A report compiled by the Utilities, Technologies & Investors Community of the World Economic Forum (WEF) says the Nord Pool power exchange system developed by Scandinavian countries is a good example of a liberalised power market that could be emulated by other countries and regions around the world for a secure and sustainable supply of electricity.
The Nord Pool is now the world’s largest electricity market of its kind, and the leading market for buying and selling power in the Nordic and Baltic regions, as well as Germany and Great Britain. The power exchange was established in 1996 by Norway and Sweden, which led to the establishment of the Nord Pool Spot as a company in 2002 as the world’s first market for trading power. Norway was the first of the Nordic countries to deregulate its power markets and the Energy Act of 1990 formed the basis for deregulation in other countries.
The Nord Pool system has integrated the Scandinavian countries into the European power market through interconnectors to Germany, the Netherlands, Estonia, Poland and Russia. The Energy Act, which provides the overall framework for the organisation of the power supply in Norway, uses the principle of market-based power sales as a basis. Corresponding legislation also exists in Sweden, Denmark and Finland, as well as in most other EU countries.
The market price of power, which is determined each day at the Nord Pool Spot power exchange, is a result of supply and demand. Variations in precipitation and temperature result in considerable fluctuations in power prices. The prices also depend on transportation conditions, within Scandinavian countries and between the Scandinavian countries and the rest of Europe. Since there are periodic capacity limitations in the grid, power prices may vary between the different areas.
The Middle East & North Africa (MENA) region has one of the fastest growing economies in the world, and the region faces major challenges of meeting current and future demand for electricity. Several countries in the region have been looking at integrating their power grids. The Gulf Cooperation Council (GCC) countries have set up a GCC power grid, which could benefit from adapting some of the Nord Pool system practices and ensure sustainable supplies or electricity, and avoid blackouts and outages in the peak demand summer months.
Electricity is the oxygen of the economy
Providing secure, affordable and sustainable electricity access for a rapidly growing population is one of the biggest global challenges today, as 1.3 billion or 19 per cent of the world’s population of seven billion people are not connected to the electricity grid, which severely curtails their prospects for improved social and economic well-being.
The International Energy Agency (IEA) estimates that an investment of $17 trillion will be required over the next 20 years to expand and enhance global electricity supply. According to the US Energy Information Administration (EIA), global electricity consumption will increase by 93 per cent between 2010 and 2040. As developing countries grow and expand their economies, their need for energy increases. By 2040, about 85 per cent of growth in electricity demand will occur in the non-OECD economies while the OECD countries will see demand rise by about 25 per cent.
Emerging markets today are in dire need of electrification and modernisation of electricity supply, and markets in mature economies are struggling to transform their energy landscape into a more sustainable and efficient system. Sustainable, secure and affordable energy supply underlies the growing world population’s aspiration for prosperity and material well-being.
The challenge is that the electricity industry is one of the world’s most capital-intensive industries. But these large capital expenditures flow through the economy, creating additional jobs, tax revenues and GDP by generating demand for intermediate goods and services. Adequate investment in advanced electricity infrastructure – while at the same time safeguarding natural resources and the ecosystem – is the key to meeting increasing energy demand.
The WEF report says challenges posed by growing concerns related to the climate and environment can – if addressed appropriately – ignite a broad range of energy innovation at all stages of the value chain. Energy innovations are cross-sector innovations that will not only help to solve the challenges of the future electricity systems but also potentially improve the entire global economy’s technological capabilities, efficiency and resilience to supply risks.