Use of Green Certificates in the Nordic power supply

 Energy policy in the Nordic countries.  Green certificates – What, why and how?  Sweden’s ”Elcertifikat” system.  Status Norway.  Good design – A critical factor for success.  Presentation of some simulation results.  Advantages and disadvantages.  Discussion and questions.

Some shared goals in the Nordic energy and environmental policies  Increase the share of ”green energy”. Individual national goals.  Reduce CO 2 and other climate gas emissions.  Increase energy efficiency and reduce the use of energy.  Increase the share of water-borne heat.

A golden rule ”When finding the most cost-efficient solution one must define and stay focused on the main goal.”

If the main goal is: Increase the share of green electricity, then the means to acheiving it is: Green certificates.

Green certificates – What are they?  A proof of authenticity showing that a certain amount of electricity is generated using green technology, i.e. based on renewable energy sources.  The certificates are financial assets which can be traded in a financial market.  Goal: Increase the share of green electricity in the total consumption.  Only new/ increased capacity qualifies.

How it works  A certificate is issued and handed to the generator for each unit of green electricity it feeds into the grid.  The consumers are obligated to cover a certain share of their electricity consumption by green electricity.  The income from the sales of certificates provides the generator with an additional income to the the income from electricity sales itself.

Countries with a green certificate system  Sweden  Belgium  The Netherlands  Italy  UK  Austria  Several states in the U.S.A.  Australia  Japan  China  Postponed: Denmark

The Swedish ”Elcertifikat” system  Started May 1 st,  Goal: Increase the share of renewable electricity by 10 TWh from 2002 to  Obligatory quota imposed on all consumers in Sweden, with the exception of certain industries. (Increasing quota: From 7,4% in 2003 up to 16,9% in 2010.)  Penalty fee for every MWh non-complied quota, equivalent to 150% of the average certificate price. (During a transition period: 175 SEK/MWh in 2004, 240 SEK/MWh in 2005.)  The generators are guaranteed a minimum price up until (Decreasing from 60 SEK/MWh in 2004 to 20 SEK/MWh in 2008.)

”We should aim to participate in an international obligatory certificate market for green electricity We are not pursuing a national certificate market” (Comment by the Minister of Petroleum and Energy, Einar Steensnæs, November 1 st, 2002, after presenting the Parliamentary Report (Stortingsmelding) no.9 (2002 – 2003).) Status Norway (Fall 2002)

 ”The Parliament asks the Government to take the initiative in establishing – preferably – a common Norwegian/ Swedish obligatory green certificate market that can possibly be coordinated with an international market, with a view to present a definite proposal to the Parliament as soon as possible, and by Spring 2004 at the latest.” (From the Parliamentary bill (Innstilling) no.167 ( ), presented March 2003.) Status Norway (2003)

Good design – A critical factor for success  Who should be the obliged actor?  Banking.  Borrowing.  Compliance control and penalty pricing.  Defining eligible renewables.  How keep on supporting immature technologies and R&D?

System dynamic model  Key qualities: Non-linear dynamics. The effect of feedback loops is taken into account.  Basis: Simplified version of KraftSim, a model for the Nordic power market.  New: Adding a model for a certificate market.  Simulations were performed assuming different conditions and designs.

Design with low versus high flexibility

The consequences of failed planning – overambitious initial goal

The consequences of failed planning - too low maximum price

The consequences of failed planning - too short clearing time

General discussion  Advantages:  Supports and increases the share of green electricity prouction by giving the ”greenness” a monetary value.  Cost efficient.  The cost is transferred from the state to the consumers and producers.  The substantial potential for i.e. wind power in Norway.  Increase the self-sufficiency in electricity supply in the Nordic countries/ Europe.  Disadvantages:  Less predicitable development than i.e. subsidizing.  Uncertain price development.  Increased use of electricity?  Unable to differentiate between the varying environmental impact renewable and non- renewable electricity has on the environment.  If heat isn’t included: May possibly be discriminatory against district heating.  Exploitation of natural resources in certain regions.  Norway has already a high renewable share. Increasing this share may also increase the seasonal variations in production.  Should Norway rather utilize its natural gas resources?  The Nordic countries can set an example and play a leading role in the development of a future international market.