Norwegian Energy Policy

Ladies and Gentlemen!
Thank you so much for the invitation and the opportunity to speak about the Norwegian Energy Policy with such a distinguished and learned audience. It is especially challenging to do so in this context where you are looking forward on the "future energy resources, distribution and use" as is the title of this conference.

We are all concerned about the challenge facing us both nationally and globally, to create an environmental sustainable energy future. As pointed out in the presentation of this Conference, energy production and use are among the major sources of man-made greenhouse gases.

During the last year important political choices on the future energy situation in Norway have been made. Our goals and measures are ambitious. A shift in the way we use and produce energy is a priority. We want natural gas to play an important role in our energy policy.

Energy policy has always been a topic of great public interest in Norway. And if possible even more so in the last years, partly due to the questions of climate change, and how to meet the growing demand for energy in an environmental sustainable way. Before I elaborate on our future energy policy, let me briefly outline in some detail the background for the reorientation of our policy.

Norway is fortunate to be rich in primary energy – both renewable like in our waterfalls, and oil and gas on our continental shelf. These supplies of primary energy have been an important basis for the country ’s economic growth. Some facts are:

We are the third biggest net exporter of hydrocarbons in the world. Still close to 80 % of the resources remain in the reservoirs after about 30 years of production.

Hydropower accounts for 99 per cent of the electricity generated in Norway. The average production capability is 118 TWh per year, which is roughly 6 - 8 TWh less than we use in an average year.

We use only slightly more energy in Norway than the average OECD consumer. Our consumption is at the same level as that of our northern neighbours. Electricity accounts for 65 per cent of the stationary energy end use. This is considerably higher than in other countries. Access to rich supplies of relatively cheap hydropower is the main reason why the energy mix has developed in this way: A large energy intensive industrial sector has been developed, and electricity is widely used to heat buildings and tap water.

A hydropower based electricity system is subject to important variations in production capability from year to year, depending how much rain and snow fall on our mountains. In a particularly dry year, we could have serious problems - especially if the dry year is followed by a cold winter, colder than the one we have had so far this year. Fortunately, last year was a particularly wet and mild year!

Up to 10 to 15 years ago we had a comfortable production capability compared with consumption. It was not very difficult to handle years of less than normal rain and snow. In the 1990s , the production capability did not keep up with the rate of increase in electricity demand. That is why a temporary shortage is more likely to happen when another dry year strikes.

The market forces have so far balanced our demand and supply through extensive exchange of power with neighbouring countries with whom we are connected by transmission cables and power lines. The market is organized in The Nordic Power Exchange – Nord Pool – which is the world's first international commodity exchange for electrical power. Nord Pool organizes trade in standardised physical and financial contracts including clearing services to Nordic participants, and provides customer support in Norway, Sweden, Finland and Denmark. This power exchange is part of the infrastructure of the Nordic electricity power market, providing a publicly known price on electricity at any time. I must say that this market functions in a very efficient way. But we cannot leave it to the market alone to meet our demand for electricity in the future.

The time for large scale hydropower developments in Norway is over. Society is less willing to accept the irreversible environmental impacts of large hydropower developments in our mountains, and we value unspoiled wilderness to a higher degree than before. Even when we achieve our ambitious goals for a reorientation of our energy policy, we need as we have seen, more generating capacity in the future – both to reduce the existing gap between production and demand in an average year, to make sure that we have sufficient capacity to meet the cold spells in winter, and to meet future demand.

But we cannot rely on our neighbours to solve our problems in the future. Although more cables will be built to increase capacities for exchange of power with other countries, increased net imports mean more electricity from coal- or oil-fired power plants and from nuclear power. I do not think that we should rely on our neighbours to increase their CO2- and other emissions at our expense. So what are the options?

There are no easy solutions. Our answer is a package, or a number of different measures:
We have to increase our efforts to limit energy use.

We have to look for alternative sources of energy. We want to encourage a substantial shift from using electricity for heating purposes to district and central heating based on new renewable energy sources, heat pumps and waste heat. Our aim is that by the year 2010 heat provided in this way should increase by 4 TWh.

We want wind powered generators that can produce 3 TWh per year to be in operation by the year 2010.

We want to increase the mainland use of natural gas.

We want to take advantage of our natural gas resources for electricity generation.

Additional hydro-power will come from smaller projects, less controversial and environmentally acceptable projects, and from upgrading of existing power plants.

We must make sure that the power market can continue to function in an efficient way

I am convinced that with these main elements our policy will provide for a secure supply of energy to the Norwegian society in the future. I am also convinced that this policy will comply with our national and international obligations to provide for an environmental sustainable energy future.

To strengthen this shift in energy production and use, and to ensure that we concentrate our efforts towards it, the Government will create a national Energy Fund. We will establish a new Government Agency in Trondheim. This Agency will design the programmes and administer the

use of the Energy Fund. They shall support alternative energy production and carry out measures to limit energy end use.

The Government has proposed to change the Energy Act to make it possible to collect all funding related to the shifting process in the Energy Fund. The proposal is currently being discussed in the Parliament. Part of today's funding stems from a special tax on the electricity transmission tariff. This money is administered by local power utilities. The rest of the funding is given in the form of state grants administered by the Norwegian Water Resources and Energy Directorate. The new Agency will resume these responsibilities, and all these funds will be allocated to the proposed Energy Fund. The special tax on the transmission tariff provides for a stable and long term funding.

The new Agency will have the freedom to choose the necessary measures to achieve the goals, and they are supposed to operate nearer the market and more independently from the Ministry than the Water Resources and Energy Directorate has been able to do by the nature of its public functions as Directorate. The Agency shall provide for more competition in the market, and thereby stimulate more cost effective solutions in their quest to reach the goals set out above. The Agency shall not, however, invest in hydro- or gas-fired power production.

The energy excise tax, different from the special tax mentioned above, has been increased in real terms by more than 80 per cent in the last 2 years. This contributes to make it more economically interesting to invest in energy-efficiency, in heat production based on new renewables, and in the use of natural gas.

Electricityproduction from new renewable sources of energy still play a modest role in Norway. The technology particularly for wind power is gradually improving and getting more economically competitive. With the prices of electricity we see to-day economic support will still be necessary for quite some time to make wind-power profitable. Licences have already been granted to build 5 wind farms with a total capability of about 1,6 TWh per year, whereas the goal is to have an annual production of 3 TWh by the year 2010.

Norway, Sweden, Denmark and Finland are integrated in a common Nordic power market. To-day we are physically connected to these countries. In addition we are connected to Russia. The most important exchange capacity is with Sweden. It amounts at the most to 2 500 MW. With Denmark we can exchange about 1000 MW power, while the transmission capacities with Finland and Russia are small. Two more cables, to Germany and the Netherlands, will most probably be built during the next few years. Together they may increase the transmission capacity by about 1 200 MW.

Sufficient transmission capacity reduces the risk of power shortage due to variations in annual precipitation, and increases our flexibility of supply. In wet years the power producers can export power, and in dry years power can be imported. The development in the energy situation in our neighbouring countries is important to us, as it indicates how much electricity we can account on importing in a dry year.

Even when succeeding with our goals for alternative energy sources and limited energy use, we will need new generating capacity for electricity production. It is my firm beleif that natural gas is the best solution both nationally and internationally for a long time yet. The environmental advantages of natural gas over coal and oil are well known. If one day we can find an economically efficient way to reduce or eliminate the CO2-emissions, and to dispose of the CO2 once removed, nobody would be more happy than me.

We want natural gas to play an important role in a more environmentally friendly energy policy in Norway. Gas can replace more polluting energy sources both in Norway, and in Europe. In fact, additional production capacity in Norway based on gas will contribute to a reduction in CO2-emissions in Europe.

Natural gas represents a potential for new business development and increased employment. We want to increase the use of natural gas not only for energy purposes like electricity production, but for heating purposes at large, as fuel for cars, buses and local ferries, and as raw material in the industry.

Various projects for gas-fired power plants exist in Norway to-day. Two plants are to be located near the gas terminals at Kollsnes just north of Bergen and Kårstø close to Haugesund, and both have a planned production capability of around 3 TWh per year. A third plant will be located at Skogn further north in direct connection with a major industrial site. This plant will produce about 6 TWh per year, and requires a pipeline to be built from the gas terminal at Tjeldbergodden across the Fjord of Trondheim. The two projects at Kollsnes and Kårstø have been given licence to emit CO2 according to the latest state-of-the-art technology. These emissions must later be covered by quotas under Norway's obligations according the Kyoto Protocol. The power plants are also subject to restrictions on emissions of SO2 and NOx where Norway is equally committed under the Gothenborg-Protocol, which we signed in December 1999.

At the moment I cannot tell you when the first Norwegian gas-fired power plant will be connected to the power grid. The go-ahead decisions depend on a number of factors, like for instance the future price of electricity. For me, it is important that we make it possible for the parties involved to start developing the power plants when they find it economically sound to do so.

For an extensive future use of natural gas for electricity we are anxious to see that techniques for substantial reduction or elimination of CO2-emissions from the production process can be developed. In order to contribute to the development of such a technology the Government has granted 20 million Norwegian Kroner over this year's budget. Work is on the way to find the best way forward to get a good project, or projects, on the air. Given the importance such a technology would have for electricity production globally, we want to be at the forefront in contributing to develop a way to achieve this important goal.

It is of great importance that the industry itself engages in this research and development activities which must be described as both long-term and costly. The Norwegian Petroleum Directorate is engaged on the other hand in finding ways to dispose of CO2 in the oil reservoirs. This could enhance the recovery of oil. If successful, this use of CO2 could improve the economy of CO2-capture substantially. Statoil has a project at the West Sleipner field, where about 2 million tons of CO2 per year are stored in a water filled reservoir. This is a pioneer project of international fame.

The best way ahead would probably be to join forces internationally. A solution to the CO2-emission problems in gas-fired power plants would in itself be of great importance to other countries, and maybe it would be applicable to oil- and coal-fired plants as well. I believe this perspective is of interest to the industry.

Natural gas must become an integrated part not only of the Norwegian energy policy, but of the industry and transportation policies as well. There are quite a lot of possibilities for large scale use of natural gas in Norway, and as you have already understood it is high on the agenda for this Government to increase mainland use of natural gas. We support a pilot project for construction of a gas pipeline to make gas accessible to new users in the Bergen area, and 20 million NOK has been granted for this purpose. From Kollsnes gas treatment plant north of Bergen where natural gas from the giant Troll field is landed, a pipeline has already been built to an industrial park nearby. The pilot project will extend this pipeline another 40 odd kilometers all the way to Bergen. The partners in this project have already built some facilities for using natural gas in Bergen, and have started installing a local gas grid that will be connected to the pipeline from Kollsnes later on.

In the other two areas where gas is landed, Tjeldbergodden further north and Kårstø further south of Bergen, there is also a lot of interest in using natural gas. In addition plans are being made to expand the use of gas both for energy and for industrial purposes in the Grenland area south-west of Oslo where NGL (wet gas) already is landed as feedstock for the petrochemical industry there. Plans already exist to take advantage of the pipeline that has to be built across the Fjord of Trondheim from Tjeldbergodden to the gas-fired power plant at Skogn. It is my view that we

have to encourage these initiatives and activities.

How then does this emphasis on increased use of natural gas in Norway comply with our policy regarding climate change?

The Kyoto Protocol implies that our greenhouse gas emissions in the years 2008 to 2012 on average should not exceed those of 1990 by more than 1 per cent. Our emissions have increased by 9 per cent from 1990 to 1999. This increase comes mainly from the oil- and gas industry, from road traffic, and from industrial combustion. With a 99 per cent renewable electricity production, hardly any increase in greenhouse gas emissions stems from the stationary energy production and end use. The fact that renewable energy dominates our supplies reduces our possibilities for carrying out low-cost measures. This means that to reduce greenhouse gas emissions cost more per ton in Norway than in most other OECD-countries.

The so-called Kyoto mechanisms will be very important for us. The Kyoto mechanisms consist of different possibilities for countries to comply with their obligations through activities and measures abroad. International trade in CO2-emission quotas is one of these possibilities. As already mentioned, the gas-fired power plants that I recon will be built in Norway will have to buy quotas for CO2-emissions abroad until they can reduce or eliminate these emissions. When we look at the total effect on CO2-emissions from either gas-fired power in Norway or increased imports of more polluting energy from abroad, the climate is the winner. And the Kyoto-mechanism will make this possible.

Let me conclude like this:

Hydropower will continue to be the backbone of electricity production in this country for many, many years to come. Although the time of big new projects is over, there are still a number of less controversial and environmentally acceptable projects to be developed, and quite some additional capacity can be fed to the grid by upgrading and extending existing power plants.

This hydropower-based 99 per cent renewable electricity supply in Norway makes us open to the risks of power shortage due to dry years with little precipitation. In other countries changes in the electricity market are gradual. To manage a dry year in Norway is more of a challenge than to meet a gradually increasing demand for electricity.

The integrated Nordic power market increases our security of supply and flexibility. But, to meet the dry year and the still growing demand, we need additional production capacity at home. We want to use more of our natural gas resources both as feedstock for industry and for energy purposes. It is first and foremost gas-fired power production that can help us reduce the risk related to dry years and provide a more secure supply. Gas-fired power is independent of the changing weather!

The shift in energy production and use must continue and it must be done more efficiently. Efforts to limit energy use must continue and increase. In relation to the dry year situation it is particularly important to be more flexible and to reduce the dominating role of electricity. New renewable sources of energy will be important additions to the energy supply. This shift in energy production and use is however a long-term effort and quick results cannot be expected. But it has to happen!

Thank you for your attention!