Don’t rock the boat, baby

All market participants should work together to ensure the electricity system works efficiently and stays afloat, says Auke Lont. 

This week’s pod discusses low prices, key interconnectors, bidding zones and the importance of maintaining transparent, liquid wholesale energy markets. 

Host: 

• Richard Sverrisson, Editor-in-Chief Europe, Montel, 

Guest: 

• Auke Lont, CEO, Statnett. 

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

Did you know Montel uses artificial intelligence and machine learning to forecast spot prices, inflow to reservoirs, wind, and runoff river production. We can improve forecast for your individual power plants anywhere new. Contact us at ai@motelnews.com for more info.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:34

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in a virtual setting. My name is Richard Sverrisson. Today's pod is all about the Norwegian system operator, Statnett, and about cables. Joining me is Auke Lont, the CEO of Statnett. A warm welcome to you Auke.

Auke Lont, CEO, Statnett: 0:53

Thanks a lot. Looking forward to discussion.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:57

Excellent. I thought I'd like to start off the discussion by asking how you are coping under COVID-19. What does it mean for Starnet and for you personally, AKI?

Auke Lont, CEO, Statnett: 1:06

So we basically are still in this extraordinary modus on the 15th of June. We have partly returned from home to the offices and we will gradually increase the presence in the future.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:17

The normality is maybe weeks, months away, but maybe it'll be a new normality even. Okay. But, what's been the impact of the coronavirus crisis on the Norwegian electricity system, and in particular, the grid, the high voltage grid?

Auke Lont, CEO, Statnett: 1:30

So far we basically don't see much an impact on this. Of course, we had to make this precautions and and start working from home and keeping people away from public transportation, those type of things. That worked very well. So we basically didn't catch any or hardly any virus infections in thought net. And then from the day-to-day operations, it worked fine. Of course, the project portfolio with people in the field working close together, inspections maintenance, that type of work needed to be redesigned. We did, and I think the short answer is that we have basically gone through this without many delays or changes.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:10

Okay. So largely unscathed then in, in terms of, infrastructure work, et cetera. Yes. How about how are consumption in Norway? There have been dramatic fools in other parts of Europe, but in Norway have we seen much of a decrease in power demand?

Auke Lont, CEO, Statnett: 2:26

Actually not. It was for us a surprise. By the way, we have much better data now since we have the data hub, which you probably know. It's possible to extract some some information from that. And that on the overall level, there is very little difference in power consumption compared to a normal year, but. When you dig down, you can see that, for example, in the hotels or that type of business, there was a quite dramatic fall.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:51

Absolutely. But not so much in the industry as yet anyway. No. It'd be interesting to see how this situation develops, because if we come into a deep economic recession or whatever, then the. Demand for products produced by Norwegian, Norwegian industry could drop off. I know there's some worries there. Do you have any estimates or analysis of what happens post COVID in terms of power demand?

Auke Lont, CEO, Statnett: 3:13

We haven't really seen things coming on the that side, and we have not really got information either from customers, although I see some small signs that maybe parts of the heavy industry start adjusting a little bit. My feeling today is that we'll see very little change in demand so far.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:31

Moving on to the, once we're out of the coronavirus crisis. What's the role of A TSO, I mean in assisting the green transition. Now that's very clear, the direction of travel, both on the European side, also nationally within Norway and the region and the Nordic region. What role can the TSO play and someone like Stat Net? One of your slogans is The Future is electric, but what does that mean? In terms of. Concrete measures to move to a greener future.

Auke Lont, CEO, Statnett: 3:58

The short version, as you say, is that the future is electric. Strongly believe that green electricity, a wind, solar can help to drive out carbon from the power system. And then a power system can, a green power system can start driving out carbon from transportation through electric cars or from heating through heat pumps. And also. Hydrogen, for example, industry. So indeed the short version is the future is electric and it'll be green. And what do we need to do as a to realize that vision, so to speak? These sites, of course, our main task, which is to keep the lights on. Number one, always. It's strengthening the grid, which we have been doing for quite some time, many years. The last five, seven years, we have heavily enlist. It's putting into place better communication systems so that we can extract more information from the system or we can communicate better with customers. That information can be used in running a system where there is more intermittent power. And I think it's also speaking about this making it clear that the future will be different. Electricity will become more important. So we also do things like that. Producing a report on the issue of an electric Norway. What does it take, for example, where we do some showcases of what can be done and should be done? How much power would it eventually take to green, the Norwegian energy system?

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:18

I think in some ways Norway's very far ahead of other countries, certainly in terms of electric vehicles. But I see there's been some interesting developments within Norway, in terms of hydrogen projects. What's your evaluation of these? Okay.

Auke Lont, CEO, Statnett: 5:31

I think if you follow the argument that we need more power we need more green power. Then we also see that if we have a lot of winds or a lot of solar, then there will be periods where there is just too much power for the system and we have do something excess power. We already see it in the markets where sometimes prices go beyond zero, which is an indication that from time to time simply too much power in the system. Here. I think the idea of hydrogen comes in, so you have to do something with a very cheap power. Back to my story, we see that hydrogen can play a role in heavy industries. For example, to drive out carbon, you can produce steel without coal, but with hydrogen there is a pilot project up in the north of Sweden trying to show that. So having all this renewable stuff from time to time, too much of it opens up an avenue towards hydrogen. Then hydrogen can be used into those sectors, which we call the hot tub eight sectors to drive out carbon there. So I think indeed, in the future there is a place for hydrogen because of the availability of cheap green electricity and the need of finding solutions to drive out carbon in.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:43

In a sense the term future is quite vague. Are we talking five years or 10 years, 20 years out here, do you think?

Auke Lont, CEO, Statnett: 6:48

For hydrogen? Yeah, I think for hydrogen especially,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:51

sorry,

Auke Lont, CEO, Statnett: 6:51

five to 10 years. Although what I heard from the pilot project in Sweden that things are moving pretty fast and that they think they can have a pretty big plant in 2025, which could produce this carbon free steel.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:02

That's dramatic. But of course the Nordic system is changing as well with a lot more wind coming online in, in both Sweden and in Norway. How do you see that affecting the power system generally in the years to come?

Auke Lont, CEO, Statnett: 7:16

Oh, that's a $10,000 question. I think you are pointing to a very important drivers here. We see a a significant change in the system. We see much more intermittent renewable, getting into the Nordic power system. We see the completion of interconnectors, which will change flows in the system. We see also new types of demand. You were talking about cars also in industry, we see changes and all those changes have to be accommodated in such a way that the system still works 24 7. So we need definitely better information, more data about what is going on in the system so that we can act on basis of better information. Probably we'll need more automatization because some of those changes are going so fast that you actually need to have standardized and automated actions to respond to that rather than say manual type of things. We need certainly also better predictions when we have a lot of wind power and a lot of solar changes in the weather could have dramatic influences. And the more precise we can get that information on the table, the better we can act as a teaser.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:25

Absolutely. Do you think then, in terms of, we're seeing very low spot prices. In Norway at least, they're higher elsewhere in the Nordic region, but in Norway, they're very low. Do you think increased wind will exacerbate the situation in terms of very wet years and will maybe flatten out some of the volatility in drier years?

Auke Lont, CEO, Statnett: 8:46

That's a hard call. I really don't know and don't want to speculate on this because I think we're getting surprised every time. About how those things interact and the situation we're in here today with very high snow reservoirs after having waited a long time for the winter to come. Who would say this in in the beginning of January that it would look like this today? And then the interaction with wind, as you said when we get so much wind into the Nordic system again, we'll also put some nice surprises in front of us, I'm quite sure.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:19

Absolutely. So in addition to better forecasts and predictions, maybe we need a crystal ball out here

Auke Lont, CEO, Statnett: 9:23

that might help us.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:24

Absolutely. If I can broaden the discussion a bit more into what's happening on the European level, one element which is of clear importance for TSOs is the 70% cross-border target for cross-border trading electricity. What's your view here, AKI? Is this just an arbitrary number or is it achievable? Is it set too high, too low? What? What are your opinions here?

Auke Lont, CEO, Statnett: 9:46

It all starts off with the EU wanting to get a better functioning market, observing that from time to time certain interconnections are simply not available to the market, finding out that bottlenecks might be moved from inside the country to the border, and thereby actually the market not functioning optimally. So I, I see this as a kind of not a bureaucratic, but a formal way of trying to open up. And then of course, that need to be evaluated. How it works. Does it create new problems? What does it do to the security of supply in the countries affected, because that might be an issue. And then most likely we will go on from there and countries as I understand, also have to act on basis of, building their infrastructure because there are bottleneck which need to be removed. And if they do that, then of course those issues on the border would gradually disappear. So it's a complicated picture, but it all starts off, I think. Acknowledgement that markets are not functioning optimally. And I guess that was also one of the things in my little previous intervention on the Nordic system, I was talking about solutions IT data. But one of the most important solutions, of course, to manage the systems is having well functioning markets. That also very much applies in the Nordics. The better the market works, the better signals are given to all players and the better they react and the easier it becomes for us as a to do the cleaning after the party's over. And that's the role of that I think that's sometimes. Enough understood that the markets are really doing the hard work to trying to remove as much as possible imbalances, bottlenecks, and things like that. And then there is a little bit work left, hopefully not too much, but a tease out to balance out towards the 50 hertz, so to speak. So the better the market works, so the easier the job for the TO is and the other way around, the less the market works, the more work the TO has to do to balance out. Markets are very important.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:49

Absolutely. If I can ask you about some Interconnectors in particular about some interconnectors. So I think Okay. Norway's building interconnectors both to Germany and to the uk, nor link to Germany. We see that some of the capacity in the first years of its operation will not be made available to the market. There's maybe far from the 70% number that we just mentioned. Can you tell us some of the reasons for that?

Auke Lont, CEO, Statnett: 12:13

No, I don't think there. The reason is anything else than that, the Germans have to decide on what can they put on their on the system. And as I understand, there's both dialogue at different levels and there is a proposal which has been made earlier by the Department of Energy and that probably be sorted out over time.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:33

Is the problem internal bottlenecks in, in Germany or if that is the problem, internal congestion within Germany, between the north and south? Wouldn't a better solution be maybe to, to split Germany up into other bidding zones or bidding?

Auke Lont, CEO, Statnett: 12:47

I guess that's one of the issues which of course also the commission is looking at as a concept. Can you deal with bottlenecks through pricing zones, bidding zones? And we do that very heavily in Norway. We have five bidding zones in, in Sweden and Denmark. So bidding zones is definitely one way of coping with bottlenecks. Building new infrastructure is another one. I guess countries have to find out what fits them best, what can be implemented and how will it work? Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:15

And of course it's very political as well, but I, there is the case that you pull liquidity or you ease bottle X by creating more bidding zones. Where do you stand on that? Okay. It's

Auke Lont, CEO, Statnett: 13:24

a very delicate question you raise because of course the more bidding sounds you create, probably the less liquidity you get into your market. And that again is something referring to my earlier statement, that the well-functioning market is extremely important. So there definitely is a point limit. It's not easy. It takes a lot of work and takes also a lot of cooperation with the stakeholders because it might affect stakeholders in different ways. We need to communicate very clearly around those issues with our stakeholders so that everybody. Led to the same solution and appreciate it.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:03

What's the dialogue with those stakeholders like? Is it very constructive? And also with others such as national regulators or the commission. Could you give us an insight into, if you were a fly on the wall, what would those discussions be like?

Auke Lont, CEO, Statnett: 14:16

I guess it's different we have in the Nordics. I think we have a pretty good. System of stakeholder meetings together with our Nordic, these colleagues, and trying to explain what we're doing, what the challenges are, how we are doing it, and getting feedback on that. But still, of course, each stakeholder might have a different agenda and that might of course result in different signals back to us. But I feel that there is a common understanding, although you certainly know that some of the stakeholders now are talking about flow based and things like that, that could affect the system. All in all, I experienced a pretty good climate between DSOs on one side and the stakeholders on the other side in the Nordics. Then when it comes to regulators, of course, certain things we have to do because Brussels puts in place new regulations and then we have to adjust our systems. Then of course it's important that the regulatory framework allows us to do it and that it moves with the speed, which helps us through to carry things through. And here, of course, we have four regulators from four different countries. And that probably also requires some training on how to accommodate the things that esos have to put in place. It's a diverse picture, I think. Being too precise. But I think that's the way of looking at it. It's a diverse picture. And and I think that the most important thing of all around all of this actually is that everybody needs to realize that we are in the same boat. We are in the boat of having a power system, a Nordic power system, which has to work, and a power system, which is subject to large changes. And we have together the, produces the big consumers, the regulators, and the TSOs to find out how can we manage. So that also will work in the future. And I think as long as we have that common understanding that yes, we are in the, we are actually in the same boat and we need to find out how we're gonna steer that boat in the direction and what is needed actually to keep the boat floating. We use, I think, in the origin and we have a good tradition for that. Good stakeholder dialogues. I think we have a very good. Nordic companies just shortly. We had another CEO meeting. We have them regularly to keep us on the toes. I think there is a pretty well understanding of where we should go and why we should go there. And if we keep repeating that, I think we will get people on board in the boat.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:43

Absolutely. It's all about not rocking the boat as well, or the boat can maybe tolerate a few from side to side swings maybe some stormy weather. Alki, if I can just follow up on one thing you said about the flow based market coupling. I know there are some concerns in the Nordic region, but isn't there debate now in the Nordic region about the level it was maybe five, six years ago in continental Europe? Or are there some differences there?

Auke Lont, CEO, Statnett: 17:05

Hard to say for me. I don't exactly know how those things developed on the continent, but as I read it from there, there was some skepticism after all that when it started working it, it worked pretty well. I think what is important is of course, that there is the issue of transparency. If you have to operate in such a market with those boundaries, you need to understand what is going on. So I guess from our side, we have just an extra. Up as much as we can so that the players understand how system actually working. Surprise. So people very cautious and are not to go into positions because then liquidity and that's market doesn't need So. The transparency around what we're doing is extremely important. And then we have to keep in mind as I said, the boat we want to keep. We're in the same boat. We want to keep the boat floating and going into the right direction. The reason why we do this is that this flow-based capacity calculations will enable us to utilize the system even more. We put more power into the system and operate it at a higher level of security, which is good for everybody because it pulls costs down because we can handle more. With less investments and it presumably increases security of supply.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:20

Absolutely. A final question really, and this is about another interconnector the one to the uk. What does Brexit mean for the project? And for you, as a company are you concerned about what's happening here in terms of Brexit or have you put a plan B or maybe you have a plan C up your sleeve to cope with the complexities ahead?

Auke Lont, CEO, Statnett: 18:37

The bottom line here is that, when you're together, built an interconnector, put much money into it, and there is a basic need for that interconnector, because the systems on both sides of them are different. Such an interconnector will be used. And I think that conviction is there. It has never been changed. We know that this is a good project because the systems are so different and we can have synergies by connecting them. And when you then build such a line it'll be used. So I think that's really the short story of it. And then the politics around this, of course are I wouldn't say concerning us, but they are there and we know that the UK will leave the internal energy market. And then the question arises, how does such an interconnector, which is needed and wanted, how will it operate in a new setting where the UK is not part of the internal energy market or in another way, which we don't know yet because the politics have not really decided on this. So I think we need just to be able to cope with those different outcomes. What will be the framework where this interconnected can operate in? Knowing that it's a very well placed investment, both parties would've a high interest of utilizing it and then we'll find a solution. Perfect.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:48

And of course, the governments. Across Europe, maybe have other priorities to look at. First, Alki, thank you very much for joining the Monte Weekly podcast.

Auke Lont, CEO, Statnett: 19:58

It was a great pleasure. Thank you very much.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:00

Remember listeners, to keep up to date with all our stories on Monte News, follow us on Twitter, LinkedIn, and subscribe on Apple Podcasts, Spotify, or wherever you get your podcasts from. Goodbye.