1 Institutt for geologi og bergteknikk How does the present Norwegian policy support industrial...

Institutt for geologi og bergteknikk1

How does the present Norwegian policy support industrial development and the creation of value

in the sustainable energy technology sector?

Kai Nielsen, Professor, Dr.ing.

Department of Geology and Mineral Resources Engineering

Harald Gether, Dr.techn.

Co-ordinator Energy & Environment

Norwegian University of Science and Technology

NO-7491 Trondheim

Background paper with references available from:

[email protected]


INTRODUCTION

• In 1999 the International Energy Agency (IEA) stated that: The world is in the early stage of an inevitable transition to a sustainable energy system that will be largely dependent on renewable resources.

• Environmental concerns and in particular the issues of global warming and climate change are among the major forces driving this transition, and these are core issues of the Norwegian environmental policy.


INTRODUCTION

• There is agreement world wide that sustainable energy technology and renewable energy resources are industrial sectors that will grow substantially during the next decades.

• On a global scale the market for new renewable technologies exceeded 10 billion USD in 2001, and is expected to grow to more than 80 billion USD annually by 2010.


INTRODUCTION

• The development of new sustainable technologies has for the last 10-15 years been fuelled by a handful of countries that have adopted ambitious and deliberate government policies aimed to advance renewable energy.

• Norway has not been one of the pioneering countries, but it is still early days and not too late to engage in this rapidly growing industry sector.


INTRODUCTION • The scope of the present paper is to analyse and discuss, from an

industrial point of view, to which extent Norwegian environmental, energy and industrial policies are coherent and actually support and encourage industrial innovation and development in the sustainable energy technology sector.

• The three sectors must be considered together in order to assess

whether they support each other, are neutral or indifferent relative to each other, or are even opposed to each other in this respect.

• For the purpose of this assessment, sustainable energy technology has been defined as energy production and consumption systems based on new renewable sources, excluding large scale hydropower and conventional use of bio-energy.


ENERGY SUPPLY

• One important characteristic of Norwegian energy consumption is the large proportion of electricity used for space heating especially in dwellings. Sufficient supply of affordable electric energy is therefore of major importance for every day comfort and welfare of Norwegian households.

• In addition has investment in new domestic hydropower capacity decreased drastically during the last 10-15 years, and very little new capacity is envisaged in the future. At the same time has stationary consumption increased steadily with about 1.7 per cent per year.

• This means that it is of increasing importance for Norway to develop new and more flexible energy solutions in order to compensate for insufficient hydroelectric power production in dry years or in years with cold winters.


ENERGY BALANCE

• The result is that the energy balance has decreased to a degree that makes Norway a net importer of electric energy even in years with normal precipitation and winter temperatures.

• NVE has published a report presenting a prognosis for the energy balance towards 2015.

• The prognosis is based on an assumption that there will be a 1.2 per cent annual increase in the consumption of electric energy, and that the government’s goals with regard to development of wind power and district heating are realised.


ENERGY BALANCE

The prognosis presents development trends for both normal and dry years:

Demand and supply TWh/year

2010 2015

Normal Dry Normal Dry

Total demand (1999: 122 TWh) 128 109 142 117

Domestic hydropower supply 118 84 116 82

Import 7 18 15 22

Consumption cut-backs 0 - 14 0 -19

Switch from electricity to oil 0 - 5 0 - 5


ENERGY BALANCE

• Norway shall obviously become more and more dependent on import from fossil burning (coal-fired) power plants and/or nuclear power plants.

• This means that it is of increasing importance for Norway to develop new and more flexible energy solutions so that other energy carriers and import can compensate for insufficient hydroelectric power production in dry years or in years with cold winters.


ENERGY BALANCE

• As the electric energy markets become more and more deregulated, it is no longer only the national energy balance in Norway that is of importance.

• Both the Confederation of Norwegian Business and Industry (NHO) and Norsk Hydro have looked at the energy balance in the joint market, and they find that the total deficit in a dry year (2010) will be about 40 TWh even when the import capacity is fully exploited.


EFFECT BALANCE

• The energy balance is not only a question of sufficient supply of electric energy (kWh) it is also a question of available capacity to meet peak demands for effect (kW).

• The ratio between total available capacity and peak demand is of crucial importance with regard to the reliability and quality of supply.

• The smaller the capacity reserve between available supply and peak demand, the larger is the possibility of break downs or interruption of supply.

• Unexpected interruptions of energy supply can lead to substantial costs for the end users, and according to a Dutch study will a break down lasting more than 8 hours lead to an average loss for end users of 30 € per non-delivered kWh.


WHAT HAPPENED?

A former Minister of Oil and Energy, G. Faremo, was in a recent

interview asked whether previous governments had failed, and that

for instance the proposed cable to the UK could have been installed

earlier? The answer to this question was:

• During the last decade have all political parties seen that we have been consuming the capacity surplus we had earlier. When we now have ended up in a situation where we may become dependent on import in a normal year, it is very difficult to say how parties or governments could have acted differently. It is primarily the market itself that must consider it to its advantage to invest in new production.


THE ACTORS

The major actors in the energy sector (producers, distributors and brokers) will be strongly influenced by the following considerations:• The deregulation of the electricity market has shifted the actors’

focus from supply management and reliability, to profit maximisation along the entire value chain from generation to end consumers.

• All the actors look after their own “well being”, and do not take on any responsibilities for the common good.

• The actors are interested in keeping the excess production capacity as low as possible.

• The European energy industry is in general very conservative. Despite their potential for taking on a pivotal role in the development of sustainable environmental solutions, the majority of utility companies appear slow in developing sophisticated environmental strategies.


THE ACTORS

• One of the most important consequences of these considerations will be a reluctance to invest in new production capacity and new technology. The trend seems to be consolidation and increasing market shares by merger and acquisition.

• A similar development is seen also on the Nordic scene where investments are focused on growth by acquisition of existing capacity and not to build new capacity.


ENVIRONMENTAL POLICY

The government has adopted what it considers to be ambitious goals with regard to its environmental policy, including development of new renewable energy resources, and has defined the following eight themes as a basis for its environmental policy:• Biodiversity• Outdoor recreation• Cultural heritage and cultural environment• Surface run-off from excess use of fertilisers and pollution from oil

spills• Chemicals that can be harmful to human health or the environment• Waste management and recycling• Climate change, air pollution and noise• International co-operation on environmental issues


ENVIRONMENTAL POLICY

• The environmental policy is founded on the principle that all sectors of society and its actors have a direct responsibility for considering environmental issues as an integral part of their activities.

• Each of the sector ministries has therefore worked out Environmental Action Plans reflecting the eight themes. The plans describe the relevant environmental issues and impacts for each specific sector, and define goals, policies and policy instruments adopted by the sector ministry.

• These plans are considered to be an important tool for the implementation of the government’s environmental policy, and shall be reviewed, assessed and updated every four years.


ENERGY POLICY

The energy policy is to a large extent influenced by climate change issues, and its main goals that have or may have relevance for sustainable energy technology can be summarised as follows:• The rate of growth in energy consumption shall be reduced.• 3 TWh/year of wind power by 2010.• 4 TWh/year of district heating by 2010.• Strategy for replacing fuel oil with new renewable energy.• Develop a national action plan for district heating.• Strengthen Enova’s efforts to change energy use.• Give priority to research and technology development and new

renewable energy sources.• Consider changes in the Plan and Buildings Act and the Building

Regulations’ in order to change and reduce energy use in buildings.


ENERGY POLICY

Considering the goals of the energy policy, some observation may be

warranted:

• The focus on wind power and the use of heat pumps serves to preserve and strengthen the positions of the present actors in the electric energy sector.

• It must also be taken into account that some of the district heating systems are fully or partially owned by power producers or associated companies.

• There is no emphasis on alternative concepts that are less dependent on the present heavy infrastructure in the energy sector.

• The energy policy is fragmented because supply and demand management issues are often considered independent of each other, instead of being seen as “two sides of the same coin”.


INDUSTRIAL POLICY

• The national income from the petroleum sector has during the later decades reduced the need for creation of value from other industrial sectors exposed to international competition.

• This situation is reflected in the fact that value creation from these activities, adjusted for inflation, has not grown at all since the middle of the seventies.

• There is a growing awareness and concern about the fact that the oil production seems to have peaked and the income is expected to decline over the next decades.

• This situation cannot be allowed to develop, and it is consequently an obvious need to increase activities in other industrial and commercial sectors in order to compensate for the beginning decline in off-shore activities.


INDUSTRIAL POLICY • Increased creation of value is the primary goal in the

government’s industrial policy. The policy shall stimulate development of profitable and adaptable enterprises, and promote innovation, creativity, and new business start-ups.

• Knowledge, competence and entrepreneurship will become increasingly important in connection with the future industrial and commercial activities.

• However, there has been a dramatic decrease in industrial employment during the last years. Official statistics show that about 77.000 industry jobs have disappeared during the period 1981-2002, and a recent news flash tells that industry employment has been further reduced with 17.000 jobs only the last year.


GENERAL POLICY DOCUMENTS

The following documents have been examined: for the purpose of the

present assessment and discussion about to what extent the

government’s general policy supports industrial development of

sustainable energy technology:

• Status report for the coalition government.

• National agenda 21.

• The long term programme 2002-2005.


STATUS REPORT

• Based on the review of energy policies and policy instruments presented in the status report from the coalition government, it is not possible to point at any specific initiatives on the part of the government regarding creation of value in the sustainable energy technology sector.


NATIONAL AGENDA 21

• National Agenda 21 is the government’s dedicated action plan to promote sustainable development. The plan has both a national and international perspective, and discusses sustainability on a broad basis.

• With regard to energy issues, the national action plan does little more than repeating the environmental and energy policy goals that have been discussed in other sections of the present report.


LONG TERM PROGRAMME 2002-2005

This is the most comprehensive policy document issued by the

government and the headlines of some of the chapters or subchapters

most relevant for the present assessment and discussions include:

• Increased creation of value in business and industry.

• A balanced economic development

• Research and innovation.

• A better environment.

• A forward-looking energy policy.



• The government’s goal with regard to the industrial and commercial sector is to arrange for innovation, change-over and efficiency improvement in order to ensure the highest possible creation of value and welfare

• This shall be realised by a policy for both innovation and growth, as well as to provide an internationally competitive operational framework.

• The government will emphasize measures to promote cooperation between industry and the research sector, as well as measures to help dissipation of new technology.



• Due to the fact that hydropower electricity is the major source of (stationary) energy, Norway is in a good position to realise the government’s ambition that its energy supply shall be the most environmentally friendly in the world.

• In order to conserve valuable nature, increased hydroelectric power capacity will mainly be limited to upgrading of existing plants and some new projects with a minimum of negative impacts.

• The present development with an increasing dependency on import will continue in the coming years, and the exposure to negative effects and economic consequences caused by dry years will therefore increase.



• As a conclusion it seems clear that the government’s Long term programme 2002-2005 does not present any specific policy instruments or other tactical measures that will promote development of the sustainable energy technology sector.

• Formulating general strategic goals about the energy production from wind power and district heating based on renewable energy sources does not in itself encourage new development and creation of value in Norwegian industry.


ENVIRONMENTAL POLICY DOCUMENTS

The action plans of the following ministries have been examined because they have sector responsibilities that are highly relevant for industrial development of sustainable energy technologies:• Ministry of Agriculture• Ministry of Finance• Ministry of Defence• Ministry of the Environment• Ministry of Education and Research• Ministry of Labour and Government Administration• Ministry of Local Government and Regional Development• Ministry of Petroleum and Energy• Ministry of Trade and Industry


ENVIRONMENTAL POLICY DOCUMENTS

• The action plans discuss the eight environmental themes and how the ministry in question can contribute in its specific sector. Each ministry focuses its efforts on its own “problems” and takes action according to its own priorities and available budgetary means.

• Each of the environmental action plan documents presents clear statements to the fact that the “environmental authorities” have the overall responsibility for co-ordinating efforts across policy sectors, but as a general impression there seems to be little or no attempt at coupling across sectors.

• There are not any specific policy instruments or actions for development of sustainable energy technology outlined in any of the nine action plans.


ENERGY POLICY DOCUMENTS

• A basic element in the government’s strategy for an environmentally friendly energy policy is that Enova is solely responsible for selecting and formulating policies so that the goals are realised in the most cost effective way for society.

• It is specifically said that Enova shall manage funds in a way that promotes competitive product and service markets so that costs are reduced and products are developed.

• One problem in this connection may prove to be that Enova shall not commission or support research activities. This may lead to a situation where focus will be on existing and well proven solutions that to a large extent may be based on import, and little innovation.


ENERGY POLICY DOCUMENTS

• Based on the review of energy policies and policy instruments presented in the status report from the coalition government, the OED strategy document on the promotion of district heating, and other documents, it is not possible to point at any specific initiatives on the part of the government or the ministry regarding creation of value in the sustainable energy technology sector.

• The entire responsibility seems to have been placed at Enova’s doorstep.


INDUSTRIAL POLICY DOCUMENTS

• The government has recently issued two new strategic documents dealing with how to increase innovation, creativity and creation of wealth in all sectors of the Norwegian economy.

• The government presents a vision stating that: Norway shall become one of the world’s most innovative countries. In some important areas we shall be world leaders with regard to know-how, technology and creation of value.


INDUSTRIAL POLICY DOCUMENTS The general picture is that Norway is spending substantially less on R&D measured as a percentage of its GNP compared with the other Nordic countries.

Country Per cent of GNP Relative to Norway Per capita

Norway 1.6 0 % 4600 NOK/year

Denmark 2.4 + 50 % 5300 NOK/year

Finland 3.4 + 110 % 7000 NOK/year

Iceland 2.1 + 30 % 6000 NOK/year

Sweden 4.3 + 270 % 8200 NOK/year


INDUSTRIAL POLICY DOCUMENTS

• One interesting point is that the government’s general plan for innovation policy is the result of a joint effort between five ministries.

• Such co-operation across the ministerial sectors is not very common in Norwegian politics, a fact that often leaves an impression of uncoordinated efforts on the national level with regard to many important issues.

• The two strategic documents discusses innovation and industrial development on a general level, and there are not any specific industrial sectors pointed out as especially important for the future economic activity and creation of value in Norway.


CONCLUSION

• Norway will become more and more dependent on electricity import over the next 10-15 years, even in normal years with regard to precipitation and winter temperatures.

• The government’s present policy goals with an increased annual supply of 3 Twh electric wind energy and 4 TWh thermal energy for district heating by 2010; and a reduced growth rate in consumption from 1.7 per cent to 1.2 per cent annually is not enough to avoid this.

• The assessment of various policy documents related to energy, environment and industrial innovation and creation of value, leads to the conclusion that present Norwegian policy does very little to support development in the sustainable energy technology sector.

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