The Changing Geography of the Power System

[Stockholm, 28 October 2022; first published 19 May 2022] The geography of the electricity system is changing with the transition to renewable energy. Production is moving further from consumption and the system becomes increasingly transmission-dependent.

Several factors contributing to the changing geography of the power system

There are multiple factors that have contributed to the geographical shift of the power system. First and foremost, new capacity for wind power generation has been located where wind conditions are most favorable, which tend to be in the northern parts of the Nordics. The expansion of wind power has increasingly shifted northbound and is expected to continue in SE1 and SE2 at least until 2025.

Second, production capacity has been decommissioned in the South. Notably, six nuclear reactors in Barseb?ck, Oskarshamn and Ringhals with a total capacity of 4,1 GW and an annual production of 28-30 TWh have been decommissioned in SE3 and SE4 between 1999 and 2020.

Third, additional sea cables for exports have resulted in additional needs to transfer energy produced in the northern bidding zones (SE1 and SE2) via the southern bidding zones in Sweden and Norway. Most recently, the North Sea Link (Norway-UK) and the Nordlink (Norway-Germany) added a combined 2800 MW transfer capacity to foreign markets.

Multiple indications of geographical imbalances

In the last decade, from 2011/12 until 2021/22, the deficit in production capacity in the south of Sweden the most demanding peak hour has changed from -5882 MW to -9200 MW. In other words, the deficit today is 3,3 GW larger than ten years ago. Today, available capacity in SE3 and SE4 can only meet 57,8% of demand at the peak – leaving these bidding zones heavily dependent on transmission from SE1 and SE2 and, critically, on imports during cold periods.

Also striking is the lack of price integration in the Swedish electricity market. In the Nord Pool day-ahead market in 2021, the price in all four bidding zones in Sweden was uniform about a third of the time (32,9%). Accordingly, the market was segmented two thirds of the time with consumers in the South paying significantly higher prices than consumers in the North. In the spring of 2022, the situation has turned even worse with an integrated market 27,9% of all hours, partly explained by the rising EU energy prices after Russia’s invasion of Ukraine.

Consequences of the changing geography of the power system

Longer and more extensive transmission of electricity naturally result in slightly higher losses as electricity is transferred over longer distance to reach the final consumers. In addition, the need for reactive power increases to maintain voltage and grid stability.

Moreover, with insufficient transmission capacity, there will be excess demand in areas with a large share of the population and economic activity (the South) and excess supply in areas with a large share of the generation capacity (the North). With a price gap (per MWh) significantly higher than the long-term cost of transmission (per MWh) there is a substantial welfare loss from the curtailed cross-zonal trade between SE1/SE2 and SE3/SE4.

In addition, transmission-dependence makes the system more sensitive and less resilient. A greater distance between production and consumption increases the number of serially dependent components and increases the risk of failure. The system thus becomes less tolerant to faults.

Need for a new topology

The changing geography of power generation will raise the need for compensating measures. To restore balance and improve resiliency of the system we should see an expansion of distributed capacities closer to end-users in the South.

Mattias Ganslandt, Chairman of Primrock

Sources:

Kraftbalansen p? den svenska elmarknaden, rapport 2021, Dnr 2021/1042, May 2021, https://www.svk.se/siteassets/om-oss/rapporter/2021/kraftbalansen-pa-den-svenska-elmarknaden-rapport-2021.pdf

Kraftbalansen p? den svenska elmarknaden vintrarna 2010/2011 och 2011/2012, Dnr 2011/897, Aug 2011, https://www.svk.se/siteassets/om-oss/rapporter/2015-och-aldre/110810_effektbalansen_rapport.pdf