The need to replace Norwegian grid companies’ electricity supply networks will increase dramatically over the next 30 years
Skagerak Nett wanted to quantify its need for replacements using detailed analyses of the grid. These analyses show that the company can reduce its costs relating to operations, maintenance and reinvestment considerably over the next decade.
One-sided debate. The future need to replace and reinforce the national grid in order to maintain and improve supply security is an issue that the industry, authorities, politicians, media – and not least consumers – are interested in. The increased uncertainty regarding the supply security in some of the country’s regions and a few power cuts have helped to put this issue on the agenda in Norway.
There are two claims that are made repeatedly in this debate:
- The supply network is out of date and in a poor technical condition. This leads to a high risk of interruptions to the supply, with negative consequences for customers.
- The grid companies spend too little on replacing and maintaining the grid.
However, the situation is more complex than that.
Background
The Norwegian electricity supply network was dramatically expanded in the 1960s, 1970s and 1980s. Today, the grid companies have a businesslike approach to operations, maintenance and reinvestments. This means, among other things, identifying the optimal interaction between maintenance, reinvestments and supply security. The industry has a major focus on establishing a maintenance philosophy and methodology that will contribute to a better technical and commercial management of the facilities.
Over the past decade, the steadily increasing growth in consumption and relatively low level of investment in new capacity have led to a greater strain on the Norwegian electricity supply network. So far, this has not resulted in less supply security, either on a national basis or for Skagerak Nett – on the contrary, statistics show that the supply security is improving.
Various grid facility components have an estimated technical lifetime of 50-70 years. This means that Norwegian grid companies are facing a considerably reinvestment phase over the next 30-40 years. At present, the industry reinvests around 0.5 to 2 per cent of the grid’s value each year. This equals anything from around NOK 20 million to well over NOK 100 million per annum per company. In around 30-40 years, this amount will be considerably higher.
The grid companies’ challenges
We can see two main challenges:
- How can the grid companies optimise the interaction between supply security and the use of resources in order to maximise value creation – do the right things at the right time?
- How can the companies optimise their work processes through the long-term development of their organisations – do the right things using as few resources as possible?
Skagerak Nett, with the assistance of PA Consulting Group, has conducted detailed analyses in order to shed light on short-term and long-term needs relating to operations, maintenance and reinvestment given the requirement of supply security.
Too much maintenance work and reinvestment, or reinvestment at the wrong time, too early or too late, will reduce the value to the grid companies, owners and society. In the long term, it may be profitable to increase the scope of certain maintenance activities while postponing reinvestment projects. If these decisions are based on good insight into the grid’s technical characteristics and state, future costs and supply security can be optimised. Naturally, public authority requirements must be met.
New insight
Quantitative analyses of Skagerak Nett’s distribution network show that the reinvestments will increase sharply in 5-10 years and last until 2030, after which they will decrease slightly. At the same time, other costs (operations, maintenance, repair, KILE (Quality-adjusted income frameworks in the case of undelivered energy/CENS (Cost of Energy Not Supplied)), grid loss) will be slightly reduced due to the high level of line cabling. The number of errors in the grid will naturally also increase because a larger share of the grid will be older and approaching replacement time. The number of errors in the grid will nonetheless not exceed that which is expected to be acceptable to customers.
Our analyses also show that annual reinvestments can be considerably reduced over the next 5-10 years, among other things because the reinvestments have been carried out previously, without this reduction affecting supply security or contravening the framework conditions. This represents huge sums for the owners. For Skagerak Nett’s distribution network, for example, this is equivalent to around NOK 0.5 billion in increased company value. Corresponding analyses are being performed for the regional grid.
Skagerak Nett has developed robust decision-making bases which show it is fully possible to spend less on the grid than we are currently doing: what is important is not to spend a lot but to spend the money at the right time and on those parts of the grid that really need to be replaced. This insight will also apply to other grid companies in Norway.
The prerequisite for success is naturally that the income framework regulations make it possible to take the right decisions, both in the short and long term.
