Nordic Energy Research Articles

Green bonds and sustainable business models in Nordic energy companies

As green bonds continue their dynamic growth trajectory to finance the transition to a more sustainable future, a gap in the literature remains on how companies have overcome internal barriers to successful green bond issuance. This case-based study analyzes how five Nordic energy companies have successfully surmounted internal barriers to issuing green bonds by leveraging their sustainable business models. The findings show a number of antecedental features of sustainable business models prior to green bond issuance including: a focus on environmental betterment as part of the mission and strategy; investments into assets that provide an environmental benefit and a divestiture of those that do not; the active pursuit to reduce CO2 emissions through R&D; and, strong governance mechanisms. Throughout the process of issuing green bonds, companies introduce changes to their sustainable business models, most notably, green finance frameworks and additional governance practices. As a result of the green bond issuance, reinforcing choices and consequences emerge to create virtuous cycles. In turn, the virtuous cycles support environmental objectives and foster more economic and environmental value for the company, investors, and society. Our study offers a process-based theoretical outline of how sustainable financing can make a business model more sustainable by removing internal barriers and strengthening company strategy, asset choices, and governance.

Direct and indirect short-term aggregated turbine- and farm-level wind power forecasts integrating several NWP sources

The wind power sector is experiencing rapid growth, which creates new challenges for its electricity grid integration. Accurate wind power forecasting (WPF) is crucial for trading, balancing, and dispatching wind energy. In this paper, we examine the use of aggregated turbine- and farm-level WPFs in the Nordic energy market. The turbine-level WPFs were retrieved from a previous study, while the farm-level WPFs were developed using the same methodology, incorporating inputs from three different numerical weather predictions (NWPs) and implementing both direct and indirect forecasting approaches. In the indirect WPF approach, we explore the impact of using wind direction as an input for the wind farm-level power performance model. The different WPFs are combined into one using weights related to up-to-date forecast errors. An automated and optimized machine-learning pipeline using data from a Norwegian wind farm is used to implement the proposed forecasting methods. The indirect approach, that uses the wind-downscaling model, improves the wind speed forecast accuracy compared to raw forecasts from the relevant NWPs. Additionally, we observed that the farm-level downscaling model exhibited lower error than those developed at the turbine level. The combined use of multiple NWP sources reduced forecasting errors by 8 %–30 % for direct and indirect WPFs, respectively. Direct and indirect forecasting methods present similar performance. Finally, the aggregated turbine-level improved WPF accuracy by 10 % and 15 % for RMSE and MAE, respectively, compared to farm-level WPF.

Limiting imbalance settlement costs from variable renewable energy sources in the Nordics: Internal balancing vs. balancing market participation

Due to the market gate closures in the Nordic energy markets, producers with variable renewable energy (VRE) assets, e.g., PV and wind power plants, must forecast their production prior to delivery, leaving room for significant forecast errors. These forecast errors can lead to imbalances between the contractual market agreements and physical delivery, which have to be financially accounted for through the imbalance settlement. The increasing shares of VREs in the Nordic energy mix and the increasing variability in the price of regulating the imbalances, can lead to potential large revenue losses for the producers.This study investigates how different producer balancing strategies can limit the uncertainty and potential revenue losses in the imbalance settlement. The study focuses on available balancing measures the producers are able to use in the period starting from the last energy market gate closure, i.e., the manual Frequency Restoration Reserve (mFRR, tertiary reserves) balancing market, and throughout the subsequent settlement period. During this settlement period, producers have the option within the Nordic imbalance settlement framework to prevent VRE imbalances by performing internal balancing, i.e., ramping up or down their dispatchable assets which are located in the same bidding area as the VRE assets. However, this study shows both theoretically and quantitatively that such internal balancing is not economically beneficial compared to offering this regulating energy to the mFRR market.

An overview of Baltic Carbon Forum conference 2022

Baltic Carbon Forum (BCF) is an annual event sponsored by Nordic Council of Ministers through Nordic Energy Research through their network BASRECCS. BCF 2022 was held on 13th and 14th Oct. in Kaunas, Lithuania. The aim of the BCF 2022 was to enable interested and engaged stakeholders to meet, discuss, share knowledge and experiences, and develop projects. BCF also aims to increase awareness about Carbon Capture Utilization and Storage (CCUS) among younger generations with aim of securing a sustainable future for all. The BCF2022 invited a number of academic and industry experts from the Baltic Sea region countries, which included policymakers, financial institutes, industry representatives and academics for sharing their experiences, conduct discussions and brainstorming sessions to identify gaps with aim of expediting the deployment of a large-scale CC(U)S project in the Baltic Sea Region (BSR). BCF 2022 was attended by 74 participants. There were 38 participants who attended the conference onsite and 36 participants attended the conference online. Participants came form 15 countries, which included Finland, Lithuania, Hungary, Sweden, Poland, Norway, Estonia, Denmark, Latvia, Belgium, Germany, USA, UK, India and South Africa. This paper presents a short summary of all the talks presented at the BCF 2022 conference [1, 2].

Intelligent estimation of wind farm performance with direct and indirect ‘point’ forecasting approaches integrating several NWP models

Reliable wind power forecasting is essential for profitably trading wind energy in the electricity market and efficiently integrating wind-generated electricity into the power grids. In this paper, we propose short- and medium-term wind power forecasting systems targeted to the Nordic energy market, which integrate inputs on the wind flow conditions from three numerical weather prediction sources. A point forecasting scheme is adopted, which forecasts the power at the individual turbine level. Both direct and indirect forecasting approaches are considered and compared. An automated machine-learning pipeline, built and optimized using genetic programming, is implemented for developing the proposed forecasting models. The turbine level power forecasts using different approaches are then combined into a single forecast using a weighting method based on recent forecast errors. These are then aggregated for the wind farm level power estimates. The proposed forecasting schemes are implemented with data from a Norwegian wind farm. We found that in both the direct and indirect forecasting approaches, the forecasting errors could be reduced between 8% and 22%, while inputs from several NWP sources are used together. The wind downscaling model, which is used in the indirect forecasting approach, could significantly contribute to the model's accuracy. The performance of both the direct and indirect forecasting schemes is comparable for the studied wind farm.

The Profitability of Energy Storage in European Electricity Markets

In this work, we study the profitability of energy storage operated in the Nordic,German, and UK electricity day-ahead markets during 2006-2016. During this time period, variable renewable energy sources (vRES) have been rapidly penetrating the markets and increasing the volatility of the residual load, which is often assumed to be associated with improving financial viability of energy storages. However, storage operator profits are not publicly available, in particular not at plant level. We therefore develop a linear optimisation model which maximises profits from arbitraging hourly prices and use the model output of profits and storage operating hours in further econometric analyses. This is a novel approach merging two strands of literature (optimisation and econometrics) in a single energy storage study. Specifically, we quantify and disentangle the effects of electricity demand, solar and wind generation, the spread between gas and coal prices, carbon emission prices and tructural breaks on profits and operation of 1-13MWh/MW energy storages. Among others we find that solar generation is associated with lower profits but higher operating frequency of energy storages in Germany. Wind power generation is associated with positive effects on profits in the UK and Germany. vRES does not affect profits or operation of new Nordic energy storages.

Applying Responsible Ownership to Advance SDGs and the ESG Framework, Resulting in the Issuance of Green Bonds

This study aimed to contribute to the strand of literature encompassing governance, sustainability, and stakeholder theory by addressing an inchoate element of responsible ownership: collective action by different stakeholders. Our study’s originality rests on the introduction of an ownership strategy as a governance mechanism for collective action and responsible ownership in order to implement the United Nations Sustainable Development Goals (SDGs) and an environmental, social, and governance (ESG) framework. Using a twofold empirical methodology—studying of archival data and qualitative case work—we provide empirical evidence from a case study of a Nordic energy company showing that applying an ownership strategy helped to strengthen the approach to SDGs and ESG while leading to positive benefits: in this case, the issuance of green bonds. Our theoretical contribution is the addressing of a gap in the literature exploring how an ownership strategy can be a uniting point for collective action, based on the hypothesis that an ownership strategy provides an important reinforcement of a “virtuous cycle”. Policymakers who are interested in promoting long-term commitment of different stakeholders with a focus on sustainability and improved agency should encourage the formulation of an ownership strategy that explains the owners’ commitment to the environment, social causes, and/or governance guidelines. Therein lies the practical contribution of this work. In this study, we found that an ownership strategy with these elements helped to strengthen the firm’s commitment to SDGs and ESG.

The Barriers to Corporate Social Responsibility in the Nordic Energy Sector

Nordic companies have been at the top of sustainable business rankings since the early 2010s. Some of them are energy companies that have adopted Corporate Social Responsibility to have a positive social impact and become carbon neutral. However, limited literature has analyzed the barriers that Nordic energy companies face while implementing Corporate Social Responsibility. This article aims to identify and categorize the barriers faced by Nordic energy companies. The research is based on empirical data obtained from interviews involving high-level managers from the largest suppliers of energy in the Nordic region. A model is developed, which identifies and categorizes seven barriers at the individual level, seven at the organizational level, and three at the institutional level of analysis. The findings suggest that barriers can be of a direct and indirect nature and can be found across the three levels of analysis. The main contributions of this article are: (1) it identifies and categorizes the barriers that Nordic energy companies face; (2) it defines the barriers as direct and indirect based on their interaction with the company; (3) it presents two models of the barriers and provides empirical evidence that complement the literature; and (4) it contributes to the literature by focusing on the Nordic countries, a region that has received limited attention by scholarly research.

The energy company of the future: Drivers and characteristics for a responsible business framework

Abstract Since the early 2010s, Nordic companies have been at the top of business rankings as the most sustainable in the world. Some are energy companies with business frameworks with a long-term approach to become carbon neutral. However, limited literature exists on what drives Nordic energy companies to implement responsible business frameworks even when they are recognized as frontrunners in sustainability and in incorporating renewable sources of energy into their portfolio. This article contributes to the literature by presenting a framework that identifies and categorizes the drivers for Nordic energy companies to implement responsible business frameworks and also by determining the characteristics of a responsible energy company. The findings are based on empirical data obtained from interviews involving high-level managers from relevant Nordic energy companies. A framework is developed and categorizes eight internal, nine connecting, and nine external drivers. The findings suggest that a responsible energy company needs to incorporate nineteen key elements to its business frameworks which served as a basis to propose a definition of the energy company of the future. The findings, and the proposed framework and definition intend to: 1) provide a better understanding of what drives energy companies towards responsible business frameworks, 2) emphasize the importance of defining the characteristics of a responsible energy company, and 3) propose a definition of the energy company of the future. This article contributes to the literature by proposing a framework that provides a broader perspective on the topic and by providing a new definition of the energy company of the future. The practical contributions come from providing a deeper understanding of the diversity of drivers for energy companies which can translate into positive effects for the energy sector with regards to public policies, legislations and regulations, and innovative business frameworks. Understanding what drives energy companies towards responsible corporate behavior is particularly relevant considering that the energy sector is crucial for achieving most of the Sustainable Development Goals.

Developing Nordic Cooperation in Renewable Electricity Policy: Exploring Views from Finland and Sweden

Calls for extending Nordic cooperation in the energy sector consider increased cooperation to be a tool to further support the creation of a smart Nordic energy system and realize the sustainable energy transition. To enhance our understanding of the state of Nordic energy cooperation, this article focuses on renewable electricity policy development in Finland and Sweden against the backdrop of facilitating and accelerating the Nordic energy transition. Building on previous research, the respective policy landscapes in Finland and Sweden will be scrutinized with insights from expert interviews, allowing the highlighting of the role of the actors in shaping the national and international energy transition policy. Ultimately, the article will explore the possibilities to enhance Nordic cooperation and question a possible future institutionalization of Nordic energy cooperation from the perspectives of Finland and Sweden. The aims of the article are twofold. First, to analyze the current policy mixes in Finland and Sweden with a special focus on bottlenecks and development needs and, second, to explore the viewpoints of the stakeholders from these two countries regarding potential and bottlenecks for developing Nordic energy cooperation.

Capital bias in the Nordic revenue cap regulation: Averch-Johnson critique revisited

Nordic energy market reform and the regulation of local monopolies in electricity transmission and distribution sectors have served as role models for many other countries worldwide. The first contribution of this paper is to clarify the conceptual distinction between the Nordic revenue cap approach and the British revenue cap regulation. Our second contribution is to show that the Nordic revenue cap is similar to the U.S.-style rate of return regulation in that both are subject to capital bias, known as the Averch-Johnson effect. The third contribution of this paper is to examine the magnitude of the capital bias and its welfare effects by means of numerical simulations. We show that the Nordic revenue cap generally decreases the monopoly profit, increases the output, decreases the price, and hence increases consumer surplus compared to the unregulated monopoly. The simulation results prove robust to changes in the parameter values and the functional form of the production function. Our numerical simulations reveal that relatively light handed regulation suffices to yield the main benefits.

Robust Optimization Model for Energy Purchase and Sale of Electric–Gas Interconnection System in Multi-Energy Market

With the increasing coupling of the power system and the natural gas system, the electric–gas interconnection system has become a typical form of comprehensive energy utilization. Through the energy conversion function of the coupling unit, the system can flexibly participate in the bidding for purchasing and selling energy in a power market and a natural gas market on the premise of meeting the internal demand of multiple loads. To solve the internal coordination and optimization problem and the external flexible bidding problem in the multi-energy market, this paper proposes a robust optimization model of energy purchase and sale for the electric–gas interconnection system in a multi-energy market. Firstly, the basic structure of the electric–gas interconnection system is introduced, and the steady-state model of energy flow in the system is built based on the energy hub model. Secondly, considering the uncertainty of energy prices and the output power of renewable energy units in the system, a bidding model for energy purchase and sale of the electric–gas interconnection system in multi-energy market based on the idea of robust optimization is constructed in the framework of the Nordic energy market. Finally, empirical analysis based on the actual data is carried out, and the results prove the validity and superiority of the model. In this paper, aiming at the uncertainty of energy price, a large number of scenes are generated by Latin hypercube sampling (LHS), and then a k-means algorithm is used to reduce the scenes, so as to simulate typical scenes. Aiming at the uncertainty of the output power of the renewable energy unit in the system, a cardinal uncertainty set is used to control deviation between the actual output power and predicted output power, so that the overall robustness of the model can be controlled. The proposed model can make decision-making independent of the accurate probability distribution of uncertainty factors, and is suitable for complex multi energy systems. Meanwhile, the model possesses excellent robustness, which can effectively reduce the risk of bidding loss in the process of energy purchase and sale.

Energy Scenario Analysis for the Nordic Transport Sector: A Critical Review

Experiencing the highest growth in emissions since 1990 and relying mainly on oil, transport is considered the most complicated sector to decarbonize. Lately, the Nordic countries have shown remarkable success in reducing greenhouse gas (GHG) emissions, especially in the power and heat sector. However, when it comes to transportation, the greatest source of Nordic GHG emissions, stronger measures are needed. Relying on a rich and diversified portfolio of renewable sources and expertise, the Nordic countries could benefit from a common mitigation strategy by encompassing a larger variety of solutions and potential synergies. This article reviews studies addressing integrated energy and transport scenario analysis for the Nordic region as a whole. The studies targeted are those applying energy system models, given their extensive adoption in supporting scenario analysis. Most notable of these studies is the “Nordic Energy Technology Perspectives 2016” to which a special focus is dedicated. The article reviews the methodological choices and the research content of the selected literature. Challenges/limitations are identified in light of recent transport research, and categorized as: “transport behavior”, “breakthrough technologies”, “domestic energy resources” and “geographical aggregation and system boundaries”. Lastly, a list of suggestions to tackle the identified gaps is provided based on the existing literature.

Stochastic programming model for scheduling demand response aggregators considering uncertain market prices and demands

This paper proposes a stochastic decision making model for a demand response (DR) aggregator as an interface between the market and customers in a competitive environment. The DR aggregator participates in day-ahead (DA) energy and balancing markets as well as offers selling price to the customers to maximize its expected profit, considering the reaction of customers to the rivals’ offering prices. Moreover, the effect of load reduction due to implementing DR contracts on the decision making process of the DR aggregator is assessed. However, the main focus is on the operation of both shiftable and sheddable loads in price-based DR programs with detail. In order to investigate the behavior of different DR actions from the DR aggregator viewpoint, the restrictions imposed by the preferences of customers to the decisions made by the DR aggregators are modeled via a bi-level stochastic programming approach. The upper level represents the decisions made by the DR aggregator, while the lower level models the customers’ behavior. To deal with various uncertainties, a risk-constrained scenario-based stochastic programming framework is presented where the DR aggregator’s risk aversion is modeled using conditional value at risk (CVaR) method. Finally, a detailed illustrative case study based on the Nordic energy market data is provided and the effects of different DR actions and risk aversion factor on the profit of the aggregator are analyzed.

Large-scale forest-based biofuels production: Impacts on the Nordic energy sector

The need for fossil-free fuels in transportation will likely cause increased demand for liquid biofuels, which will affect biomass prices and hence alter fuel usage for heat and power generation. Despite obvious connections, the interactions between the forest, bioenergy and energy sectors are only analyzed to a limited extent in previous research. This study analyzes how increased forest-based biofuel production influences fuel use in the Nordic district heating sector, as well as power prices and investments in renewable power production. The novel contribution of the study is the linking of a detailed energy system model and a forest sector model covering forestry and forest industries in the Nordic countries. For the Nordic region, the use of biomass for power and heat is reduced by more than 50% when the biofuel production is assumed to increase from 0 to a 40% share of the transportation fuel market. The results contribute to the understanding of how large-scale biofuel deployment may affect heat and power markets and, in turn, the development of renewable energy systems. Policies targeting the enhancement of specific uses of biomass should take these market effects in the bioenergy and energy markets into account.

Improving district heat sustainability and competitiveness with heat pumps in the future Nordic energy system

District heating (DH) in Nordic countries largely relies on efficient large-scale combined heat and power (CHP) production. The currently low electricity market price has diminished the economic competitiveness of CHP production. Production of DH increasingly happens in thermal heat-only boilers, increasing long-term environmental impacts. An alternative is the use of large-scale heat pumps (LHPs). Utilization of LHPs in hours of low electricity price could be economically advantageous to producers, reduce carbon emissions from burning fuels, and aid in balancing the production and consumption of electricity in a future energy system where electricity production from variable renewable energy is increasing rapidly.

Is District Heating Combined Heat and Power at Risk in the Nordic Area?—An Electricity Market Perspective

The Nordic power market has exceptionally low carbon emissions. Energy efficient combined heat and power (CHP) plays an important role in the market, and also produces a large share of Nordic district heating (DH) energy. In future Nordic energy systems, DH CHP is often seen as vital for flexibility in electricity production. However, CHP electricity production may not be profitable in the future Nordic market. Even currently, the prevailing trend is for CHP plants to be replaced with heat-only boilers in DH production. In this work, we aim to describe the future utilisation of CHP in the Nordic area. We use an electricity market simulation model to examine the development of the Nordic electricity market until 2030. We examine one main projection of electricity production capacity changes, and based on it we assess scenarios with different electricity demands and CO2 emission prices. Differences between scenarios are notable: For example, the stalling or increasing of electricity demand from the 2014 level can mean a difference of 15 €/MWh in the average market price of electricity in 2020. The results of this paper underline the importance of considering several alternative future paths of electricity production and consumption when designing new energy policies.

Energy security impacts of a severe drought on the future Finnish energy system

Finland updated its Energy and Climate Strategy in late 2016 with the aim of increasing the share of renewable energy sources, increasing energy self-sufficiency and reducing greenhouse gas emissions. Concurrently, the issue of generation adequacy has grown more topical, especially since the record-high demand peak in Finland in January 2016. This paper analyses the Finnish energy system in years 2020 and 2030 by using the EnergyPLAN simulation tool to model whether different energy policy scenarios result in a plausible generation inadequacy. Moreover, as the Nordic energy system is so heavily dependent on hydropower production, we model and analyse the impacts of a severe drought on the Finnish energy system. We simulate hydropower availability according to the weather of the worst drought of the last century (in 1939–1942) with Finnish Environment Institute's Watershed Simulation and Forecasting System and we analyse the indirect impacts via reduced availability of electricity imports based on recent realised dry periods. Moreover, we analyse the environmental impacts of hydropower production during the drought and peak demand period and the impacts of climate change on generation adequacy in Finland. The results show that the scenarios of the new Energy and Climate Strategy result in an improved generation adequacy comparing to the current situation. However, a severe drought similar to that experienced in 1940s could cause a serious energy security threat.

Market Power With Combined Heat and Power Production in the Nordic Energy System

The trend toward increasing energy efficiency and variable renewable energy (VRE) production has implications for combined heat and power (CHP) plants, which operate in both the price-driven power market and the district heating (DH) sector. Since CHP will be important in VRE integration, we develop a complementarity model to analyze CHP producers’ roles in integrated markets. We use a Nordic case study to gain insights into, first, the effect of the link between CHP and DH on market power and, second, market power's impact on operations in the DH sector. The results indicate that, first, the link of CHP to DH supply can increase market power and, second, market power can induce shifts in DH production from heat only to CHP.

Negative CO2 Emissions with Chemical-Looping Combustion of Biomass – A Nordic Energy Research Flagship Project

The Nordic countries constitute a natural location for the development and deployment of Bio-Energy with Carbon Capture and Storage (BECCS). Finland, Sweden and Denmark are world-leading with respect to heat and power generation from sustainable biomass. Norway is world-leading with respect to Carbon Capture and Storage (CCS). The Nordic countries also have ambitious targets for reductions of their CO2 emissions, host leading technology providers, and have large biomass potential per capita. System studies suggest that bioenergy could be the single largest energy carrier in the Nordic countries by 2050. Negative CO2Emissions with Chemical Looping Combustion of Biomass is a multi-partner project with the goal to develop new technology that: i) enables CO2 capture and negative CO2 emissions at the lowest possible cost, ii) is able to produce power and steam for industrial and other applications, iii) utilizes Nordic expertise in fluidized bed technology and iv) has potential to achieve improved fuel utilization. The technology capable of achieving these goals is Chemical-Looping Combustion of biomass (Bio-CLC). The article presents the project and features some early results from its implementation.