Over-investment in the Norwegian power grid

Whitepaper

During the coming decade, large investments will be made in the Norwegian power grid; a large-scale upgrade to smart meters, reinvestment in grids from the post-war period, and dimensioning the power grid for future consumption and production. The power grid is the backbone of our society, and the need for an upgrade is undisputable. This critical infrastructure will enable Norway’s future society.

The large, coming investments require great insights in how the investment demands of the future will develop. As consumers will bear the costs of these investments through higher electricity bills during the coming 40-50 years, it is essential that utilities make good investments oriented towards the future – for a properly dimensioned power grid.

 

 

Huge investments are planned in the Norwegian power grid in the coming decade

Huge investments are planned in the Norwegian power grid in the coming decade

NOK 140 billion will be invested up until 2025

In the coming decade, total planned investments amount to more than NOK 140 billion (excluding interconnectors). Around 40% of these investments are planned in the high voltage grid, while ~ 60% of investments are planned in the distribution- and regional grids.

Of the NOK 140 billion, NOK 10 billion are a large-scale investment to make households’ meters smarter by 2019. NOK 50 billion will be used for reinvestments in the grid, such as necessary upgrades of outdated infrastructure.

NOK 2,000 per household

Calculations made in the Reiten report (Et bedre organisert strømnett) showed that the implementation of the grid investments are expected to increase the yearly grid charges between 30-50%, as most of the basic infrastruc-ture was built in the 1960’s and is now fully depreciated.

The planned investments of NOK 140 billion will, for the average household, result in an increased electricity bill of NOK 2000 per year during the coming 30 years.

FIGUR 1: Investeringer i kraftnettet frem til 2025 (mrd. NOK)

Grid companies plan the future based on business as usual

Growth in power consumption drive new investments

When designing the power grid, planners base their calculations on the coldest hour with the highest expected power use. Hence, forecasts of power consumption form the basis for the dimensioning of the power grid.
Substantial parts of the coming investments are a result of dimensioning the grid for growth in power consumption. According to the grid companies, more than half of the total expected investments in the regional and distribution grids, in total more than NOK 40 billion, are to dimension the grid for future power consumption. This also drives investments in the high voltage grid. Power consumption is expected to grow for a number of reasons. Population growth and housing construction will give rise to investments in connection and increased capacity. The electrification of the oil industry and the industrial sector will lead to an increased demand for power capacity at the cost of fossil fuels. Changing consumer behaviour is also expected to lead to an increased power demand per household.

Projections indicate a significant increase in power demand

In the beginning of 2017, Norwegian Water Resources and Energy Directorate (NVE – the Norwegian regulator) published a summary of forecasts of the power grid in Norway. This report shows that the grid companies expect a power increase of 33%* in the period to 2035. The report summarises the increase in demand new in-vestments in the grid are based on. NVE point out that these demand forecast are sometimes based on simple calculations by the grid companies that assume an expected population growth and a continuation of historical trends. In other cases, the calculations are based on an expected change in output intensity, for example due to the introduction of new building codes and growth in electric vehicles (EVs). For example, the power system plan for Oslo, Akershus and Østfold (Network plan for Greater Oslo), assumes an increased power demand of 69% from the current level to the dimensioning scenario for the new grid.

Grid companies plan the future based on business as usual

Growth in power consumption drive new investments

When designing the power grid, planners base their calculations on the coldest hour with the highest expected power use. Hence, forecasts of power consumption form the basis for the dimensioning of the power grid. Substantial parts of the coming investments are a result of dimensioning the grid for growth in power consumption. According to the grid companies, more than half of the total expected investments in the regional and distribution grids, in total more than NOK 40 billion, are to dimension the grid for future power consumption. This also drives investments in the high voltage grid. Power consumption is expected to grow for a number of reasons. Population growth and housing construction will give rise to investments in connection and increased capacity. The electrification of the oil industry and the industrial sector will lead to an increased demand for power capacity at the cost of fossil fuels. Changing consumer behaviour is also expected to lead to an increased power demand per household.

Projections indicate a significant increase in power demand

In the beginning of 2017, Norwegian Water Resources and Energy Directorate (NVE – the Norwegian regulator) published a summary of forecasts of the power grid in Norway. This report shows that the grid companies expect a power increase of 33%* in the period to 2035. The report summarises the increase in demand new in-vestments in the grid are based on. NVE point out that these demand forecast are sometimes based on simple calculations by the grid companies that assume an expected population growth and a continuation of historical trends. In other cases, the calculations are based on an expected change in output intensity, for example due to the introduction of new building codes and growth in electric vehicles (EVs). For example, the power system plan for Oslo, Akershus and Østfold (Network plan for Greater Oslo), assumes an increased power demand of 69% from the current level to the dimensioning scenario for the new grid.

A changing energy landscape makes the past less relevant when predicting the future

A changing energy landscape makes the past less relevant when predicting the future

Changes in technology, regulation and customer behaviour will change the way power is consumed, and how the grid is utilised. The changes are mutually reinforcing; a massive introduction of electric vehicles, batteries and solar PV at the same time as NVE (the Norwegian regulator) has signalled the introduction of dynamic pricing makes it both technologically feasible and profitable for consumers to adapt their power consumption.

The current dimensioning of the future power grid does not seem to take into account the implications these changes will have on reducing the power demand.

Is this behaviour a result of rational risk aversion or a worrying pessimism for the future? Does this mean that we can expect a large over-investment in the Norwegian power grid going forward?

Up for a chat about the changing energy landscape?

Erik Nordbø
erik.nordboe@qvartz.com
+47 92 61 00 93

Stein Dale
stein.dale@qvartz.com
+47 45 00 21 11

Morten Kleveland
morten.kleveland@qvartz.com
+47 99 44 04 19