Nordic energy policy needs a boost

25.10.2017 10.00
Column

Nordic energy cooperation has become a burning issue due to Jorma Ollila’s report on its development. Regional electricity markets are a success story and positive for the common good – despite the occasional setbacks. But deepening other types of energy cooperation is altogether a more complex issue. Without the necessary legislative authority and implementation powers, Nordic collaboration is firmly founded on voluntariness. One overarching factor, however, is the way the Nordic countries respond to EU initiatives.

In 2016, when Finland held the Presidency of the Nordic Council of Ministers, Jorma Ollila was asked to compile a report on the development of Nordic energy cooperation over the next 5–10 years. This report was submitted to the Council in June 2017. Both on the basis of this report and more generally as the energy sector evolves, now is a good time to outline the role and future of Nordic energy collaboration.

The subplots to the success story of the energy markets

As has often been stated, the wholesale markets of regional electricity have proved a great success in turning the various energy production profiles of the Nordic countries – and today also the Baltic countries – into a strength through cross-border trade. In the Nordics, we have been able to actualise the advantages of open electricity markets. The regional integration of Northern Europe has also been a powerful example for the electricity market model currently under negotiation in the EU.

Of course, neighbours sometimes quarrel too, as illustrated by the current dispute about the cooperation in balancing of the power system between our countries’ transmission system operators. In essence, it concerns the procedures and power of decision-making, but also some ill-conceived initiatives. Nevertheless, I am sure that we will find a workable solution to this too; one that honours the strict system responsibilities of the national transmission grids in each respective country. We are bound also by the EU legislation to do so.

The development of a common retail market has become something of an eternal question in the Nordic countries. Debates about it tend to be reduced to the question of whether customers should receive two electricity bills (for distribution and energy) or whether the one-bill, retailer-led model would be preferable. Much more essential, however, than the arrangement of the same number of euros on one or two bills, is the general functionality of the markets. In Finland, there are no significant problems and competition is working well. In terms of the harmonisation of the retail market, we should be honest and recognise that the interests of large Nordic and small local energy companies differ vastly.

Setting the foundation for cooperation

When discussing energy policies more broadly, it is easy to agree with Ollila’s key proposition that a clearer common vision is required for successful Nordic cooperation. In my opinion, it is essential to understand the intrinsic difference between such a strategic vision and an actual common energy strategy. The vision contains the idea of a common goal we all strive towards in realising the necessary energy change, while utilising synergies and collaboration. Of course it is also important to determine the key concrete areas and goals of the cooperation.

However, the actual energy strategy is up to each Member State themselves, because it requires political and legal authority and careful consideration, as well as extremely wide-ranging and expert preparation by public officials. The Finnish Energy and Climate Strategy, which extends to 2030, is a good example. Of course, this does not in any way eliminate the need to discuss the strategies with our closest neighbours during the preparation phase. The administrative procedures of the EU's energy union also require national energy and climate plans and the consultations related to these.

The analysis presented by Jorma Ollila on the effects of national taxes, tariffs and other such factors on the investment environment is in line with the above. Tax harmonisation, for example, would be much more difficult and might only occur in practice through EU legislation, if at all.

The majority of the framework for energy policies today is regulated within the EU. Possibly, the greatest potential for increasing Nordic cooperation lies in influencing EU policies. A topical example of the need for such coordination is the sustainability criteria for bioenergy and biofuels where a shared Nordic voice would be stronger than a single one. In this too, however, we must find a common denominator and message at a more general level due to the differing starting points of our countries.

Unfortunately, the fact that Norway is not an EU Member State also reduces our possibilities to influence EU policies. Norway is involved in the internal energy market via the EEA Agreement, but in terms of the applicable rules it is always at least one step behind EU Member States. The energy policy highlights the way Norway walks a tightrope between the benefits brought by the EU market and the freedom staying outside the Union allows it.

Measures to take us forward

The Nordic countries have a significant contribution to make in accelerating the change in energy systems which are taking place all over the world. We have plenty of technological and other kinds of know-how in energy production and energy efficiency, as well as in systems management. What is needed now is to combine our know-how and develop it across the Nordic borders. Ollila’s suggestions on energy research and innovations are well justified. Being a forerunner needs to be promoted in a broad-minded way. The Nordic countries provide excellent test platforms for the solutions of the future. The planned smart grid testbed in Åland is a good example.

We must also be able to turn our know-how into exports and growth. In my opinion, it is especially important to utilise international fora, which involve governments, research institutes and companies. In this regard, the Clean Energy Ministerial and Mission Innovation have a special status for us because they have allowed four small Nordic countries to join in the development of clean energy solutions as equal participants alongside large G20 economies.

The next CEM and MI conferences will be organised jointly by Sweden, Finland, Denmark, Norway and the European Commission and will take place in May 2018 in Copenhagen and Malmö. They provide an almost unique opportunity to present Nordic energy know-how globally. Finnish companies are welcome to come along and I will be very happy to see them there.

Governance?

What structures then should be applied to develop the Nordic energy cooperation? The fact is that these activities are poorly institutionalised and at the same time entirely dependent on a shared ambition.

The legislative power lies firmly with the EU and the nation states. This does not mean, however, that Nordic institutions need simply be a group of debating societies – the electricity markets have proven that our common interests and strong will can lead to excellent results. We just need to make sure to make the most of the voluntary nature of the activities.

There is bound to be some room for improvement in our modes of operation. In my opinion, one of the worst traditions of Nordic cooperation is the culture of apparent discussion: we hear but we don't listen each other.  The use of the “Scandinavian” in official sessions and meetings does not make communication easier either. A lot of effort goes into argumentation, but we seldom settle on a clear stand that would help us focus our activities. We could at least consider giving Finnish straightforwardness a try…

We also need to make the framework of our common activities – groups and procedures – more functional. Jorma Ollila’s suggestions also include some ideas on this. For example, the Nordic Electricity Market Forum chaired by a high-level government official might provide a practical platform for discussion between administrators, regulators and companies. As the Director-General for energy in Finland, I fully support the idea and invite others to commit to it too.

The next time we have an opportunity to show what political Nordic energy cooperation is capable of will be at the end of November at the energy ministers’ meeting in Oslo. I would recommend that the Council of Ministers outline the necessary future steps based on Ollila’s propositions. The world around us won’t sit and wait.

Riku Huttunen is the Director-General of the Energy Department at the Ministry of Economic Affairs and Employment