ForTheDoers Blog

Decarbonising the Nordic region: A call for cooperation

Lari Järvenpää  ·  25 September 2020

Nordic cooperation is key to decarbonising the region fast enough to reach our ambitious climate targets. This calls for harmonised taxation policy and joint infrastructure development. In addition, it is vital that we ensure the competitiveness of the existing clean electricity generation base and examine the possibilities afforded by hydrogen.

Nordic city landscape in the evening with lights and electric infrastructure

We have certain EU-level instruments for steering European industries towards greener production and transportation. One such tool, indeed a highly important one, is carbon pricing in the Emission Trading System (ETS). However, this alone is not enough.

Energy infrastructure - a bottleneck for development?

In order to make decarbonisation feasible, we need to have in place the necessary energy infrastructure, and it must be capable of carrying the needed volumes from sources of supply to sinks of demand. This is clearly not yet a reality.

If the energy infrastructure is not developed to serve the decarbonisation effort, we will simply not be able to reach our targets. A joint Nordic infrastructure body, together with a shared vision of carbon neutrality and harmonised instruments, would be an optimal setup for successful decarbonisation of the Nordic region. The need for significant investments in grid optimisation is also brought up in the new report by Copenhagen Economics (CE), commissioned by Fortum; the report states that a more forward-looking approach should be adopted in the regulation of Transmission and Distribution System Operators (TSOs and DSOs), with a stronger focus on customer and overall energy market needs. According to the report, regulation should be drawn up in a way that encourages the adoption of new technologies and market mechanisms that support flexibility of demand and supply.

Clean electricity demand to increase significantly

The CE report also acknowledges that if deep decarbonisation is to succeed, electricity will be in a much larger role in the overall final consumption mix than it is today. Clean electricity is a natural and competitive way to directly decarbonise many sectors, such as light-duty transport and parts of building heating.

According to the report, the overall electricity demand in the Nordic region could grow by about 290 TWh from today’s roughly 400 TWh. This is a major increase in a very short timeframe. We therefore have to ensure that our existing clean electricity generation base is operating optimally. Decarbonisation should not be risked by undermining the commercial viability of hydro and nuclear power, which in addition to clean electricity also provide valuable so-called ancillary services to the electricity system.

Hydrogen to the rescue?

Increasing the clean electricity output is, however, not a one-size-fits-all solution. Certain sectors, especially in industry and transport, require large-scale energy storage, high temperatures or certain chemical properties – in essence, another way to replace fossil fuels. The answer to these needs could very well be found in hydrogen.

The Nordic countries have abundant wind power and competitive nuclear power. We might have highly valuable and competitive resources to establish a hydrogen economy. Bloomberg has estimated that in the long run, the full cost of producing electricity-based hydrogen in the Nordics could be as little as 0.73 USD/kg, which is the lowest number in their global estimate base.

Hydrogen also solves the intermittency problem of renewables, as it can be produced and stored when renewable energy is abundant and then used when solar and wind power are unavailable.

Therefore, we at Fortum would like to see a joint Nordic hydrogen strategy, which would firstly clearly identify this unique opportunity, and secondly take decisive actions to bring the Nordic countries to the top of the hydrogen race. This is something that should be taken on without delay, as we are by no means the only ones interested in seizing this opportunity that entails trillions of cumulative investments over the next decades.

The next step

We have recognised development areas and tangible means to move forward in decarbonising the Nordics. Now, it is time for action. We call on the Nordic national governments to take on this joint task of harmonisation, infrastructure development and exploration of the possibilities of hydrogen. The road ahead is not an easy one, but if we commit to shared goals and cooperate across borders and industries, we can succeed.

Lari Järvenpää
Head of Market Intelligence
Fortum’s Trading and Asset Optimisation (TAO)