Renewables threaten to revolutionise the geopolitics of power generation, but until then, location is everything. Germany consumes the largest amount of power in Europe, with most of this coming from coal-fired plants. But as the country attempts to phase out more than 20GW of fossil fuels, how will it power its heavy industries?
In the words of EnAppSys BV director Jean-Paul Harreman: “Interconnector trading has taken off in previous years. The algorithms to make the best possible use of the interconnectors to increase total welfare have proved to be efficient, even though local price differences are still frequent and significant.
“Market participants are showing an increasing interest in the countries around them as the influence of interconnectors on prices becomes more and more prominent. Looking at power markets in isolation just does not make much sense anymore.”
Wind generation has rapidly risen to become the country’s second largest fuel source. In 2019, Germany generated 126TWh from the wind, according to the International Energy Agency. On windy days, the country exports its excess power, and in 2020 Germany exported more power than any other country.
However, the irregularity of wind leads Germany to import significant amounts of power on still days. As a result, the largest net exporter in 2019 was France, which enjoys quantities of scale in its overwhelmingly nuclear-based energy market. As with many things, this changed in the second half of 2020, where figures by energy data analysts EnAppSys show that Norway exported the largest net amount of power.
New interconnectors to increase Norway’s power trading
Almost all of Norway’s domestic generation comes from hydroelectric power. In 2020, the country had more rainfall than average and eventually the country’s reservoirs reached their highest point since 2015.
This pushed down Norway’s power price, making it an attractive power option for linked countries. Harreman tells us: “The cheapest asset always gets dispatched first and if there is cross-border capacity available, this means it will also become available to export once local demand has been satisfied. Norwegian demand has not really been impacted by Covid-19 during the relevant period.
“There was, however, an abundance of hydropower available, which has a very low cost. Norway’s neighbours have a larger percentage of conventional generation, which has a higher marginal cost of production. Therefore, it was able to export huge volumes to the Netherlands, Germany, Denmark, Sweden, and Finland.”
Norway connects to a Scandinavian grid network, operating at a different frequency to that of continental Europe. This limits its connectivity with central Europe, making it easier to trade with countries using the same frequency, such as Sweden.
Denmark sits across two different multinational power grids, with its eastern islands connecting to the Scandinavian network. The country often buys Norwegian power, as does Finland, which otherwise relies on more costly generation than Norway. In 2020, Finland imported a net total of 20% of its power consumption, which will have contributed to Norwegian exports.
“Unless many more cables are built, transmission capacity will be the bottleneck”
Recently, Norway and Germany connected their power grids for the first time via a 525kV subsea interconnector. The NordLink project finished trial operations in March 2021 and will now carry up to 1.4GW of power between the countries. Norwegian grid operator Statnett says that the cable will enable Norway to absorb excess wind power from Germany, saving its hydroelectric reserves for periods of lower supply.
At the same time, a new interconnector between the UK and Norway is currently under construction. Could greater interconnectivity lead Norway to soak up excess power from the continent and export it at the right time?
Harreman says this is “highly unlikely”. He continues: “Norwegian exports are limited by the capacity of the interconnector cables. Unless many more cables are built from Norway to the continent, the transmission capacity will be the bottleneck. This applies not only between Norway and its neighbours, but also in the wider continent.
“Furthermore, since Norway is in another frequency control area, and DC interconnectors cannot be used for frequency control, Norwegian power is not suited for immediate response to frequency deviations in the continent.
“It is unlikely that Norway will absorb excess renewable generation from other countries. This would require Norway to import power. The majority of hydropower in Norway is not pumped storage, which means that the flexibility to consume power is very limited. It would not be economical to import power from the continent to run the limited amount of pumped storage [in Norway].”
In 2020, Germany was a net exporter of power, but it still imported approximately 8% of its power at times of low supply. This share is smaller than Finland and similar to other countries in the region. However, Germany’s massive power demand means it required a greater amount of power than Finland. The link cable will enable it to purchase more of its power from Norway, possibly lessening its demand from another bordering powerhouse.
How Covid-19 upset power generation in France
As part of the pan-European grid, exporting energy has provided France with a stable revenue stream for years. Its large nuclear industry gives it economies of scale, allowing it to use energy export as a method of grid balancing and maintaining stable generation. The country also directly connects to Italy and the UK, which are the top two net importers of power in Europe.
While Covid-19 and heavy lockdowns suppressed power demand in France, it also paused maintenance work on power stations. France relies on nuclear for approximately 40% of its power, so the country faced a greater problem than many others.
As the pandemic stifled nuclear availability, France relied more on energy imports, buying 4.5TWh from Spain. Italy started buying more energy from Switzerland, where hydroelectric power overshadows nuclear.
Harreman said: “In France, demand for electricity is very much temperature-driven, as the French use electricity for heating. In winter, typically demand for electricity is higher, which drives up prices. This leaves a lower volume for export, even though marginal costs of production in France are lower than in adjacent countries.”
Will this new power dynamic last?
By all accounts, 2020 was an anomalous year. So will this new power dynamic last? Harreman explains: “It will be interesting to see what happens with Belgium’s nuclear fleet and Germany’s coal closures. These events will eliminate 6GW of nuclear in Belgium and 15GW of generation capacity in Germany, both neighbours of France, over the next 5-10 years. Depending on what replaces this capacity and what happens in neighbouring countries, this may increase French exports considerably.
“However, bear in mind that the energy market is driven by weather, technical capability, economics, and – significantly – politics. This means that things will remain unpredictable for some time to come.
The simultaneous rise of utility-scale batteries allows countries more flexibility within their own infrastructure, decreasing interconnector trading just as it takes off. At the same time, some countries, notably Germany, have taken their Covid-19 recovery as an opportunity to invest in hydrogen infrastructure.
While hydrogen can replace liquid fuels and supplement gas, it can also operate as a potential battery technology. Producers would electrolyse hydrogen at periods of peak supply, consuming it for power when renewable supplies are low.
Harreman says: “We will see further growth of battery developments, which should lead to more flexibility in the grid. To mitigate a change in renewable generation, which typically lasts for several hours, you would need a huge storage or flexible consumption capacity.
“We see hydrogen production as a form of mainly baseload generation; you don’t build a hydrogen plant to run only when it’s windy.
“The interesting bit will be what happens with the hydrogen. Current market prices for hydrogen, compared with natural gas plus carbon allowance costs, do not make it attractive for use in power generation, but that may change if there is enough supply. Hydrogen has the potential to replace part of the gas consumption, but neither the assets or the infrastructure will be ready for that in the short or medium term.”