The making of a market for electricity in Denmark was part of a bigger wave of liberalization in the European Union (EU) starting in the 1980s. Under the banner
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of the single market, the electricity sector was liberalized along with other traditional monopolies such as air travel, rail, and telecommunications. At the time, having market forces organize supply and demand was seen as the solution to the economic recession (Frederiksen, 2012) following a financial crisis which was in many ways reminiscent of the one which occurred in the latter half of the 2000 decade (Østrup, 2011).
The first concrete document on the liberalization of electricity was a 1988 Green Paper by what is now the European Commission. In this document, two ways into the ‘deregulation’ of the electricity sector were outlined. One suggestion was to open up all publicly accessible electricity grids to third parties, thus dissolving the monopoly of the established electricity companies. The other was the process of unbundling the vertically integrated companies, separating production, transmission, and distribution. And in spite of its formal status as an input for debate, the Green Paper “…predicted what later happened in a fairly detailed fashion” [Author’s translation] (Hoffmann in Petersen & Rüdiger, 2009, p. 53). The attitude towards liberalization, on behalf of the actors in Danish the electricity sector, seems to have been marked by a complicated array of technical, legal, ethical, and financial considerations for and against trading electricity in a market. Some of the main issues were technical feasibility, fairness in international competition, and the fact that Denmark had some of the lowest electricity prices in Europe. Whilst not being explicitly against the principle of liberalization, the industry most often took a hesitant stance on the subject, in part as a result of not being able to settle the questions it raised in a manner which could be commonly agreed upon (Petersen, 2009). In contrast, the Danish government, led by the Social Democratic party, had at the time managed to reduce its focus to two main aspects of liberalization. And against that backdrop, the liberalization of electricity was not seen as much of a practical problem. As put by the then-Danish Minister of Environment and Energy:
We had a double opinion I would say. A strong apathy towards the basic way of thinking involved in neoliberalism. Conversely, it was easier to adjust to these changes in Denmark than in other places, because we have so few regulated sectors compared to other countries. We have very little state-owned industry, actually the least within the EU. So that is why we, in the Danish Social Democrats, when we had
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to take a stance on the matter of this new and growing phenomenon, we found that we did not like the sound of it, but also that we in many ways already had a society like that
[Author’s translation] (Auken in Petersen, 2009, p. 209) Another significant factor was the Danish electricity sector’s close collaboration with Norway and Sweden. Significant amounts of electricity had been transmitted between the three countries long before the idea of a Nordic electricity market was launched. There were strong professional ties between the centralized actors in the Scandinavian electricity sectors, which were allied in the cooperative then called Nordel. Fueled by interests and ideas such as those of the liberal government named Syse, along with the problem of how to price the large amount of cheap electricity available from different forms of hydropower (Bach, 2013), the Norwegian electricity sector was the first in Europe to introduce an electricity market of the sort now so widespread; that is, a market using spot prices. When Sweden joined soon after, the skepticism of the Danish electricity sector was challenged (Petersen & Rüdiger, 2009).
Supplementing the wider move towards liberalization in Europe, a number of domestic factors also had a role in facilitating Denmark’s entry into the Nordic wholesale electricity market. As in the neighboring countries, the electricity companies were to unbundle production, transmission and distribution. In 1998, the electricity supplier of western Denmark, Elsam, was split up and a new company named Eltra became the transmission system operator of western Denmark. In eastern Denmark, the organization named Elkraft was split to form Elkraft System and Elkraft Transmission in 2000. Here Elkraft System was made responsible for system operation while Elkraft Transmission took over grid development and maintenance. The electricity sector’s unbundled TSOs were then set to be merged with the gas infrastructure responsible Gastra in order to form Energinet.dk. In 2005, Energinet.dk was formed as a single Danish state-owned transmission system operator. Some of the parties involved in the merger sensed that the placement of the new headquarters of the organization could be controversial, as it would mean that many employees would have to move or find new jobs. This anticipated conflict of interest was later realized (e.g. H. Ø. Pedersen, 2012; Lindboe, 2013).
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It was within this context that Eltra chose to have western Denmark enter Nord Pool. Within Eltra, Denmark’s entry into Nord Pool was seen to be more or less inevitable. And helped by a company president who had few reservations about the use of markets, Eltra initiated the process of market entry to show that it was already handling the challenges of the future. Importantly, this was done to suggest that Energinet.dk would be best based in western Denmark. The same group of people from Eltra also understood the entry into Nord Pool as a confirmation of Eltra’s commitment to Nordel. In contrast to countries such as Norway, where the law around liberalized electricity was a central reference point in the process of making the market arrangement, western Denmark ended up