Polish Ministry of Energy. Available at: http://www.me.gov.pl/Energetyka/ World Nuclear Association, 2016. Nuclear Polityka+energetyczna [Used 27 April 2016]. Power in Lithuania: World Nuclear Association. Available at: http://world-nuclear. Pöyry, 2015. Suomen sähkötehon riittävyys ja org/information-library/country-profiles/ kapasiteettirakenteen kehitys vuoteen 2030, countries-g-n/lithuania.aspx [Used 27 April Vantaa: Pöyry. 2016].

Regeringens proposition, 2008/09:163. En World Nuclear Association, 2016. Nuclear sammanhållen klimat och energipolitik, Power in Poland. Available at: http://www. Stockholm: Government Offices of Sweden world-nuclear.org/information-library/ country-profiles/countries-o-s/poland.aspx Rydén, B., 2016. En (ny) spelplan för ett [Used 27 April 2016]. robust, leveranssäkert och fossilbränslefritt elsystem i Sverige 2030 och 2050., Gothenburg: North European Power Perspective.

58 in cooperation with