Corrección por elementos resistentes.

The agreement of establishing a bilateral green certificate system is essential for this thesis. The starting point for a joint electricity market to be working optimal is that the framework conditions are as similar as possible (MoPE/ MEEC, 2012). To find out if the framework conditions are similar and if the potential differences have an effect on what renewable energy resource investors choose is of interest in this thesis.

The basic principle should be to promote investments in power plants producing electricity from renewable energy sources by providing sufficient financial support. The power plants should not receive additional financial support besides the TGCs. The Swedish Ministry of Foreign Affairs published the agreement between Norway and Sweden in a common bilateral market for green certificates where the different ground rules are established (Sweden’s international agreement 2012:3). Both parties have signed the agreement where:

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- They have the perception of the common certificate market to have a positive effect on the work to promote electricity production from renewable sources.

- Both parties have acknowledged the framework conditions for the system and will contribute to create long-term solutions and believe in the system.

- The two countries will seek for in the period from January 1st

2012 to December 31st 2035 to annul electricity certificates corresponding to 198 TWh in each country.

The different renewable energy sources included in the TGC scheme are:

a) Hydro Power b) Wind Power c) Solar Power

d) Wave Power e) Geothermal Power f) Biogas (in Sweden it also includes peat in CHP8).

Figure 4 The different renewable energy sources included in the TGC scheme. (Source: Lovdata).

Even if the fundamental principles are the same, there are some differences in the two countries’ legislation. In Sweden, plants that become operational after 2020 can receive electricity certificates whereas in Norway they cannot. In Sweden, peat is a part of the renewable energy sources that is entitled electricity certificates. In Norway the proportion of biofuel in mixed wasted is qualified for electricity certificates (SAE/NVE 2012).

The conditions for both countries are per se equal in that sense that both countries are given the possibilities to establish new power producing plants, with the benefits of receiving concession, when using renewable resources for electricity.

4.4.1

Tradable green certificates

The TGCs are implemented to stimulate investments in production of electricity from renewable energy sources. The authorities offer power producers electricity certificates. The

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35 electricity certificates are tradable and provide additional income for producers of electricity certified as renewable. The costs of purchasing certificates are added on the electricity bill which means that the power customers are the once financing the system (NVE). For each MWh of electricity generated the power plant receives one electricity certificate from either NVE in Norway or the Swedish Energy Agency in Sweden (NVE, 2012). The TGCs are technology neutral hence it is up to the investors to decide what type of renewable energy sources to invest in (SAE/NVE 2012). This generates different investments patterns in Norway and Sweden when the power producer can choose to invest in the renewable energy source where the profitability is highest. That is not to say that this always is the case. The price of electricity certificates is determined by supply and demand. Depending on how much electricity is being produced effect the supply. The demand is determined by the set electricity certificate quota for each year and how much power is being used (NVE). The obligatory quota will ensure an annually growing demand for the green certificates in the market. It is expected that this will stimulate investments in new capacity. Below is a figure showing the process:

Figure 5 The bilateral green certificate market (Source: SAE 2012).

1. Electricity producers in Norway and Sweden receive one electronic electricity certificate from their government for each MWh they produce from renewable energy sources.

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2. The electricity producers can sell their certificates with the possibility to make an extra profit of their electricity production.

3. Norwegian and Swedish certificates are traded on an open market. The price of the certificate is determined by the sellers and buyers.

4. Purchasers are Norwegian or Swedish parties having quota obligations which mean that they are required to purchase certificates corresponding to a quota of their electricity use or sales. The size of the quota obligation is set by the requirements of the concerning legislations, thus creating a demand for certificates.

5. If the purchaser is an electricity supplier, the expenses for the acquired certificates forms part of the price that the supplier charges his customer. In this way contribute the Norwegian and Swedish electricity consumers to the expansion of production facilities for renewable electricity.

6. Each year, on 1st of April, are those having a quota obligation required to hold the necessary numbers of certificates to meet their quota. The registrars will then cancel the right numbers of certificates. Between that date and 1st of April the following year, the parties must purchase new certificates needed in order the meet the next year’s quota obligation. The constant demands for certificates are in this way created by the scheme that makes those having a quota obligation to meet their required quota (NVE/ SAE 2012).

Prices of TGC

If you take a quick look at diagram below (presented in figure 9) the prices from 2006 to 2014 shows that the prices have gone up for then to go down again. In January 2006, an electricity certificate cost 177, 90 SEK and rose in 2008 to the double and peaked in August costing 372 SEK. The prices were kept relatively high the following year and slowly decreased in 2010 and 2011. Today the prices are equivalent to the prices in 2006.

37 Figure 6 Timeline from 2006-2014. Average prices on electricity certificates SEK. (Source:

Ekonomifakta.se)

The expenses for a wind power plant are reasonable higher in wind power compared to hydropower (vindportalen, no date). Wind power investments are characterized with high front up expenditures but relatively low operating costs. Once a power plant is built it can produce electricity at a low price because the wind is for free. Even if the wind is for free, to cover for the high expenses in advance, the electricity needs to be sold at a higher price. This can be achieved with high electricity prices or with an electricity price in combination with a subsidy (vindportalen, no date). It is clear that the energy companies, potentially investing in wind power, are very preoccupied of the prices of the Tradable green certificates.

4.4.2

The role of Tradable green certificate (TGC)

It is expected that the renewable energy resources will meet obstacle when integrated into a liberalized market. Incumbent technologies are often more reasonable in price in comparison to new technologies. In addition, incumbent technologies often attempt to block the diffusion of renewables through the influence of institutional frameworks. The influences on the institutions are kept the same as an advantage for the incumbent technology (Jacobsson and Bergek, 2004:817). The implementation of technology is challenged in several ways but to develop a separate green certificate market is a way to enable the integration of renewables into the liberalized power market. With the help of the TGC system, the renewables can be

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economically compensated for the environmental benefits they generate compared to conventional power production (Mohorst 2000:1086).

Why a joint scheme?

The Swedish Ministry of Enterprise, Energy and communications motivated the collaboration by pointing to a better functioning market. The joint scheme will lead to higher liquidity and better price formation. In addition will the bigger market be more attractive for investors. Also the access to a larger production base will help to increase cost-efficiency (MEEC, 2013). There is an important boundary between those innovations that can be made through market activities compared to those that have big limitations for what can be done through market activities. There is a direct link between to what type of innovation that is executed and politics and incentives (Smith 2011:24).