When a deregulated electricity system faces a supply deficit: A never-ending story of inaction? Author: Dr. Henrik Karlstrøm Affiliation: Norwegian University of Science and Technology Correspondence: Henrik Karlstrøm Department of Interdisciplinary Studies of Culture NTNU 7491 Trondheim Norway E-mail: [email protected] Telephone: +47 93690853 Fax: +47 73591327 Acknowledgements This paper is written as part of the project “Building markets, shaping policy? The role of economics in energy policy and energy use”, supported by the RENERGI programme of the Research Council of Norway. I thank Knut H. Sørensen for valuable comments. 1 Abstract Following the first waves of deregulation of electricity markets that took place in the early 1990s, most of Europe’s electricity has been deregulated. This has provoked interest in how deregulated markets handle issues of security of supply and large fluctuations in demand. This paper examines the debate over an electricity supply deficit in a region of Norway, one of the first countries to deregulate their market. Using theoretical frameworks from discourse analysis combined with recent theories about market framings from the sociology of markets, I discuss how a furious debate over what is perceived as an «electricity crisis» can go on for a decade with no apparent solution. Even when alleviating measures are taken with some success, this does not quell the debate. Instead, a circle of blaming and procrastination continues. Keywords: Deregulation, electricity supply deficit, discourse coalition Introduction Historically, the supply of electricity has been considered a public concern, a part of our common infrastructure (Hughes, 1983). Norway was one of the first countries in the world to start a comprehensive deregulation by constructing a market for electricity in 1991. Later, many countries followed suit, often citing the Nordic electricity exchange as a “best practice” solution, further limiting political intervention in the production and distribution of electricity. This happened despite the fact that security of energy supply is a perennial source of concern for most governments. With Norway’s status as a model for the construction of electricity markets, it seems pertinent to look at some consequences of the deregulation in this country. How is security of supply achieved when the potential of political intervention is limited? In this paper, I shall address this issue by analysing a nearly decade-long debate 2 about how to balance demand and supply of electricity in the Mid-Norway region. This debate has still not been resolved, even if most participants agree that there is a serious supply problem. How could this be? Partly it is because a debate over an issue does not mean that there is reason for concern in itself, or that there will be a solution at all, but the question remains: What does this long period of discussion stalemate tell us about the effects of deregulation upon the ability of stakeholders to introduce new solutions? Looking at the media debate on an issue can shed light on one central channel for communication between experts, policy-makers and the public (Stephens, Wilson, & Peterson, 2008). Due to a dry fall in 2002 followed by an exceptionally cold winter, Mid-Norway experienced record prices for electricity in the winter months since most buildings use electrical heaters. This sparked a debate over the supply deficit which was dubbed the “«electricity crisis»” of Mid-Norway1. In a newspaper article in 2001 Minister of Petroleum and Energy Olav Akselsen of the Labour Party warned that ”only a rainy summer can save us from an «electricity crisis» next year” (Adresseavisen, 19.04.2001). His proposed solution was to start considering the construction of gas power plants to meet increased demand of electricity. This was a controversial proposal in a country whose electricity has come almost exclusively from its own production of clean hydro power. A decade later, county representative to Parliament Alf Daniel Moen, also from the Labour Party, complained about the government’s decision to keep off-grid Norway’s two mobile gas plants, acquired in 2008 as a temporary solution to service the needs for electrical power of a new gas processing plant in the region: “I think it shows helplessness on the government’s behalf when it comes to measures to prevent an «electricity crisis» in Mid-Norway” (Trønder-Avisa, 15.10.2010). The response from the 1 Note that this term only refers to the media debate over the supply deficit, and does not imply that there really was a “crisis” as such. 3 Ministry of Petroleum and Energy, now controlled by a government coalition dominated by the same Labour Party, responded that: “Starting up the two mobile gas plants is out of the question at the moment. They are incredibly polluting, and will only be utilised when there is a danger of ordinary houses losing power” (Trønder-Avisa, 16.10.2010). How this supply deficit was framed, and how the evolving notion of an «electricity crisis» fits into a larger picture of concerns to increase production of electricity, are important questions to clarify with respect to effects of deregulation. These effects may also be illuminated by examining the positions taken by the actors in the debate. What topics are discussed, what issues where overlooked? How do these positions fit with positions in already existing contentious issues, such as the construction of new gas power plants? How could the diverse positions continue to co- exist for nearly a decade without approaching a closure? Before the market for electricity in Norway was deregulated, security of supply as well as most other regulatory issues was a well-defined political responsibility. Parliament decided the level of investment in new hydro power projects as well as the price of electricity. The stalemate debate described above would have been difficult to imagine. Even if there were disagreements about the construction of Norway’s system of hydroelectric supply, decisions were made (Thue, 1996). What had changed? If we understand political processes as something more than the simple battle of interests, or rather, political interests as extending beyond their easily identifiable representatives, we may instead focus on the way the arguments themselves develop from the point where an issue is identified and to the point where one framing of the problem becomes dominant. In order to say something about how such fights for discourse dominance come about, it is necessary to understand the context in which the debate arises. With respect to my case, the context was the Norwegian electricity sector, which is dominated by hydro power. Production facilities were almost exclusively 4 publicly owned, and the system was traditionally controlled through central planning. In 1990, the Norwegian Parliament passed a new Energy Act effective from 1991, through which a liberalised market for electricity trading was established (for details, see Bye and Hope 2005). This was not a complete privatisation of the sector like seen in the UK around the same time. Even with a liberalised market in place, public ownership of electricity companies prevailed. The law change had several rationales. One was that it was felt that the kind of minute control politicians exercised over pricing and electricity supply was unnecessary. A second rationale was that creating a free market would lead to more efficient distribution of electricity and more optimal investment decisions with respect to production and grid capacity. It was also expected to shift power from politicians to consumers, with consumers able to drive competition through free choice of electricity utilities. The effects of the law change are still debated. After dropping initially, prices quickly rose to previous levels towards the end of the 1990s, but now with much higher volatility and some extreme peaks of upwards of 300 % change (Byström, 2001; Woo, Lloyd, & Tishler, 2003). However, proponents of the Energy Act claim that the real cost of electricity production had been even higher had the law not been changed (Hope, 2001). On the other hand, the passing of the Energy Act marked an immediate stop to investment in new electricity production. However, the development of a Nordic grid that allowed exchange of electricity across borders has been argued to make the lack of investments unproblematic, even in the face of a substantial increase in the Norwegian demand for electricity (Bye, Bruvoll, & Aune, 2008). Simultaneously, under-investment in grid capacity led to strained transfer capacity between the northern and the southern part of the country. To further aggravate the situation, new power intensive industry was set up in Mid-Norway in the 1990s, most notably the gas processing plant connected to the Ormen Lange gas field off the 5 west coast of middle Norway and an aluminium plant in the same area. These industries require enormous amounts of electricity. As a result, a potentially large electricity deficit appeared in Mid-Norway. Sandsmark (2009:4555), who has studied this situation, concludes by asking: “What is the appropriate level of public interference when deregulated electricity markets experience problems with reliability of supply?” While this is an important issue, this paper is rather concerned with inquiring why Sandsmark’s question has not been asked in the media debate about the potential electricity deficit in Mid-Norway, and why the debate has not provided a clear response to the question. How may this debate throw light on the lack of interest in ‘the appropriate level of public interference’? My intention here is not to pass judgment on the market deregulation itself, as that would require a different approach than analysing the media debate. Rather, I want to highlight some of the reactions of concerned parties to the effects of deregulation, since they are interesting regardless of the “correctness” of the parties’ analysis of the situation.