Towards Climate-Neutrality: The Role of Interconnectors

To reach climate neutrality by 2050, the European Green Deal provides an action plan on how to renew and integrate the EU´s energy systems. Energy systems are crucial to delivering on the goal, as they account for roughly half of the European Union’s greenhouse gas emissions. This article explores the significance of interconnectors linking national electricity markets. The Nordic Investment Bank is co-financing several interconnectors, the latest being Energinet’s Viking Link between Denmark and Great Britain.

Electricity interconnectors are the cable links transferring electricity between electricity markets. Linking electricity markets across national borders has several benefits, both environmental and economic. Interconnectors allow countries to trade electricity and to better balance the power in the network. In the long run, this will ensure a more reliable and affordable energy supply. Interconnectors can thus provide the flexibility need to accommodate for the intermittent renewable electricity generations from wind and solar, contributing to more climate-efficient energy systems.

“Strengthening of the systems enables the crowding out of the most expensive and usually also the most CO2 emitting generation capacity in the system, thereby reducing CO2 emissions”, says Chief Environmental Analyst Johan Ljungberg at the Nordic Investment Bank.

According to a report by the European Network of Transmission System Operators for Electricity (ENTSO), there are 15 interconnection projects under construction in the North Sea region and seven others in the permitting phase.

Viking Link
One of those interconnectors currently under construction is the Viking Link, a 760-kilometre 1.4 GW high-voltage direct current electricity interconnector between the substations of Revsing in southern Jutland, Denmark, and Bicker Fen in Lincolnshire, Great Britain.

The Viking Link, which has been given the European Commission’s project of common interest status, is a joint venture between the National Grid in the UK and the Danish transmission system operator (TSO) Energinet. In March, NIB signed a 10-year DKK 1 billion (EUR 134.4 million) loan agreement with Energinet to co-finance the link. The total project cost for Denmark’s part of the project is estimated to be DKK 6.2 billion. The Viking Link is scheduled to enter service in 2023.

“In the case of the Viking Link, the main reason for strengthening this section of the northern Europe power grid is to accommodate and enable the flow of power between the UK, Denmark, the Netherlands, and Germany via the large subsea cables and high voltage over-head power

lines connecting the countries”, says Mr Ljungberg.

Denmark has a one of the highest proportions of wind generation in the world, and the Viking Link will help UK meet its 2050 net zero emission targets. Energinet and electricity producers will get access to a new market with initially higher price level, which should provide potential for revenue generation.

The investment allows more renewable energy to be connected to the grid, supporting the crowding-out of power generation based on fossil fuels, thus reducing CO2 emissions. For example, during times of high generation of wind and solar power in Denmark, the UK could benefit from the surplus energy generated and reduce the use fossil-generated electricity during peak loads.

Given the location and time difference between both price areas, the interconnection will allow the countries to benefit from various weather conditions, time differences and the associated consumption peaks, as well as to share renewable energy between both countries and beyond.

In the short-run, connecting to a higher price area will most likely mean a slight increase in domestic price levels to the end consumers in Denmark and other NIB member-countries. However, from a long-term perceptive, the interconnection might decrease price volatility and periods of ultra-low electricity prices, which in turn will incentivise investments into new generation capacity in the future.

Western Corridor
National grids also need to be prepared for building new interconnectors.

In 2020, NIB and the Norwegian TSO Statnett signed a 15-year loan of NOK 1.2 billion to upgrade the main electricity grid in south-western Norway, the so-called Western Corridor. The project supports the green transition, enabling Norway to benefit from surplus wind power in Denmark, Germany and the UK—while saving water reservoirs for exports during low-wind periods—thus crowding out power production with fossil fuels.

The project objectives are to secure the reliable operation of the grid and the high capacity utilisation of the cross-border cables between Norway and Denmark, Germany, the Netherlands and the UK. The project will also enable and contribute to an increase in renewable electricity production in south-western Norway, and on the Norwegian side, contribute to the high utilisation of the two new 1,400 MW connections between Norway and Germany.

The Western Corridor project is expected to be finalised by the end of 2021 and the total project costs are estimated at NOK 6.5 billion.

Integrating electricity markets
“Europe’s energy future must rely on an ever-growing share of geographically distributed renewable energies, integrate different energy carriers flexibly, while remaining resource-efficient and avoiding pollution and biodiversity loss”, the European Commission wrote in its strategy for energy system integration in July 2020.

Here is an overview of NIB-financed interconnector projects:

Viking Link
Loan to Energinet (Denmark)

Estlink 1 and 2
Loan to Elering (Estonia)
Loan to Fingrid (Finland)

NorNed
Loan to Statnett (Norway)

Skagerrak 4
Loan to Statnett (Norway)

Western Corridor
Loan to Statnett (Norway)

LitPol Link
Loan to Litgrid (Lithuania)

Preparatory works for LitPol and NordBalt interconnectors
Loan to Litgrid (Lithuania)