Last week, a flow-based capacity calculation method was introduced in Sweden, marking a significant change in how electricity is transmitted and managed between electricity areas and borders. But what does this method entail, how does it differ from previous models, and what does it mean for the future of the property market? Join us as we dig up the street in search of answers from the power grid!
Those of us who use the Nordic electricity market have previously used a method called Net Transfer Capacity (NTC), where the capacity of the grid has been calculated based on predetermined limits between two areas. The aim has been to determine the maximum amount of electricity that can be transferred between different electricity areas (or countries) without risking overloading the electricity grid.
However, this method lacks flexibility and does not take into account the actual, varying conditions in the electricity grid. This means that the NTC method has been unable to adapt the transmission capacity to the actual and dynamic conditions in the electricity grid at a given point in time. In other words, even though it would be physically possible to transfer more electricity at certain times, or via alternative transmission routes, the method has restricted electricity transmission more than necessary to maintain security. This can and has created bottlenecks and inefficiencies in the system – especially during periods of high renewable electricity production or unexpected fluctuations in demand.
But now the natural flow is taking over...
The flow-based method (FB method) means that electricity can flow through the grid via multiple routes, depending on current capacity and demand. The electricity market optimises the utilisation of the transmission grid based on physical conditions rather than predetermined limits. By using detailed data models, the system can be continuously adjusted, which ultimately can create more efficient and reliable electricity transmission.
Why?
The background to the transition can be said to be twofold. Part of the answer lies in the EU's ambition to harmonise electricity markets, to create similar conditions and restrictions in a common electricity market. Another reason is the increased need for flexible and secure electricity transmission. With a growing share of renewable energy such as wind and solar, there are higher demands on the ability to handle variations in production. The FB method aims to meet these needs by increasing trading capacity in the electricity market, which in turn strengthens competitiveness throughout Europe. Svenska kraftnät has been working with the method for a long time and has tested it in various simulations, and it is estimated that the new model will eventually lead to a more secure electricity supply.
To be completely honest, a third reason for the change could be added: namely, that the shift to the FB method could be seen as a way of reducing the risk of the high costs and time required for a physical expansion of the national grid. The flow-based method can instead maximise existing capacity in the electricity grids without the need for large-scale investments, which in practice means that Sweden avoids investments of an estimated 40-50 billion Swedish kronor.
What does the FB method mean for the property industry?
For the property industry, this means a potential short-term solution to capacity challenges for new property projects and a more stable energy supply for existing buildings. The goal for everyone is to be able to rely more on a stable electricity supply, even on cold winter days when demand is high. The flow-based method enables faster and better adjustments to the electricity flow, which reduces the risk of electricity shortages and high peaks in electricity prices. For the same reason, the method could help to even out electricity prices between electricity areas, which is important for property owners operating in southern Sweden, where electricity prices have been higher than in other parts of the country.At the same time, it should be noted that, in theory, the same method could increase prices in certain areas when Sweden harmonises with other European electricity prices. This could make energy costs less predictable. In addition, the application of the method needs to be developed in order to meet the needs of both the property industry and other players in terms of long-term sustainability and cost-effectiveness. The Swedish Energy Markets Inspectorate (Ei) will monitor and drive improvements to the method based on new data and market needs, which means that the FB method is likely to be further developed in the coming years.
For the real estate industry, the introduction of a flow-based capacity calculation method means both new opportunities and a change in market dynamics. Adapting to this new electricity trading model is likely to lead to a more stable and predictable energy situation in the long term, in a world that is constantly demanding greater flexibility and sustainability.
With optimised electricity transmission, more renewable energy can be utilised to the maximum, which not only supports sustainability goals but also benefits the real estate industry through more stable and predictable electricity prices. A flexible electricity grid and a sustainable energy system, where one enables the other and creates the basis for a long-term and climate-neutral energy supply. Something we all need on the road to 2030!
