Creating a Regional Energy Market: Learning from the Nordic Experience
Tuesday, 15 October, 2013

Professor Einar Hope from the Norwegian School of Economics (NHH) is a leading Nordic authority on energy market design and regulation. In 1995-1999, he took a break from academic activities and served as director of the Norwegian Competition Authority.

This year’s visit to Georgia (and ISET) was the second one for Professor Hope in as many years. In addition to advising ISET students, Professor Hope used his ten-day stay in Tbilisi in order to deliver a public seminar “THE POTENTIAL OF GEORGIA’S ELECTRICITY SECTOR IN AN INTEGRATED REGIONAL POWER MARKET”.

In his presentation, Professor Hope emphasized the potential for renewable energy, from sources such as hydro and wind, to play an important role in increasing the overall energy capacity and security of electricity supply in any given region. Essentially, regional integration could be seen as a means of pooling energy resources that are available to each individual country in order to create a green, cost-efficient and reliable system of electricity supply. The Nordic energy markets, according to Professor Hope, are an excellent example of achieving full integration and making optimal use of e.g. Norway’s hydropower and Danish wind energy. Professor Hope went on to suggest that greater energy market integration in the South Caucasus could be extremely beneficial for Georgia and its neighbors. In particular, Georgia’s hydro resources could become a backup source and “swing producer" in an integrated regional (South Caucasus) power market.

One drawback of most renewables is intermittency. For example, wind and solar power production are highly variable both in the short term (during the day) and long term (seasonally). Thus, the main challenge facing the renewable energy markets is to balance supply and demand on a continuous basis and ensure optimal capacity investment in the long run (resource adequacy). The possibility to regulate hydropower generation (i.e. to have more or less of it), makes it a good complement for other renewables. According to Professor Hope, the integrated Nordic market is exemplary in terms of achieving an excellent mix of wind and hydro energy. Norway’s electricity system is based almost 100% on hydropower, yet it is fully integrated into the larger Nordic power market, with transmission cables going further to Germany, the Netherlands, and (potentially) the UK. With the share of highly intermittent wind power growing in the European markets, Norway’s ample hydro resources allow it serves “the battery of Europe” function – providing an excellent backup source that ensures stable electricity supply for the entire regional market.

While the potential is there, creating a similarly integrated market in the South Caucasus would require major efforts to open up existing technical bottlenecks (interconnection capacity) and introduce market mechanisms and regulations to facilitate international trade in energy resources.

Professor Hope’s visit to ISET was arranged with the generous support of the Norwegian Ministry of Foreign Affairs, which also funds ISET’s Energy Economics Concentration. The main goal of this initiative is to educate a new generation of analysts and decision-makers for the fast-developing energy field. Coordinated by Professor Norberto Pignatti, the program of study in the concentration includes topics in renewable and non-renewable energy, energy markets, and international trade in energy resources. As part of this initiative, ISET hosts international scholars who share their knowledge and practical experience with ISET’s students and contribute to the energy policy debate in the South Caucasus. Students in the concentration conduct site visit to, and intern with, private sector companies, NGOs, and government agencies concerned with energy policy development.