Offshore wind’s conundrum

Connecting 300 GW of offshore wind by 2050 will require a fresh configuration of bidding zones, and multilateral cooperation between countries, TSOs and utilities. Onshore, politics often trumps economics or physics, but will this be the case offshore? 

Listen to a discussion on bidding zones, green hydrogen and a look back at key decisions made in Brussels in recent years. 

Host:

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

Guest: 

• Bente Hagem, former Director Statnett, ex Chair of Entsoe board

Transcript

Anna Siwecka, freelance journalist/podcaster: 0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:30

Hello listeners and welcome to the Montel Weekly podcast. Bring Energy Matters in an informal setting. Today's pod is a bit of a mixed bag. We will take primarily a look at the future. But also have a little look back in time. And today's guest is a pioneer of European wholesale energy markets. She played a key role in the integration of Norway with continental European markets, and more recently was closely involved in the eus hydrogen and offshore wind projects. In short, the I ideal person to talk to us through the challenges and the opportunities ahead on the road to climate neutrality. Joining me Richard Sverrisson is Bente Hagem. Former director at Norwegian, TSO, Statnett and Entsoe board chairwoman. Bente, a warm welcome.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 1:16

Thank you so much.

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

A pleasure to have you on the pod Bente. So how are you doing at the moment? What are you working on?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 1:21

I retired from Statnett last year and I'm now have a couple of board positions, exec non-executive board positions. I also give lectures at the university. I also enjoy my life after working many years in the energy business, but I read Montel every morning. I cannot forget that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:43

Perfect. That's very good to hear. Benter, how is life under COVID for you?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 1:47

The COVID is okay. We have a nice apartment and and we can see our children and, working from home is okay, but I really want to see my colleagues in the boards. That would be great. And it COVID is okay,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:03

but fingers crossed, there's light at the end of the tunnel in terms of vaccine and et cetera. Let's start off by talking about offshore wind. The EU has quite ambitious targets here, so 300 gigawatts by 2050. How feasible is this and who will finance or build it?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 2:20

This is feasible, but it's a big task, as and it goes too slow now. I think money is available, but it's a huge amount of money. I think EU estimated it to 800 billion Euros. And you need to, notice that two third is infrastructure costs. And not too many realize that, it's about the wind farms and all the things, but infrastructure is so important here. And financing I think will be able to do, but how to organize offshore wind. And the deployment of the scarce seabed, it's going to be challenging. Luckily we can use a lot of the, the regulations and market approaches from onshore. We don't have to change too much, but some of it we need to change. And the big, the biggest challenge might be that instead of countries working bilaterally together, building cables, which they are. At now, we need to have multilateral projects and multilateral planning. Maybe 3, 4, 5 countries together needs to build this meshed network because we know that the radial solution is fine in the first phase. It's not enough for 300 gigawatts.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:44

Sure. What would you, when you say radial solution what is that? This is just for those listeners who haven't come across that term before.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 3:51

It's the direct link from a wind farm to the country. It's challenging enough, but that's not enough. You cannot have a radial. All over the place because the seabed, there are competitors to use the space. You have harbors, you have shipping, you have environmental concerns. So we need to optimize the use of the seabed. And that is a new thing because we haven't done planning in this seabed overall. We have a placed, and so we, the organization, I was a chair of the board. We do this 10 year network development plans, and they are good, but they are mostly onshore. And then we place chunks or wind parks in the sea. But now we need to do detailed planning. For the first phase of this 300 gigawatts, the second phase and the third phase, I'm sure. And they need to be planned together. So we know that we do this in an optimal way and three countries or four countries and, need to sit down and plan and they need to decide who are going to invest and how, and also who is going to operate. So this is a challenge, but. TSOs and countries are used to cooperating, but this is a new task.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 5:08

Absolutely. Sounds very challenging if you're having more than two countries involved in a big project of this magnitude. It's yeah, absolutely. The mind boggles if I can stay with the organization of the offshore wind parks. You need to maybe reconfigure the way this comes into the market so that may, you're looking at offshore bidding zones. How would that work in practice? What's your view here?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 5:28

It's simpler with the radios because then you go to one, come back to one country and you get the price in the country. And most countries has just one zone and one price. In the Nordic, we have 12 and can live, luckily with this has some challenges, but overall, but when you do this smashed network, it'll be like the onshore network. It's not so different because you have different bidding zones. And you need to get all this new wind power into the market coupling. And into intra day and and also balancing. Yeah. The bidding sounds are needed to get, to make sure that you get the flow going from a low price area to a high price area. Also, we have a solution on shore. This can be copied also offshore. And the alternative to this is the old central dispatch. In the old days, one authority, or one TSO in the old days, sat and said, now you're gonna produce and now you're gonna produce. And you shall not produce. And this is not possible. Anymore,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:40

the fact the facts were sent from one, one city to another, and they said that's not really feasible in the modern age.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 6:47

So markets needs to be taken seriously. Also there, but they have some challenges because biding zone might increase the risk for the producers because then they can get prices from different countries because their production will go to different countries. And this has to be taken care of, and the risk needs to be hedged for them or else you don't get production there to be invested in. So the risk can be hedged in a contract if they get, get a contract from a country for producing renewable renewable production. So this has to be taken care of in the contract with a member state. Or you also can have bottleneck income out there. Because when you, the prices are low and the producers are really hurt in their pricing, then often you have high bottleneck income. Usually the bottleneck income onshore does not go to the producers at all. It goes to reduce a net tariff or to investments. But here, the bottleneck income can also go to the producers, which to reduce the risk of having a low price. And EU has in their strategy opened up for that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:07

That's very interesting. And I think that's a part of the solution here. I think. If we are talking, when we're talking bidding zones onshore, there have been quite political. We, there's been talk of, splitting up Germany, for the past 10, 15 years, and that's obviously a very difficult matter. But how would offshore bidding zones operate? Would they opposite, operate between member states or would one member state, in the, on the seashore, who owns the bottom of the sea in that sense and how? Is it right that then it should be one across border buildings? And that's what maybe I'm trying to get at here, bento, but is that more feasible?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 8:39

Configuration is not it can be different things and the configure, what is the most efficient and good configuration. Is up to the countries and the TSOs to find out. The most important thing is that when you have a configuration, you need to make sure that it's a balance between the infrastructure that is feasible for the producers to use and the volume of production. If you put too much volume into a bidding zone, you know the prices will go down. You really need to think about how much infrastructure do we have here? How much production can we put in this place? So this is very important. And TSOs are used to think about this and do prognosis for this, but across border beating zones, like you asked about might be the right thing to do, or you can have more country based, but they need to be linked together. So the final configuration has to be solved in the future. Yeah.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:42

It's not a simple matter of just one cable to a wind park. It's much more complex than that, isn't it? Yeah.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 9:48

It's complex, but we have the pattern onshore.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:51

Absolutely. So if we return to onshore, enter. How do you think, the onshore bidding zones, how will they change going forward? And we've had, I've mentioned the German case there, but there seems to be an endless saga of review coming up here and, being delayed postponed and a new date coming. How is this gonna move going forward? Do you think

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 10:08

That's been a challenge and I've thought about this for years. And we discussed it a lot because the situation is not ideal in continental Europe today, but this is a political question and it ends up there. And to be honest, lot of countries have different challenges. Politically when it comes to energy, that's for sure. Germany has a challenge with bidding zones, and that's a challenge because they are so big and in the middle of Europe. That's why we keep talking about Germany. But I think in a short term, I don't think we will see too much. Changes. And we also have challenges with bidding zones. With the 12 we have in the Nordic, it's not so easy for, for market participants either. So it's always, and it shall be discussed, what is the right size, where should it go? So it's good that it's discussed. But I see when you see the future and 80% renewables or something, how can this work without price signals? We need an affordable transition. We need to use a market. We are going to digitalize everything. And half of the digitalization is not worth too much if we don't have pricings. So I think we will, in the future, it'll be easier to have, smaller bidding zones and more pricings. And I think also when we have a deployment of hydrogen, green hydrogen, the most important thing for producing hydrogen green hydrogen is low price. And if we don't have a pricing, how can you really get this going? So I think this really. Forces itself to a change long term.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:55

In the short term, you maybe you could say politics, trumps economics or physics maybe. Yeah. But in the longer term, the nature of the market and the changes it will force. Yeah.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 12:04

The fundamentals are there, so you cannot avoid it in a way. It's too costly to avoid it.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:10

Absolutely. But, and you mentioned hydrogen, which is gonna be my next question actually. So the European Commission's got some very ambitious goals when it comes to green hydrogen, particularly. Five gigawatts of Electrolyzers installed in the EU by 2024. Is that feasible? That's four years.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 12:25

That sounds very ambitious. So the time schedule seems very ambitious, but in Montreal News and other news, you see every day new initiatives. So it's a lot of interests for this and it's decarbonized, I call it that decarbonized hydrogen is the only way to. To decarbonize the whole energy sector, and we have all these hard to abate sectors with with shipping, aviation industry, all these things that needs hydrogen or hydrogen alike products. Some talk also about seasonal storage or hydrogen used when you, you need peakers when the sun is not shining for three or the wind is not blowing for three weeks. And hopefully the sun will shine at least daily, but it will be very tough without peakers and power production from gas. And that might be in the, in the end, green hydrogen. But what is now the plan I think for EU is to, they have really ambitious plan. If you read, if you go in and read fit for 55%, they are really good. In the slogans fit for 55% means how can EU and commission design regulation systems. Together with countries to be able to reduce the CO2 emission with 55% in 2030. And they have a long list of things they're going to do. And after working with the commission for quite some time, and especially when I worked there for a year, great experience. I saw that there's so many good people and competent people and they have now to be concrete on the hydrogen. They will deliver a revised gas directive. The third package, the third gas directive package will be revised and the demand side is very important in hydrogen. It's not just production, it's the demand side will the loose and I hope. Most of the loose ants when it comes to subsidy schemes. How much renewable hydrogen shall the industry use? Is it 30%, 40%, 20%? All these requirements, guarantees of origin. Definition of what is green, gray,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 14:57

blue, turquoise. Yeah. Yeah, exactly.

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 15:00

Who is gonna own the infrastructure? Third party access, shell TSOs be able to produce hydrogen. All these questions, they are, a good bunch of people, very competent people that going to deliver most all these answers during 2021. And that will have a lot to say about the demand. And then you also can get a push and the investors that wanna produce this understand what the. What the financial consequences will be. So I hope this will give a push in realizing not just pilot project, but also realizing these, the hydrogen production.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:43

Absolutely. You, you said Ben, it's clear that in the space of a year we've gone from sort of hydrogen being very niche to being almost mainstream, with all the oil majors involved. So we've seen a flurry of projects being announced. It'd be interesting to see how many see the light of day, especially I noticed it was clearly in a, I think it was in an Ecuador and SSE project in the north of England where there was a big caveat saying if the final investment decision will ba will be based around the regulatory changes or regulatory progress that is made. Yeah. Yeah. But in your view, are there, are the regulators making, are they making good progress to ensure that this does happen?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 16:17

The commission and DEG energy, who I know are working on this and do the changes in directives are really delivering and what to deliver. And I hope that the time schedule for 2021. Will be there and we also always make a little fun of eu, they produce too much paper. It's too much regulation. It's so important to have. Efficient regulation and you will not be able to implement the, the green deal goals if it's not really good regulation existing.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:52

Absolutely. If we can go back and talk a little bit about your time in NOE and start Now you, you were sitting on these. These meetings, what was it like there was it, is there a lot of tension there? Are there disagreements or is everybody generally just quite quite happy to reach a compromise on agreement?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 17:07

It's a lot of discussions, but TSOs are used to for years, even before the liberalization to work together. So they know each other personally. They've been growing up together in their operational rooms. So you have a very good relationship, but it's lot of conflict. And when you take out all the win-win gains first, which you have done, like in the Nordic, we took out the win-win gains first. Everybody agreed. And also Europe has taken out a lot of the win-win gains. Coupling and market coupling and all these things, which was, has been very beneficial. Then you push and then the conflicts come because. Some things you want to fight for your country, but the challenge is that it goes a little late. It goes in the right direction. But, I'm a, I'm an eager person and I I think sometimes it was late, the movement, but in the end, when you work with so big things and so valuable gains for society. It's okay that it takes a couple of years.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:19

Absolutely. Yeah. I mean that, that's something, the pace of progress is maybe something that people find very challenging. You know why? Yeah. Yeah. If you could change anything about the European power market design, what would it be? Bente and why?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 18:31

I talked about pricings, so that's gone. Or I, it's not gone, but I think the heating sector is under communicated and underestimated. Because 80% of, or 70 to 80% of the emissions comes from the heating SEC sector in continent, Europe and in Europe. And coming from the Nordic, we don't understand this really because we have a relatively cheap electricity, low net tar tariffs, subsidy schemes, not so expensive. And also distribution network systems developed relatively good developed. When you go to the to continental Europe, they have gas, coal, and oil heating, and all the appliances in the houses are for this, and they have under invested or they don't have the DSO network or distribution system network does not have the right capacity to do the direct electrification. Which should be natural and pretty cheap. So they have a challenge. And the heating sector, and if I should change something

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:41

Sure

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 19:42

it would be a better taxation. Because you, it's also a lot of countries putting all the transition taxes, the subsidy schemes, it's put on electricity and that is really wrong. So you need to put that on fossil sale energy. And I think like Denmark and Germany has huge electricity, a very high electricity price, but they are now changing the taxation. And especially Denmark now, they have reduced the tax on electricity, so the heating can be decarbonized in a better way. So this heating, I think we need to make sure that we. Focus on heating and the market designed to prevent that this still will be for sale.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:29

Finally, Bente, in, in your time at start, that MOE, Brexit happened, was this a shock for the T SSO here in Norway and on a European level? And how did you deal with it?

Bente Hagem, former Director Statnett, ex Chair of Entsoe board: 20:39

It was not a shock, but it was a challenge, surely. And UK has always been a part of European market and UK energy and, uK liberalized early, are happy with markets, using markets, so the push for market design and good efficient markets. We needed the help from the uk, we will have in the future also a good relationship with the uk, but has a challenge because now they're thrown out of the market coupling. And you've seen high prices spikes, and I also read that they have different day ahead prices in the uk. That's up to UK to solve. Absolutely. They should be able to solve that.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:22

Yeah. Yeah, absolutely. Bente Hagem, thank you very much for joining on our weekly podcast today so listeners, you can now follow the podcast on our own Twitter account. Aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye. I.