Uppsala university
Department of Economic History
C-level thesis, spring semester 2011
Supervisors: Arne Kaijser, Professor in Technical History, KTH.
Lars Fälting, Senior lecturer, PhD, Department of Economic History,
Uppsala
The Nordic electricity system as a
common-pool resource
Anders Bäckman
2011-06-07
The Nordic electricity system as a common-pool resource
Anders Bäckman
Abstract
This thesis is about the work of Nordel, an advisory body set up in 1963 by the largest power
companies in Denmark, Finland, Norway and Sweden. The purpose of Nordel was to strengthen and
consolidate Nordic cooperation in the production and transmission of electrical power. The analysis
has been conducted by using Elinor Ostrom’s framework for studying common-pool resources, which
is described in her book Governing the Commons: The Evolution of Institutions for Collective Action
(1990). The thesis concludes that Nordel reaffirmed the bilateral practises already established by the
individual power companies and was circumscribed by national energy policies. Nordel’s main
contribution to the Nordic cooperation was to act as a forum for common technical issues and
general aims, and as a knowledge-producing organisation.
Keywords
Common-pool resources, institutions, socio-technical systems, energy policies.
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Table of contents
Abstract ..........................................................................................................................................1
Keywords ....................................................................................................................................1
Table of contents ...........................................................................................................................2
The Nordic electricity system as a common-pool resource ..................................................................4
Introduction ....................................................................................................................................4
Purpose and research questions .....................................................................................................6
Theoretical framework ....................................................................................................................7
Reason for choice of theory and acknowledgements ...................................................................7
Ostrom’s framework for common-pool resources .......................................................................8
Application and relevance of Ostrom’s framework to the Nordel case ....................................... 13
Sources and method ..................................................................................................................... 16
Incentives driving cooperation in electricity systems ..................................................................... 17
The historical context and the roots of Nordel .............................................................................. 19
Post-War reconstruction and European cooperation ................................................................. 19
Production, transmission and distribution of electricity in the Nordic countries ........................ 22
Nordel as a model of UCPTE ...................................................................................................... 26
Power exchange............................................................................................................................ 28
Rules and agreements governing the power exchange .............................................................. 28
Estimating power available for exchange and calculating marginal costs ................................... 31
Nordel’s recommendations regarding power exchange ............................................................. 32
Planning and coordinating construction ........................................................................................ 35
Estimating and stimulating future consumption ........................................................................ 35
Strategic investigations ............................................................................................................. 37
The gains from power pooling and coordinated construction .................................................... 40
Conclusions................................................................................................................................... 44
Summary of Nordel’s proposals on power exchange and construction coordination.................. 44
Nordel’s institutional position, authority and importance .......................................................... 44
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Can the Nordic electricity system be regarded as a common-pool resource? ............................. 46
Suggestions for further research ............................................................................................... 47
Sources and bibliography .............................................................................................................. 48
Unprinted sources ..................................................................................................................... 48
Printed sources ......................................................................................................................... 48
Electronic sources ..................................................................................................................... 49
Bibliography .............................................................................................................................. 49
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The Nordic electricity system as a common-pool resource
Introduction
The subject of this thesis is the national electricity systems of Denmark, Finland, Norway and
Sweden, or more specifically the work of Nordel, a joint board set up in 1963 by the largest power
companies in the above countries.1 The main purpose of Nordel was to strengthen and consolidate
cooperation in the production and transmission of power, to share and pool power reserves in order
to enhance reliability, reduce investment and operation costs. 2 Two important types of cooperation
were exchange of electrical power between the countries and joint ventures concerning
construction. In general, the object of Nordel was to work towards integrating the national subsystems into a common Nordic electricity system, one could almost speak of a common-pool resource
(CPR) into which the members of Nordel could tap.
The topic common-pool resources has drawn increasing interest in recent years due to environmental
problems such as depleting fish stocks and retreating tropical forests. But how is this concept
relevant in the study of large technical systems as the one described above? It should be obvious, I
hope, that natural and man-made structures share a common characteristic by simply being resource
systems from which resource units can be drawn, whether those units are counted in fish, timber,
kilowatt hours or any other type of unit. Although the Earth’s ecosystems perform invaluable services
such as producing drinking water and pollination, I believe resources where natural and man-made
structures are integrated or activities where human knowledge and technology manage natural
resources such as agriculture and forestry will grow significantly in importance. This is, of course,
neither a controversial nor a particularly original point of view, since the Earth’s growing population
will demand more from those resources and activities. The link between the management of these
resources and potential environmental problems is clear. So is the link between the construction and
management of sewage systems, railway networks, roads, electricity systems, the Internet and
several other large technical systems, but not primarily – in the line I am pursuing in this thesis – as
infringements or destruction of the natural environment but rather as a part of this environment, a
modern cultural landscape. I am certainly not, however, arguing that the construction of these
systems always have beneficial outcomes. Roads and highways, for example, often interfere with
natural habitats. I will instead simply argue that technology and technical systems have been an
intrinsic part of human life for a very long time and will most likely remain so. I also believe that
successfully managed these systems hold one of the keys to sustainability, that is providing humans
1
Iceland was also a member of the board, but only as an observer.
The tasks and responsibilities of Nordel was transferred to ENTSO-E, the European Network of Transmission
System Operators for Electricity, in July 2009.
2
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with crucial resources and services yet avoiding environmental degradation. “Successfully managed”
should be understood to contain the widest possible range of options. Viewed this way, these
systems are – from a human point of view – on a par with the Earth’s ecosystems and in equal need
of fair and wise governance. Similar to the natural systems, they face increasing pressure from
population growth but lack these systems ability to renew themselves; they are man-made, “dead”
structures that will enter a state of rapid decay unless properly maintained.
Good management, then, is as crucial when managing large technical systems as it is when managing
fish stocks or tropical forests. Good management, in turn, hinges on successful cooperation, and the
rules that govern this cooperation, since common-pool resources often cross national borders or
other jurisdictions. In economic history, rules are often referred to as institutions. According to
Douglass C. North, the influential economic historian, institutions are “the rules of the game in a
society or, more formally, ... the humanly devised constraints that shape human interaction. ... they
structure incentives in human exchange, whether political, social or economic.”3 I will in other words
try to place my thesis firmly in a tradition where institutions play a crucial role, and where these
constraints – not only “humanly devised” since energy systems depend on endowments in natural
resources – shape the outcomes of cooperation. I will not, however, use North’s more general
historical approach, but the framework presented by Nobel laureate Elinor Ostrom in her influential
book Governing the Commons: The Evolution of Institutions for Collective Action (1990). The central
theme for Ostrom, as North, is the rules, the institutions, governing human cooperation. Ostrom
argues that participants in CPR situation can, and in fact do, communicate and cooperate to manage
their common resources, as opposed to theories or models where the participants are locked in a
situation which they are unable to change, for example the “prisoners’ dilemma” in which
participants end up in a sub-optimal solution although they behave rationally.4
The thesis is organised as follows. I will start with presenting my purpose and my research questions,
continue with an outline of Ostrom’s theoretical framework and how it can be applied to the Nordic
electricity system. This will be followed by a brief discussion of sources and method. Next, I will
explain the technical and economic incentives for cooperation in electricity systems. This will
constitute an indispensible background for my analysis. The following section, “The historical context
and the roots of Nordel”, is a combination of providing context and making an analysis. The
contextual part concerns the European cooperation in electricity generation and transmission during
the Post-War years and a brief sub-section on the electricity generating regimes in the different
Nordic countries. The analytical part is a description of the creation of Nordel. The following two
3
4
North (1990), p. 3.
Ostrom (1990), p. 184.
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sections, “Power exchange” and “Planning and coordinating construction”, contains the analysis of
my primary sources and thus constitute the main body of the thesis. In the final section, I present my
conclusions.
Purpose and research questions
The purpose of this thesis is, as I stated above, to study the work of Nordel, a joint board set up in
1963 by the largest power companies in Denmark, Finland, Norway and Sweden. The work of Nordel
is to a large extent used as an operationalisation of the cooperation within the field of electricity
generation and transmission between the Nordic power companies. The thesis will, however, also
specifically cover some of the activities of the individual power companies. In general, I will compare
the constraints and opportunities in order to bring the incentives and the processes governing this
cooperation into light. Moreover, I will try to place the work of Nordel and the cooperation between
the Nordic power companies in its relevant historical context. I will study Nordel’s activities from its
inception in 1963 to about 1972 when the first years’ work result in a number of important reports
and publications.
By analysing the cooperation in the Nordic electricity system I also hope to provide some insight into
the management on this type of large technical systems, whose, as I wrote above, successful
management I believe hold one of the keys to environmental sustainability.
My specific research questions are the following:
1. What were the incentives and what were the rules governing the power exchanges, and
what were the main measures that Nordel proposed in order to develop the cooperation
within this field?
2. What were the incentives governing the planning and coordination of construction, and what
were the main measures that Nordel proposed in order to develop the cooperation within
this field?
3. What were the constraints and the opportunities within which Nordel had to work, and what
were the consequences of these constraints and opportunities?
As I stated above, I will use Elinor Ostrom’s framework as she presents it in her Governing the
Commons: The Evolution of Institutions for Collective Action (1990). Although she has developed this
framework further in her Understanding Institutional Diversity (2005), I will use the original
framework. This is fully sufficient for my purpose, compared to Ostrom’s aims, which are to probe
deeper into the collective actions of humans and formalise the framework and concepts further.
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The research questions are intened to work as an operationalisation of Ostrom’s theoretical
framework. I will specify exactly how further below in the theoretical section. Already at this point,
however, I would like to point out that this thesis is not about testing Ostrom’s framework. I will in
fact take it as a starting point, accept its basic tenets as true, to investigate a specific historical
process. This does not, on the other hand, rule out a discussion about whether the framework is a
relevant and fruitful approach. But that discussion will have to wait until the concluding section.
I must emphasise that the focus of this thesis is about the rules and incentives, constraints and
opportunities, governing the cooperation. I will not discuss electricity generation in the Nordic
countries in general, apart from a brief historical exposé. And this will only cover the electricity
systems, not the broad economic and social differences among the Nordic countries. Neither will the
study contain tables and graphs showing quantitative data. This might seem odd since the intention
of the Nordic cooperation to a large extent was to reduce investment and operation costs. Again, the
thesis is focused on rules and incentives, and I have, I believe, included enough quantitative data to
explain these rules and incentives, the constraints and the opportunities.
Theoretical framework
Reason for choice of theory and acknowledgements
Before describing Ostrom’s framework, I would like, briefly, to motivate my choice of theory. After
all, given the subject, there are at least two natural frameworks to use. One obvious choice could
have been the concepts and ideas developed by Thomas P. Hughes in his important Networks of
Power: Electrification in Western Society 1880-1903 (1983). Or I might have chosen some of the
concepts and ideas developed by Alfred D. Chandler in his Scale and Scope: The Dynamics of
Industrial Capitalism (1990). As a brief and very general defence, I would say that Hughes’ and
Chandler’s body of work, as I see it, are mainly focused on explaining processes, on the one hand
large technical systems, on the other business organisations and business processes, where the
common thread is initiation, growth, success or failure. Though their work is permeated with the
importance of institutions, the rules of the game, and incentives created by those rules and other
circumstances, the institutions do not play the role they do in Ostrom’s theoretical framework, and
as they do in my choice of focus. I do not for a minute mean to say that this description provides an
conclusive view of Hughes’ and Chandler’s work, but it nevertheless will have to serve as my
motivation.
In some way, however, I cannot get around Hughes. The reason is that the work of a Swedish scholar,
Arne Kaijser, features prominently in this thesis; in fact, I could not have done without it. Through
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Kaijser, who have incorporated some of Hughes’ ideas in parts of his own body of work, Hughes has
found his way into this thesis. Particularly important for this thesis are Kaijser’s Controlling the Grid:
The Development of High-Tension Power Lines in the Nordic Countries (1995) and Trans-border
integration of electricity and gas in the Nordic countries, 1915-1992 (1997). But perhaps the most
important support is that Kaijser provided me with the topic of this thesis.
Other crucial scholarly work for this thesis has been, in the Nordic historical context, Lars Thue’s
Electricity rules: The Formation and Development of the Nordic Electricity Regimes (1995), and in the
European context, Vincent Lagendijk’s Electrifying Europe: The power of Europe in the construction of
electricity networks (2008).
Ostrom’s framework for common-pool resources
The characteristics of a common-pool resource
What are the basic concepts describing a common-pool resource (CPR)? Typical examples of
common-pool resources are fisheries, grazing fields, aquifers from which groundwater can be drawn,
but also man-made artefacts such as roads, the Internet, irrigation systems, etcetera. In Ostroms
terminology, a common-pool resource has specific boundaries, a certain stock of a particular good (or
service), from which a flow can be drawn. It must, however, be possible to replenish the stock; that
is, a common-pool resource is renewable.
Common-pool resources may be understood as a combination of a public good and a private good.
Public goods are commodities or services “whose consumption by one person does not preclude
others from also consuming” them.5 Typical examples include national defence or clean air. These
examples are similar to the ones given above. A public good may, however, be characterised by
exclusion, for example to get access to a cable television service or admission into a concert you have
to pay a fee. But there is still no rivalry: as long as the fee is paid, everyone can (in principle) view
until the capacity of the concert hall or the broadband cables are exhausted. This is not the case with
private goods, which have both rivalry and exclusion: the same meal or a specific litre of petrol
cannot be consumed by two persons at the same time. The common-pool resources share this
feature with the private good: the individual resource units, the fish, the litres of water or space
occupied by a car on a road, cannot simultaneously be used or consumed by two persons.
Much of the problem with common-pool resources, such as overuse or crowding effects, stems from
this combination of free access and rivalry. Another name often used for common-pool resources are
therefore open-access common property, resources “to which everyone has free access and an equal
5
Perloff (2008), pp. 622-623.
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right to exploit.”6 The problems of overuse are, however, not exclusively related to these openaccess resources, but can also be prominent in resources owned collectively, such as by a group of
private individuals, or a local, regional or national government. The heart of the problem, however,
the problem Ostrom studies, is how groups of people manage, or fail to manage, these resources,
irrespective of whether they are owned collectively or by no one.
People drawing resource units from a common-pool resource are called appropriators. Those making
the resource available, or create the resource, are called providers. People may be appropriators and
providers at the same time, as in the case of cooperation to build and use an irrigation system. But
many times they are not: private companies, municipalities as well as cooperatives may provide
heating, water, sewage, facilities, electricity, etc., whose resource units and services can be
appropriated by the inhabitants in a village, city or a metropolitan area. Provision and appropriation
are, as Ostrom emphasises, two sides of the same coin, solutions to appropriation must match
solutions for provision. According to Ostrom, appropriation is related to “various methods of
allocating a fixed, or time-independent, quantity of resource units” whereas provision is concerned
with “various ways of assigning responsibility for building, restoring, or maintaining the resource
system over time”.7
Variables and incentives
The basic features of Ostrom’s framework are captured in figure 1 below. The box represents the
internal world, circumscribed by the external world. These entities should not, not primarily at least,
be understood as physical objects and the divide between them as a physical border. Instead, the
internal world is a world of “individual choice”,8 choices which are made in a specific context, the
external world. Both the internal world and the external world shape and influence the choices.
6
Perloff (2008), p. 620.
Ostrom (1990), p. 47.
8
Ibid., p. 37.
7
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External world
Internal world
Expected
benefits
Internal norms
Discount rate
Choice of
strategies
Outcomes
Expected
costs
Figure 1. Ostrom’s framework.
The internal world of choice is dependent on the following variables:
Internal norms
Discount rate
Expected benefits
Expected cost
Internal norms are values and preferences guiding behaviour. The discount rate reflects commitment.
A low discount rate means that someone values an asset as much in the future as at this moment,
while a high discount rate means that someone values instant satisfaction higher than satisfaction at
a later point. In other words, a low rate reflects long-term commitment while a high means that
preferences are focused on immediate returns. The former is conducive to cooperation in commonpool resources while the latter may not. The internal norms and discount rate influence how the
expected benefits and expected cost are assessed. The expected benefits and expected costs affect
the choices and strategies of the appropriators/providers, which in turn shape the outcomes of the
cooperation, or non-cooperation.
This brings us to another important aspect of Ostrom’s framework, the effort to gain knowledge,
since one must know what is at stake, what is to gain and to loose in the cooperation. Besides these
strategic questions, there are also ones related to the daily operation of the CPR, for example how
large a flow can be withdrawn before the CPR’s capacity to renew its stock is threatened? In other
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words, cooperation and management of common-pool resources are often associated with a large
degree of uncertainty and lack of knowledge, a complex situation which may lead to considerable
information costs in order to know what at stake, how large the stock of the CPR is and similar
questions. Ostrom refers to these questions as situation variables, variables affecting the internal
variables. These are represented as the block arrows in the figure above. Situation variables can be,
as just implied, the information costs pertaining to the benefits: How many appropriators must share
the CPR? What is the size of the CPR? Are its resource units dispersed and hard to extract? Can they
only be withdrawn infrequently? What is the general condition and status of the CPR? The situation
variables are related to my third research question, the constraints and opportunities within which
Nordel had to work.
The situational variables can also be related to the cooperation, the negotiations, the process itself
where participants decide to change or keep “the rules of the game”. They can also be related to
after an agreement has been reached, when new rules has been established. Ostrom refers to the
former as transformation costs. Examples of factors influencing transformation costs are whether
participants share interests or if they differ widely, which higher-level rules are used to change
lower-level rules, the skills and assets of the participants, whether the participants are free to change
rules at all. The latter, after new rules have been established, Ostrom refers to as monitoring and
enforcement costs. This may be technology to monitor behaviour, extract resource units or exclude
outsiders from appropriation; as well as the legitimacy of the rules in use.9
Monitoring and conformance to rules is, Ostrom points out, one of three central problems in
managing a CPR over time.10 The other two are commitment and supplying new rules, that is
proposing and working out new rules. Ostrom notes that in a CPR (in most cases, at least, I assume)
monitoring is a requirement for commitment, and commitment in turn is a requirement for
participants to engage in proposing new rules. Prior studies and theories have proposed that
management of CPRs failed because humans rarely took on the task of supplying new rules. But
Ostrom argues that humans have, in fact, created “institutions, committed themselves to follow
rules, and monitored their own conformance to their agreements, as well as their conformance to
the rules in a CPR situation. Trying to understand how they have done this is the challenge of this
study.”11 In relation to this, I would like to point out that Ostrom emphasises that it is necessary “to
reflect on the incremental self-transforming nature of institutional change”.12 In other words, and as I
understand her point, failure does not necessarily mean that the process ends. On the contrary.
9
Ostrom (1990), pp. 192-205.
Ibid., p. 42.
11
Ibid., p. 45.
12
Ibid., p. 191.
10
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Outcomes are assessed, negotiations proceed and new rules are proposed. This iterative process is
indicated by the dotted line in the figure above.
Institutional levels
Ostrom emphasises that it is necessary carry out the analysis of a CPR on several levels, which can be
understood as level of authority or level for a certain type of activity. Ostrom refers to these as levels
on analysis, but I will call them institutional levels since they are related to the different types of rules
and the arenas to which they belong.13 The reason Ostrom makes this point is that a CPR situation
involves several levels and that the levels are interrelated, affecting each other, but also that
appropriators and providers may often, depending on the particular CPR situation being analysed,
need to operate on several levels. Ostrom posits three levels: the operational, the collective and the
constitutional. The activities and decisions are shown in table 1 below.
Table 1. CPR levels and the related decisions and choices.
Institutional level
Decisions and choices
Operational
Day-to-day decisions on provision, appropriation, monitoring and
enforcement of operational rules within the CPR.
Collective
Decisions on what policies and operational rules should govern the
CPR, settlement of disputes.
Constitutional
Decisions on who is eligible to participate on the collective level
and what rules should govern the collective level.
The operational level involves day-to-day decisions about the provision, appropriation, monitoring
and enforcement that are taking place within the CPR. The collective level revolves around decisions
regarding the policies and management that should govern the CPR; perhaps also settlements of
disputes. Formal arenas for collective decisions might, for example, be courts or regulatory agencies;
informal collective arenas can be private associations. At the constitutional level, decisions are taken
regarding who is eligible to participate on the collective level and what rules should govern the
collective level. Note that the constitutional level sets constraints on the collective level, which in
turn sets constraints on the operational level. This is, of course, a top-down direction of influence,
but the effects might also go in the other direction, for example by the technology used at the
operational level, affecting and, or restricting the decision that are possible to make on the collective
and constitutional levels.
13
Ostrom (1990), pp. 50-55.
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Note, also, that rules are governing decision-making at every level. These are, as Douglass C. North
put it, “the rules of the game”, the institutions. Ostrom suggests that institutions can be defined as
“…the sets of working rules that are used to determine who is eligible to make decisions in some
arena, what actions are allowed or constrained, … what procedures must be followed, what
information must or must not be provided, and what payoffs will be assigned to individuals
dependent on their actions.”14
This is, in essence, the same as North’s “… the humanly devised constraints that shape human
interaction. ... they structure incentives in human exchange, whether political, social or economic.” 15
Once again, the rules, along with the incentives and the institutional setting will be the focus of my
study.
Application and relevance of Ostrom’s framework to the Nordel case
How does Ostrom’s framework apply to the Nordic electricity system and the work of Nordel? And
how will I use it? I will divide this discussion in three parts, which I will relate to the headings above:
What characteristics do the Nordic electricity system, and the work of Nordel, have that grants it the
status of a CPR? How do the variables and incentives in Ostrom’s framework apply to the Nordic
electricity system and the work of Nordel? I will also say something about the institutional level
analysis, but the main application of these concepts will have to wait until I describe the creation of
Nordel.
From the description above of the general characteristics of a common-pool resource (CPR), I hope it
is clear that the features of a CPR apply to the Nordic electricity system. This system was and is a
resource system: the power stations, transmission lines, distribution stations, etc., from which
resource units can be drawn (kWh) in a flow. It has a certain stock, in this case, the water magazines
or fossil fuel reserves, but its infrastructure may also be viewed as its stock, particularly since this
system is characterised of production and immediate consumption, that is withdrawing energy units
require immediate production to regain the power balance – the balance between consumption and
production. That is, it is immediately renewable. This means that crowding effects and overuse does
not normally occur, but severe winter temperatures or years with unusually low rainfall might
prompt authorities or power companies to ration the flow of electricity. It thus has limits of how
many resource units can be withdrawn per unit of time. Note, also, that this CPR, since it contains
hydropower, comprises both man-made artefacts and natural “structures”.
14
15
Ostrom (1990), p. 51.
North (1990), p. 3.
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Stating that the CPR, the electricity system, consists of the water magazines, power stations, hightension transmission lines, transmission substations and distribution lines is, I admit, a rather
unspecific definition of its internal characteristics and boundaries. However, its main characteristic,
its ability to generate a flow of electricity, along with its main actors, Nordel and the power
companies, will suffice for my purpose, whose focus is the cooperation within Nordel and between
the power companies. I will also argue that this cooperation to some extent defines the CPR; factors
irrelevant to the cooperation do not belong to the CPR. Moreover, its internal characteristic – the
number of power stations, high-tension transmission lines, transmission substations, etc. – may
change, but its main purpose and function, to generate a flow of electricity, will remain. In other
words, although its physical boundaries and exact internal structure are uncertain its function is very
precise.
However, its internal characteristics, its stock of the above-mentioned infrastructure, was of course
crucial to its ability to generate electricity, how it worked and was operated. As such, they strongly
influence the rules on all levels, the operational, the collective and the constitutional, by defining the
constraints and opportunities of cooperation, operation and change of its internal structure. In sum,
its features and aspects mattered more than its exact structure. I will describe those features and
aspects, the constraints and the opportunities, in the section “Incentives driving cooperation in
electricity systems” below.
A more important line, in my opinion, is the one that needs to be drawn between appropriators and
providers. As a simplification, one could say that my aim is to put Ostrom’s problem on its head: How
should the participants cooperate in order to exploit the resource better, to unlock its potential? I
will argue that, whether it is about preventing overuse and destruction of the common-pool
resource, as in most of Ostrom’s empirical cases, or unlocking its potential, as in the case of the
Nordic electricity system, the main issue is essentially the same, that of cooperation and the
incentives to do so. The ownership of national resources was of course not transferred between the
different companies, but the partners relinquished some of the strict control over them in order to
use the reserves of the total system. It was, to be sure, an economical agreement, but one that
nevertheless codified and thereby simplified the mutual gains. To return to Ostrom’s terminology,
though each power company was a provider to households and industries within its national border,
each company could gain access to, appropriate a part of, the total Nordic electricity system. In other
words, the individual companies, just as Ostrom’s appropriators of fishing waters or aquifers, can be
defined as appropriators of the total Nordic electricity system.
As I wrote above, appropriation is related to “various methods of allocating a fixed, or timeindependent, quantity of resource units” whereas provision is concerned with “various ways of
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assigning responsibility for building, restoring, or maintaining the resource system over time”.16
Applied to the Nordic electricity system, then, a power company could appropriate shared resources
created by the cooperation, but must also provide its share to the mutual resources. Provision and
appropriation are two sides of the same coin, solutions to appropriation must match those of
provision.
When it comes to the internal variables internal norms and discount rate, I will make the following
assumptions. I will assume that the internal norms of the individual members of Nordel are the same,
or about the same: they had similar education, professional positions, and perhaps even similar
social backgrounds. Since cooperation in the field of large-scale technical systems usually means
long-term commitment, I will assume the discount rate is low, at least when it comes to cooperation
on coordinated construction. This assumption may not necessarily hold for the power exchanges.
Note that the internal norms and discount rate are related to research questions one and two above
since they influence the incentives.
What will be of higher interest are the expected benefits and the expected costs. I will look for what
was perceived as the expected benefits of cooperation, but also what was regarded as costs and
disadvantages. The expected benefits, as well as the costs, are closely related to my first two research
questions, the incentives for engaging in the power exchanges and the joint ventures of coordinated
construction. Those two questions are also connected to how these benefits should be attained,
what routes and strategies should be taken. I will look particularly at how uncertainty and lack of
knowledge were reduced, and the costs related to this.
I will also try to chart and assess the importance of the situational variables. This concerns the
internal characteristics of the CPR, in this case mainly the characteristic of the technology, the
features, aspects, constraints and opportunities I referred to above. Note that the situation variables
are related to my third research question, the constraints and opportunities in which Nordel had to
work. The transformation costs, changes of rules are mostly related to the time and expenses
devoted to committee work. It is also, since most committees worked to gain better knowledge of
specific issues, closely related to the information costs, which could, I suspect, be quite high due to
the complexity of the total, Nordic electricity system. On the other hand, since much of the
cooperation essentially was business agreements for mutual gains, I will assume the problem of
monitoring and enforcement was no major issues and costs.
When it comes to, finally, the institutional levels, the operational, the collective and the
constitutional, I will try to place the board of Nordel on its proper level, as well as try to analyse its
16
Ostrom (1990), p. 47.
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authority and which levels affected it most. The institutional levels are, as the situation variables,
clearly related to my third research question since the levels stipulate authority to perform certain
tasks, obligations or roles.
Sources and method
My sources are located in the Swedish State Power Board’s, Vattenfall, corporate archive.17 It
comprises the minutes of meetings from the Nordel board, its sub-committees as well as annual and
other reports. Since Vattenfall was only one participant of Nordel, I have excluded material
specifically related to Vattenfall and only used the common Nordel material. I have regarded the
minutes of meetings as primary sources, the annual and the other reports as printed sources. In
other words, they describe what Nordel thought, how they acted, wrote, what they aimed at, etc.,
regarding the different issues. I have, however, also used some of these reports as sources of general
facts, that is not only as a source of what Nordel thought of an issue, but also whether facts or
descriptions in the sources in fact are true descriptions of actual situations. When it comes to these
specific facts, I have deemed this a rather safe assumption.
The two other questions relevant here are 1) what the purpose of the sources were and the context
in which they were created, and 2) if the sources can provide answers to the research questions.
Regarding the first, I have tried to treat the annual reports with some care. These were meant for
public consumption, perhaps mainly for politicians and policy makers within the field of electricity
affairs. Not that I believe that they intended manipulate or lead the reader on the wrong path, but I
will assume they intended to present Nordel as an authoritative and important organisation in the
field of Nordic cooperation. Regarding the context in which the sources were created, I have
assumed the delegates had to strike a balance between being a member of Nordel and the parent
company/organisation. Though some board meetings may have been conducted as negotiations,
Nordel was created in a cooperative spirit and will assume this influenced the meetings to the same
degree as the national or corporate background of the delegates. However, I will not, in general,
refer to what individual members said during board meetings. In other words, I will treat Nordel,
more or less, as a collective.
When it comes to the second question, if the sources can provide answers to the research questions,
I have used secondary sources and literature against which to weigh the primary sources. There is a
fairly large body of academic work related to the Nordic and European electricity systems, and I have
had good use of this literature in this thesis.
17
Statens Vattenfallsverk Staben /S/ 1962-1991. Handlingar ordnade efter ämne. F1b Dossièrer, huvudserie 2,
volymer 82-86, 308-320, 557-560, 831.
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Incentives driving cooperation in electricity systems
This thesis is about the incentives and the constraints in a cooperation concerning a large technical
system. Let us see, as I promised above what constraints and opportunities the participants had to
confront or use respectively. What were the expected benefits of cooperation, the internal
characteristic of the CPR and some of the situation variables shaping the cooperation?
The purpose of Nordel was to strengthen the cooperation in regard to electricity generation and
transmission. The gains from cooperation, more specifically interconnection, power exchange or
power pooling, were well known at the time of Nordel’s creation. 18 The main features, however, of
these gains had probably been known for decades. What were the main points?
One, and in the Nordic case important, was the possibility to combine hydropower with thermal
power plants. The advantage arises due to the fact that excess capacity of hydropower allow less use
of thermal plants, thus lowering overall fuel costs, while the thermal plants can provide valuable
backup capacity during periods of water shortages, either seasonally such as during winter when
water flows are normally lower, or during years of exceptionally low rainfall. In addition, a backup
thermal plant is also less costly than building a reserve dam. The benefits are in other words cost
reduction, greater reliability and security of supply due to a diversification in technology, or, as
Thomas P. Hughes would have said (mentioned in theoretical section above) a beneficial economic
mix.19 Elinor Ostrom had perhaps called it a beneficial combination of appropriation or provision
technology.20
Another combination, also much on the theme of reliability and cost reduction, is between two
hydropower based systems, but with different annual water flows or temporary differences in
rainfall. Storage reservoirs can be used in the water system where it is less costly.
Thermal plants can also take advantage of interconnection by using the plants with the lowest
marginal cost per produced energy unit for the baseload, usually the larger plants, while using the
smaller plants with higher marginal cost, but that can be started quicker and easier, for periods of
temporary higher loads. This is basically a result of the economies of scale for using the larger plants.
This type of interconnected system can also make use of coordinated maintenance of plants, when
they have to be shut down and overhauled, again increasing reliability.
Another factor has to do with the sheer enlargement of the electrical system. The enlargement
increases the number end users, appropriators, which in turn increases the diversity of users, for
18
Sewell (1964), pp. 569-571. The advantages of interconnection in electrical systems are also described in
Kaijser (1995) p. 36 and in Cramer & Tschirhart (1983) pp. 25-26.
19
Kaijser (1997), p. 16.
20
Ostrom (1990), p. 203.
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example households versus industry, with different patterns of daily use. The gain thus comes from
the fact that the peak loads in the participating sub-systems do not coincide. This is, in other words,
on the familiar theme of economies of scope.21 Again, Thomas P. Hughes has offered the term load
factor to describe the even load, which in turn enables better use of the larger plant’s economies of
scale. Another consequence of this is that the larger interconnected system requires less installed
total capacity to meet demand and reserve requirements than the sum of the individual systems.
This is due to the fact that the peak load in the total pooled system is lower than the sum of the peak
loads in the subsystems. It also has reliability side to it: due to the larger number of production units
the likelihood of total system failure is lower. This is the same principle as insurances, such as
unemployment or sickness benefits, which also make use of pooling resources.
And finally, a factor that has to do with changing the system, not merely connecting its sub-systems
(even if that is major feat). In a system it is possible to decide on new plants or transmission lines
”…with respect to the nature, location and timing” of this infrastructure.22 For example, investing
hydropower in one region or country where water resources are abundant, build transmission lines
to other regions/countries. When it comes to timing, which in fact where used rather frequently in
the Nordic countries, the incentive is again the economies of scale, the larger units better efficiency
per energy unit (normally thermal or nuclear plants). The problem, however, with building large
plants is that the demand when the plant is completed may probably not go all the way up to its
capacity, resulting in overinvestment and unnecessary high capital costs. One way to solve this for a
company planning a new facility is to invite partners to share the cost, but also the benefits: to
postpone their own investments and in the meantime buy power from the company building the
plant. In other words, when using this planned procedure, one considered the output of the total
system and avoided overinvesting and excessive capital costs. This procedure is called “staggering”.23
It should be added that economies of scale also refers to the transmission lines, that is the highvoltage long-distance lines connecting regions (as opposed to distribution which is low-voltage, short
transfers to end customers).24 In other words, the marginal cost of transferring a unit of energy falls
as transmission capacity grows.
Investing in new transmission and generating capacity in an interconnected system, or a power pool
as it also called, can be done differently regarding to how the agreements are drawn.25 A strictly
controlled pool may, for example, limit the individual member’s choice of type, place and timing of
its investments. A less strictly controlled pool may on the other hand just provide a forum and allow
21
Kaijser (1994), p. 80.
Cramer & Tschirhart (1983), p. 25.
23
In Swedish and Norwegian respectively, ”saxning” or ”saksning”.
24
Cramer & Tschirhart (1983), p. 25. Sewell (1964), p. 571.
25
Cramer & Tschirhart (1983), p. 25.
22
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for greater flexibility. This categorisation can also be applied to how the pool is organised and
operated. The former may be called a closely-knit, the latter a loosely-knit power pool.26 The member
utilities integrates as long as it generates benefits and stops when marginal benefits equals the
marginal costs of further integration.27
The historical context and the roots of Nordel
Post-War reconstruction and European cooperation28
By the 1960s electricity had become so closely intertwined in the fabric of the society that it was
more or less, as stated by a scientific article 1964, viewed as prerequisite for economic growth and
development in the industrialised world. An important part in this interlinking of economic affairs
and technology was the European reconstruction after World War II, highly aided by the Marshall
plan, or, as it was officially known, the European Recovery Program (ERP) from 1947. This also
highlights the drive for European cooperation and integration after the Second World War. The
recovery program was led in the USA by the Economic Cooperation Administration (ECA) and
coordinated in Europe by the Organization for European Economic Cooperation (OEEC), created in
1948, (which by 1961 had become the global organisation Organisation for Economic Co-operation
and Development, OECD). The reconstruction and building in the field of electricity was handled by
the OEEC Electricity Committee, which in 1949 formulated its main goal of “making more electricity
available” as “1) drawing up a long-term program for power plants, 2) proposing measures to
intensify the use of resources, and 3) taking away barriers to the exchange of surplus electricity.”29
The work of the OEEC Electricity Committee finally resulted in 1950 in a coordinating body named
Union pour la Coordination de la Production et du Transport de l’Électricité (UCPTE),30 (Union for the
Coordination of Production and Transmission of Electricity) and included utilities31 from Belgium,
Germany, France, Italy, Luxemburg, the Netherlands, Austria and Switzerland. The UCPTE, which
Nordel later came to emulate, knowingly or unknowingly.32 The committee had the previous year
announced a proposal for a European power pool, whose pooling power was mainly to be associated
with new generating capacity financed via the European Recovery Program, a total of 950 MW made
available for the pool. Pressure from the USA, however, pushed the committee to start integration
26
Lagendijk (2008), p. 134.
Cramer & Tschirhart (1983), p. 24.
28
This is mainly built on Lagendijk (2008).
29
Lagendijk (2008), p. 143.
30
Ibid., pp. 146-150.
31
I assume this could be private, cooperative, municipal or state owned.
32
As Nordel, the tasks and responsibilities of UCPTE was transferred to ENTSO-E, the European Network of
Transmission System Operators for Electricity, in July 2009.
27
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immediately and not wait until new capacity had been built. The main issues then became how to
plan for new capacity, where it should be built and how its output should be distributed, and – in
general - how each type of energy source should be used to enhance the total efficiency, as well as
how a high-tension transmission network should be constructed. 33
UCPTE had a number of specific goals. One was to try to lessen the constraints on the short-term
power exchanges between the member countries. Taking the existing status of the transmission
network as a starting point, a standardised form was devised on which utilities could state their
intention to export or import for a forthcoming period. I assume this was intended as a formalisation
to reduce the information cost and transaction cost between the utilities. However, a specific reason
was also to obtain historical records on the exchanges, to be used as a planning tool to increase
future exchanges. Another effort to lessen the constraints was to try to liberalise the national
legislation concerning the supply and exchange of electrical power. A step on the way was when in
1956 seasonal exchanges were allowed, and finally in 1959, when all other forms of exchanges were
allowed. Exchanges grew from about 1 per cent of total production in 1954 to slightly over 4 per cent
in 1965.
On the more operational and technical goals, the UCPTE initiated coordinated maintenance of
thermal power plants so that the required total production could remain at normal levels despite
overhauls, and achieved synchronous operation of all member networks at 50 Hz at the end of the
1950s. Synchronous operation was necessary to determine the required reserve capacity of the
electrical network. This then, was a necessary requirement to estimate the benefit of combining
several networks, which in turn lowered the amount of installed capacity for a certain reserve
capacity.
The broad aim of these goals was to bridge the gap between production and demand, that is to
retain the power balance. The UCPTE used a two-pronged strategy. On the one hand supporting the
national programs of electricity generation, resulting in a limited required amount of power
exchanges; on the other develop interconnections in regions straddling national borders, and whose
exchanges would support the nations meeting in those regions. Both ways would thus lead to the
same goal.
On the organisational side, the UCPTE had a Restricted committee that met four times a year. This
committee prepared the bi-annually Assembly meetings, which hosted representatives from all
member countries. The union had a president and a vice president whose positions were subject to
33
Lagendijk (2008), p. 147.
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re-election each year, with a maximum of two terms in office. The president’s utility or organisation
carried the costs of the Secretariat; the UCPTE had no budget on its own.
Despite the technical integration of synchronous operation and increased power exchanges, the
UCPTE was a remarkably loose organisation. It was based on voluntary cooperation, it could not
interfere in the member utilities’ commercial activities, which was assumed to be conducted on a
bilateral basis, and it should be independent of other international organisations. The statutes
specifically stipulated that the organisation consisted of people, that is the representatives’
participation was based on personal capacity, not the fact that they were employed at or associated
with a public utility, private company or a public administrative charged with electricity affairs.
However, that association to the production or transmission of electricity was also a requirement.
The idea behind the personal capacity had originated in the OEEC Electrical Committee and was
intended to foster a “spirit of mutual trust”. In the view of the committee, personal relations could
thus foster trust, not relations between organisations. The UCPTE was thus intended as an informal
forum for problem solving and cooperation in the field of electricity generation and transmission.
The UCPTE was, however, not an entirely European creation. As a part of the OEEC Electrical
Committee work a number of European electrical engineers visited the USA in 1949 on behalf of the
Economic Cooperation Administration (ECA), the US organisation that led the European Recovery
Program. The engineers visited and studied two American power pools or interconnection groups as
they are also called, the South Atlantic & Central Areas Group (SA & CA Group) and the PennsylvaniaNew Jersey Interconnection (PNJ). The PNJ was a closely-knit pool employing a central system control
whereas SA & CA Group was a loosely-knit without such as control. The SA & CA Group had been
established in 1928, consisted of both privately and publicly owned utilities. Geographically, it was
the largest power pool in the world at the time, comprising over eighty utilities. The association was
voluntary and each utility was responsible for its own system operation. The committee concluded
that this model would suite the European cooperation well.
These conclusions, however, was perhaps not what Economic Cooperation Administration (ECA) had
intended. It tried to induce the Europeans to finance and operate the new power plants on a
supranational level, something its governments resisted due to national priorities and its engineers
deemed unattainable due to politics, an “uncertain” political situation.34 The view among European
engineers and professionals was something that had gained foot during the interwar years in
international and professional organisations such as the Conférence Internationale des Grands
Réseaux de Transport d’Énergie Électriques à Très Haute Tension (CIGRE) founded in 1921 and the
Union Internationale des Producteurs et Distributeurs d’Énergie Électrique (UNIPEDE) founded in
34
Lagendijk (2008), p. 156.
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1925 and the World Power Conference (WPC) founded in 1924. These organisations, as their names
implies, were concerned with, respectively, the construction and technical issues of high voltage
transmission networks, everything from the production to distribution of electricity and issues
related to exploitation of energy resources in general.35 But national legislation was also a topic that
was discussed in those circles. The reason was that after World War I governments had actively
supported electrification, and power exchanges across national border therefore became subjected
to the approval of national governments. However, many engineers and professionals saw a more
liberal and international system as economically and technically more rational, employing a better
economic mix and better load factors.36 However, the general conclusion was that the national
priorities could not be counteracted; regulation was something that must be taken as a fact.37 In sum
then, international cooperation could take place, but had to conform to national programs and
national regulation.
Production, transmission and distribution of electricity in the Nordic countries
Though the Nordic countries in many respects share a common history, they differ rather
substantially when it comes to the organisation and ownership of facilities for production,
transmission and distribution of electrical power. The first is endowment in natural resources.
Norway has a potential 172 TWh of hydropower per year, Sweden about half that amount, Finland
four times less than Sweden and Denmark none.38 Denmark thus had to resort to thermal power,
while Norway could develop its vast natural resources of hydropower, a favourable situation, more
or less shared by Sweden and to a lesser extent by Finland. But this difference was in fact an
advantage when it came to Nordic cooperation as we will soon see. But before we proceed to the
cooperation, let me provide a sketch of these countries when it comes to production, transmission
and distribution of electricity.
Denmark
Electricity generation had evolved locally in Denmark. On the countryside as rural cooperatives and
in the cities as the responsibilities of the municipalities.39 Integration into regional systems began in
the 1920s, starting in eastern Denmark. The power companies established a formal organisation in
1954 called Kraftimport to coordinate the operation, planning, building and integration of the
system. A corresponding organisation, ELSAM, was established in western Denmark in 1956. In 1990,
the local ownership structure remains: cooperatives and municipalities own the over 100 distribution
35
Lagendijk (2008), pp. 58-59.
Ibid., p. 66.
37
Ibid., pp. 59-60.
38
Thue (1995), p. 17.
39
Ibid., p. 19.
36
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utilities which in turn own the 12 production companies and its production facilities. The state is and
has not been involved in ownership of production and transmission of electrical power.
Norway
Local municipalities also played an important role in the electrification of Norway; electricity was
mainly produced in self-sufficient, small regional systems.40 But in the 1920s the state becomes
directly involved, by creating the Norwegian Water Resources and Energy Directorate (NVE) with the
responsibility of exploiting state owned water falls, completing a power station 100 kilometres east
of Oslo in 1928, in the regional area Östlandet. This station became a part of a regional power pool
1932 of power companies, utilising the different water reservoirs to create one of the largest power
pools at that time in the world, with 60 power stations and a total generating capacity of 900 MW,
slightly less that the proposed UCPTE pool referred to above. The cooperation had previously been
conducted on a bilateral basis. A requirement to join the pool was a total of 5MW production
capacity.41 In Ostrom’s words, a requirement of provision to join the CPR. The Norwegian Water
Resources and Energy Directorate (NVE) provided the main force to establish four power pools
between 1953 and 1961 similar to the one in Östlandet.
Despite this integration, Norway, similar to Denmark, has to a large degree retained the local
character and regional self-sufficiency of electricity production. About two thirds in 1990 was
produced and used for ordinary consumption (excluding electricity-intensive industry) within the
same region.42 NVE produced slightly below a third of the total generating capacity and owned about
80 per cent of the high voltage transmission network.43
Finland
The regional hydropower systems in Finland were built by both private companies and the state
owned company Imatran Voima in the 1920s. There were no interconnections between the systems,
however, so the private and public utility competed for customers. In the 1930s all hydropower
resources in the populous south had been exploited, which meant that the northern resources had to
be exploited and transferred to the south. This, however, required large investments. This, in turn,
allowed the state gain influence after 1950s; the private power industry escaped nationalisation with
a small margin in 1952. Construction of thermal power plants began in 1960s, and later nuclear
power stations, which in 1995 provided a third of the total capacity.44 In 1990, Imatran Voima
40
Thue (1995), pp. 19-20. Kaijser (1995), p. 48.
Kaijser (1995), pp. 41-42.
42
Ibid., p. 48.
43
Thue (1995), p. 14.
44
Kaijser (1995), pp. 42-45.
41
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produced 20-25 per cent of the total capacity, which made it the single largest producer in Finland. It
owned approximately 70 per cent of the high voltage transmission network.45
Sweden
Of all the Nordic countries, Sweden is the country where the state has had the most direct
involvement in the production and transmission of electrical power. The Swedish State Power Board,
Vattenfall, created in 1909, had no foreign predecessors. It built Trollhätte hydropower station in
1910, the Porjus hydropower station in 1914, Älvkarleby hydropower station the year after that, and
quickly established itself as the major electrical power producer. One reason for the state drive was
the electrification of the railroads; another, the ownership of waterfalls, which, however, was not
uncommon in Europe. 46 In the 1920s a system that exemplifies the economic mix described above
was created. It consisted of the power stations in Trollhättan and Älvkarleby with a common
reservoir in the lake Vänern and a thermal power station in Västerås.47 However, this was a planned
system, not a power pool, since Vattenfall owned and operated all facilities. A power pool was
created later, in 1964, at the initiative of the Waterpower Association. The purpose of this
organisation was to promote the interests of private and municipal power companies as a
counterweight to Vattenfall.48 Like in the Norwegian power pool, there was a minimum requirement
on production capacity, and in addition, on reserve capacity. Again in Ostrom’s words, a requirement
of provision to join the CPR. Similar to Finland, Sweden had to exploit hydro resources in the north
and transfer power to its more populous south. The state, via Vattenfall, gained an even larger
influence than in Finland when in 1946 Vattenfall was accorded the sole responsibility to plan, build
and operate the complete high-voltage transmission network.49 In 1990, Vattenfall produced about
55 per cent of the total capacity. If the nine next largest producers were added, their total capacity
reached 90 per cent. Nuclear power produced half of the total power production in 1995.
Nordic cooperation prior to Nordel
I will consider two examples of Nordic cooperation in the field of electricity generation prior to the
creation of Nordel.
As early as 1915, a typical hydro-thermal cooperation, as described above, was established between
the Danish company NESA and the Swedish company Sydkraft. This was thus a bilateral agreement.
These companies built a submarine cable between Helsingör in Denmark and Helsingborg in Sweden.
The main incentive for cooperation was the excess hydro power during the summer in Sweden. The
45
Thue (1995), p. 14.
Kaijser (1994), pp. 165-166.
47
Kaijser (1995), pp. 38-39.
48
Svenska Kraftverksföreningen. http://www.ne.se/svenska-kraftverksföreningen, Nationalencyklopedin,
accessed 2011-05-20.
49
Kaijser (1995), p. 44.
46
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cooperation proved useful for Denmark during the coal shortages of the World War One, though
electrical power could later flow in the other direction during periods of water shortage in Sweden.
On the whole, this was thus a mutually beneficial cooperation.50
A more difficult cooperation to establish was that between Norway and Denmark, and Norway and
Sweden. The reason was the divided view in Norway on how and who should exploit the country’s
large potential hydropower resources. On the one hand stood rural interests, energy-intensive
industry and bourgeois politicians who thought that these resources should be used to the benefit of
Norway, and the on the other Social Democrats that pushed for industrial cooperation. 51 Proposals in
the 1920s, 30s and after the Second World War to export Norwegian hydropower to Denmark, either
through the Danish peninsula Jutland (western Denmark) or via Sweden to eastern Denmark, all
failed. The last of these proposals, however, was in the end rejected in 1950 by a newly elected
centre-right Danish government after Norwegian and Danish Social Democrat ministers – after a
fierce debate in the Norwegian parliament where the price of electricity had been notched up a few
levels – had managed to reach an initial agreement.
These large projects, then, failed to materialise. A local project between Norway and Sweden was,
however, in the end successful. But only after some political wrangling. The initiative was taken in
1951 by the local power company in Trondheim, Norway, who put forward a proposal to the
Stockholm power company. The Norwegian plan was to build a large hydropower plant in Nea close
to the Swedish border. In order to utilise the full capacity of the plant from the start, that is to use
the economies of scale, the Stockholm company was offered a contract with an option, valid for 30
years, to buy up to half of the capacity and in return help financing the construction.52 This was thus
a typical example of staggering as described above, on a bilateral level.
The municipalities in Trondheim and Stockholm put a stamp of approval on the project and it was
then submitted up one level to the national governments for formal approval. The Swedish
government had no objections; the Norwegian, however, raised strong reservations and simply said
that a local municipality could not engage in international agreements. The project was not ditched,
however, but it must be handled on the appropriate level, that is by the Norwegian Water Resources
and Energy Directorate (NVE). After re-negotiation and a close vote in the Norwegian parliament, the
project could finally go ahead. Contrary to the plan, but beneficial to future Norwegian-Swedish
cooperation, was the fact that the Stockholm company sold power to the company in Trondheim,
50
Kaijser (1997), p. 6.
Ibid., pp. 7-9, 19.
52
Ibid., p. 10.
51
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and not vice versa, due to water shortages in Norway. Besides the staggering, this project thus also
reduced the risk and secured the power balance in Norway.53
Nordel as a model of UCPTE
Nordel traced its roots from several sources. In the one hand, the international strands from UCPTE,
the international engineer organisations, even the power pools in the US, since the UCPTE became
based on these; on the other, the bilateral cooperation between the Nordic power companies, but
not least the political attempts to cooperation on a higher, Nordic level. The Nordic countries has
been said to have struck a Nordic balance: rather small countries on the European periphery,
charting risky waters between the two superpowers and the European cooperation on the continent,
preferring Nordic integration, the Atlantic alliance and global organisations to pan-European
cooperation, without, however, closing the door to the European cooperation.54 The balance
comprised Denmark’s and Norway’s NATO membership, Sweden’s non-alignment and Finland’s pact
with the Soviet Union "Agreement of Friendship, Cooperation, and Mutual Assistance" signed in April
1948.55 An embodiment of the Nordic integration was the Nordic Council, an advisory body consisting
of Nordic parliamentarians, aiming at cooperation between the Nordic parliaments and
governments.56 Another is the NORDEK proposal discussed 1968-70,57 a cooperation plan on
economic and industrial development, including a customs union, which, however, never was
realised due to Finland’s rejection of the treaty. The official explanation was that the other Nordic
countries were making preparations to start negotiations with the European Economic Community
(EEC), which would make, the argument went, NORDEK more or less irrelevant.58
But the Nordic Council nevertheless ignited the creation of Nordel. In 1962, the council proposed
that a civil servant committee originally devoted to a Finnish-Swedish cooperation aimed at
exploiting the Kalix and Torne rivers, a project that never became realised, be given a new charter
and turned into a permanent body for cooperation within the field of electricity production. The
Nordic power companies, however, were reluctant and rejected this proposal. They seemed to have
preferred an organisation according to its own lines. The Swedish organisation for power pooling,
Centrala Driftledningen (CDL), a voluntary body from the Second World War when a closer
cooperation between the Swedish power producers became necessary, invited the Nordic power
companies in December for discussion on an organisation along the lines of UCPTE. It should also be
53
Kaijser (1997), pp. 10-11.
Lagendijk (2008), pp. 112-113. Solem (1977), pp. 21-46 (chapters 2 and 3, "Scandinavian Administrative
Cooperation" and "Origin and Development of the Nordic Council"), 66-86 (chapter 6 "Integration and
Economics").
55
Lagendijk (2008), pp. 112-113.
56
Nordiska rådet. http://www.ne.se/lang/nordiska-rådet, Nationalencyklopedin, accessed 2011-05-21.
57
Nordek. http://www.ne.se/nordek, Nationalencyklopedin, accessed 2011-05-21.
58
Solem (1977), p. 84.
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mentioned that the Swedish State Power Board, Vattenfall, had organised a Nordic conference on
power pooling the previous year where all major Nordic players were present, such as ELSAM,
Kraftimport, the power pools in Norway and the Norwegian Water Resources and Energy Directorate
(NVE). A number of committees were set up, such as The Committee for Statistics on Outages, The
Committee for Statistics on Electricity Production and Supply and The Committee for Operation and
Accountancy Terminology,59 which later came to report its work to Nordel. There was thus a
substantial momentum towards cooperation within the power industry besides the political
“pressure” from above.
Nordel was created in 1962. According to the statutes the association’s main purpose was “to
promote international, in particular Nordic, cooperation regarding production, transmission and
consumption of electrical energy.” 60 The main and regular tasks included to continually monitor,
observe the development of production and consumption of electrical energy in the Nordic
countries, to gather and publish statistical data on existing production capacity, make prognoses on
consumption and construction. The legacy from UCPTE was also clear. Nordel should be an advising
body, that is it had no authority to interfere in the individual companies’ internal, commercial or
operational activities; the organisation should consist of people, whose field of work was electricity
production and supply. The original proposal from CDL had included a line stating that the individual
persons, members should “represent Nordic power industry as whole, not their parent companies”.
61
This was, however, omitted in the final version of the statutes. It elected a chairman and a vice
chairman which rotated on a three-year basis and circulated among member countries. The
chairman’s company carried the cost of the organisation’s secretariat and called the board’s annual
meeting. As UCPTE, Nordel had no budget of its own budget. Besides the board, Nordel could also, if
necessary, appoint committees for specific purposes, which then could meet as required. Decisions
were taken with majority vote if no unanimous could be attained. It is thus clear then, that it was
opted for a loose-knit, informal and flexible organisation based on mutual trust between its
members.
Let me reconnect to Ostrom’s theory. What was Nordel’s institutional position? I will stipulate the
level where the activities, operation, construction and the power exchanges took place as the
operational level. Composed of people from the individual companies, Nordel worked on the
collective level. It could, as an advising body, make proposals to the operational level, which,
however, the operational level could disregard if they wished. I will stipulate the national, political
level (parliament and government) as the constitutional level. Although the private, cooperative and
59
Nordel, ed. Sven O. Lalander (1988), pp. 16-17.
Statutes for Nordel approved at the constitutive meeting May 9, 1963.
61
Nordiska Rådet (1963), pp. 379-380.
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municipal companies should conform and operate according to its “charter” from the state,
cooperatives, municipalities or its shareholders , this was a relation between the individual company
and its owners and as such had more of the character of the operational level. Nordel’s purpose and
tasks concerned common company issues, regardless of the formal ownership structure of the
companies, and its specific tasks concerned the Nordic level. The relevant constitutional level, then,
must be the national political level. The institutional place of Nordel interpreted in such a way means
that the organisation’s main constraints were on the national political level; it could not become an
authoritative body with supra-national and wide-ranging power. On the other hand, it was a private
organisation, members were appointed by companies, not the state.
In sum, Nordel could advise and recommend companies on operational rules and policies, but not
force conformance or act as an authority to, for example, settle disputes. The day-to-day decisions on
provision, appropriation, monitoring and enforcement of operational rules were ultimately taken by
the companies. Nordel was, however, free to decide who should be eligible to participate on its
collective level and what rules should govern the collective level. In that sense, it was free from the
constitutional level, but as an advising body, however, and had no authority over national policies.
Power exchange
This main section will deal with the bilateral rules and agreements used in the power exchanges, but
also the estimates conducted regularly regarding the water supplies since these guided the
agreements and constituted a fundamental uncertainty in the operations. I will end the section with
a discussion of the recommendations Nordel proposed.
Rules and agreements governing the power exchange
Power exchange and related questions was the responsibility of The Committee for Operating
Problems, created in 1963. 62 The power exchanges could either be of excess power or firm power,
that is power delivered irrespective of capacity situation. Excess power was, however, by far the
most exchanged by volume. The power exchanges grew from about 2 per cent of the total
production between the creation of Nordel in 1963 to about 6 per cent in 1972. 63 Besides outages
and other operating disturbances the committee worked with a number of other issues related to
the operation of the system and the power exchanges such as creation of a system administration for
power balance (consumption vs. production), calculation of the economic value of power as well as
pricing.64 But also more uncommon issues, such as how the difference in numbering of weeks in the
62
Minutes of meeting from Nordel board meeting October 16, 1963. Vattenfall Staben F1b vol 82.
Nordel, ed. Sven O. Lalander (1988) p.67 figure 4.
64
Minutes of meeting from Nordel board meeting August 26, 1966. Vattenfall Staben F1b vol 82.
63
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Nordic countries should be handled, something that complicated the accounting of the power
exchanges.65 A harmonisation of the week numbering was, however, under way in the Nordic
Council.66
The board’s explicit reason for creating the committee was to formalise and lift the regular, but
bilateral, discussions about the power pooling and the power exchanges to a more strategic and
formal level. In this way, the board argued, Norway, which was not to the same extent as the other
Nordic countries participating in the regular bilateral discussion, could be drawn into the general
exchange of information. The aim was thus very much in line with the model used in UCPTE, which,
as we saw, created a standardised form on which utilities could state whether they intended to
import or export power. In sum, a large part of The Committee for Operating Problems was hence
devoted to lowering the transaction costs pertaining to the power exchanges. But as I mentioned
above, bilateral agreement of temporary power exchange had existed before the creation of Nordel.
How did the rules look like? In the spring 1967 they were as follows.67
Power exchanges between Denmark and Sweden was conducted by either the Danish organisation
for the producers in eastern Denmark, Kraftimport, and the private Swedish company Sydkraft, or
the Danish organisation for the producers in western Denmark, ELSAM, and the Swedish State Power
Board, Vattenfall. These parties used a method called split-the-savings method. This method was
also used in the Swedish power pool created 1964, mentioned above, and, in addition, was also
widely used, at least later during the 70s and 80s, in the USA.68 The transaction price was the average
of the marginal costs of producing a unit of energy between the seller and the buyer.69 The marginal
cost is the incremental cost of producing one more unit of energy. In other words, the incentives
were that the buyer could buy cheaper than he could produce himself, and the seller that he could
get a higher price than normally. In the US, this exchange of energy goes under the name economy
energy.70 The overall result in the total Nordel system would then be to shift the production
temporarily to where it was the most cost efficient. The Danish and Swedish parties had regular
meetings to discuss the balance between production potential and estimated demand (the power
balance) and whether import or export would be necessary. An agreement was then worked out
based on these needs.
65
Minutes of meeting from Nordel board meeting August 27, 1965. Vattenfall Staben F1b vol 82.
Minutes of meeting from Nordel board meeting August 26, 1966. Vattenfall Staben F1b vol 82.
67
Overview of current system for power exchanges between the Nordic countires, spring 1967. (”Översikt
våren 1967 av nuvarande system för kraftaffärer mellan de nordiska länderna.”) Vattenfall Staben F1b vol 83.
68
Cramer & Tschirhart (1983), p. 28
69
For example, company A has marginal cost per energy unit of 2 öre/kWh while company B has marginal cost
of 4 öre/kWh. The (average) transaction price then becomes 3 öre/kWh.
70
Cramer & Tschirhart (1983), p. 26.
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The exchanges between Denmark and Sweden was of the type hydro-thermal power exchanges,
Denmark importing Swedish excess hydropower during the summer months and exporting thermal
power when Swedish water flows were low. The Danish organisations demanded a 10 per cent net
profit to engage in an exchange. This level seems, however, to have been the general criteria in the
exchanges, and not only in Denmark.71
Power exchanges between Finland and Sweden were conducted by the Finnish state-owned Imatran
Voima and Vattenfall. Long-term planning information, such as estimates of water supplies and
consumption, was exchanged once a year. An agreement was made if the difference in estimated
marginal costs between the parties was sufficiently high to motivate an exchange. In the Finnish and
Swedish systems, dominated by hydropower with the addition of some thermal power, the
difference in marginal cost was most likely the result of temporary differences in the supply of water,
which affected the so called water value, the value of the electrical power in economic terms of a
unit of water. Scarcity meant a higher price. (I will explain these cost principles in the next section.)
The price was set as the parties “shared the profit equally”,72 which probably meant the same as
split-the-savings method.
The parties in Norway and Sweden were The Norwegian Water Resources and Energy Directorate
(NVE) and in Sweden The Power Industry’s Committee for Power Pooling with Norway (KSN),73 which
negotiated the power exchanges. The Swedish companies were in most cases Vattenfall, but could
also include Sydkraft and Stockholms Elverk. Besides the power exchanges, Vattenfall had an
agreement on using the water reservoirs of NVE as a power reserve.
The parties exchanged price information regularly, the highest buying price and the lowest selling
price, on which an agreement was then based. The procedure was thus similar to the bidding in an
auction. A general clause in the agreement stipulated that if Sweden bought, the price could not be
lower than the price of the same type of power that could be obtained in Sweden. In other words, a
sort of protection against price dumping for those Swedish producers. Buying from third parties was,
however, normally an option available in an economy energy transaction in the US,74 though of
course that, as here, I assume depended on the actual contract.
In contrast to the other countries Sweden had agreements with (Sweden was, due to her
geographical position, always one of the parties in the Nordic power exchanges), Norway did not use
71
Nordel (1971), p. 15.
Overview of current system for power exchanges between the Nordic countires, spring 1967. (”Översikt
våren 1967 av nuvarande system för kraftaffärer mellan de nordiska länderna.”) Vattenfall Staben F1b vol 83.
73
Kraftindustrins Samarbetsråd för samkörning med Norge, KSN.
74
Cramer & Tschirhart (1983), p. 26.
72
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the water value and the marginal cost (although these were calculated for planning purposes75) as a
basis for an agreement. Instead, the Norwegians used something called the determining year. This
rule was used as planning criteria and worked in the following way. Let us say we have a series of
historical data for 10 preceding years. Of these years, we deduct the ten per cent, in this case one
year, with the lowest water flows. The year with lowest water flows in the remaining 9 years is the
determining year.76 If the estimated production in the current year fell below the level this year, the
country was in a shortage situation, which may have meant rationing.77 This probably meant that,
although it depends on how the risks were calculated, the power available for exchange was lower
than if the water value and the marginal cost alone were used. This is, as we saw above, in
accordance with Norway’s tradition of security of supply and holding of reserve capacity.78
Estimating power available for exchange and calculating marginal costs
Of significant importance for the power exchanges was how much potential power was available. In
connection with Ostrom we could say, how many resource units were available to withdraw and put
out for exchange when domestic customers had been supplied? In addition, since the electricity
systems had become an integrated part of modern societies, power outages were to be avoided,
which otherwise could have detrimental effects on the economy, costs on industry and the general
public, production planning activity was normal procedure in all countries. In a system as the Nordic,
where a major part of electricity was produced by hydropower, the knowledge of the current and
future status of water in the reservoirs was of crucial importance.79 In such so called energy
dimensioned systems (dominated, or where a large part consists of hydropower) it is not absolutely
certain that power is available at all times, especially during dry years with little precipitation.
Thermal power systems are, on the other hand, effect dimensioned, dimensioned for the top load
(which, however, does not last for ever), such as Denmark. Such systems can provide security of
supply, provided that fuel is available. In Norway, a system almost completely consisting of hydro
power, employed a special committee within the Norwegian Water Resources and Energy
Directorate (NVE) devoted to survey and secure water supply.80 In other words, similar to Ostrom’s
appropriators and providers in, for example, irrigation systems, the power producers must live the
basic uncertainty of rainfall.
75
Nordel (1971), enclosure 6.
Ibid., p. 14.
77
Ibid., p. 14.
78
Kaijser (1995), p. 48.
79
Nordel (1971), pp. 7-13.
80
Norsk komité for törrårssikring. Vattenfall Staben F1b vol 83.
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As was implicitly indicated above, the basis for the marginal cost was the variable cost, in a
hydropower system the water value, water value [price/energy unit], a variable cost,81 or in general
the power value, which covers both hydropower and thermal power systems. The variable costs in
hydro based systems are, in reality, negligible, but since availability of water is not absolutely certain
and it may be necessary to supplant it with other sources such as thermal power or imports, it is thus
an opportunity cost. The water value was obtained by modelling the actual system, using historical
data and statistical analysis.82 For long-term planning, computer programs were used for calculations
and simulation. The result was a water value as a function of water content in reservoirs and time of
year. This was the principal method in all hydropower-dominated countries.83 Short term planning,
however, and thereby the power exchanges, was mainly a manual procedure dependent on the
experience and knowledge of the planner. In Denmark, a system with only fossil fuel the marginal
cost is mainly dependent on plant efficiency and fuel price.84 Although the fuel prices may vary, the
calculation is less complicated than for the hydro based systems. This meant that even short-term
planning could be done with computer programs.85
Estimating the power value was a part of the regular planning work. Even Norway, although, as we
saw above, it did not use this as the basis for the power exchanges, estimated the power value for
use in its planning.86 Since only the marginal cost was used as a basis for power exchange, only
variable costs determined the exchange. Fixed costs was not included the transactions of power
exchange.
Nordel’s recommendations regarding power exchange
If bilateral principles regarding the power exchanges were already established and in regular use,
what became Nordel’s contribution in this field? As perhaps can be expected, it more or less
reaffirmed the practice in use. In a report published in 1971 The Committee for Operating Problems
recommended that the production planning and the power exchanges should be based on the
estimated power value and marginal costs and that the profits should be shared equally between
seller and buyer.87 The Norwegian “determining year” was, on the other hand, not included in the
recommendations, and thus not approved as a common practise.
A more significant deviation from the bilaterally established rules was the introduction of a price
ceiling on the seller’s profit. At times of scarcity or shortages, I assume the price of electricity could
81
Nordel (1971), p. 7.
Ibid., pp. 7-10.
83
Ibid., p. 7-10 and eclosure no. 6.
84
Ålfors (1980), p. 44.
85
Nordel (1971), p. 2.
86
Ibid., enclosure 6.
87
Ibid.
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rise well above the normal price level, although this did not necessarily show up at the end customer.
Shortages may also have led to the invoking of rationing and use of the rationing price. The rationing
prices used in the Nordic countries between the companies were the following, as stated in the 1971
report from The Committee for Operating Problems. In Sweden, 500 Skr/MWh, Finland 600
Fmk/MWh. Norway employed a stepwise increase of the price, where the rationing price for the first
10 per cent of the total load increased linearly from 150 to 200 Nkr/MWh, for the next 15 per cent
linearly from 200 to 1000 Nkr/MWh and thereafter constantly at 1000 Nkr/MWh.88 As a comparison,
the average Norwegian price offered Vattenfall in 1963 via Tröndelag (mid-Norway) was
approximately 46 Nkr/MWh, transferred and delivered at a power station in mid-Sweden (an offer, in
addition, too high to be an interesting proposition for the Swedish companies).89
No rationing price was reported for Denmark, most likely due to it being an effect dimensioned
system, a system that always could supply power provided that the top load had been correctly
estimated and that fuel was available. In addition, this was in 1971, two years before the OPEC crisis,
after which this assumption would have been severely questioned.
The report notes that in situations of scarcity, the price may grow up to the rationing price, which is
decided more on macro-economic principles than strictly business economy, that is the costs that is
incurred on the producer. In this situation of perceived or announced shortage, scarcity therefore,
the principle of split-the-savings method, the report argued, would inhibit the exchange that ought
to be in the interest of both parties, thus implying that the price may be set more of “political”
reasons and unjustified fear of true, absolute scarcity than the situation actually motivated. But the
report also acknowledges the incentives within the corporate world, for example, the seller might
withhold excess power to speculate on increased demand and a worsening situation for the buyer,
which would push the price higher. Moreover, the absence of a price ceiling could, potentially, the
report noted, lead to overinvestment in the individual systems, thereby rendering the power pooling
irrelevant.90
As noted in an American economics journal in 1983, in this situation the split-the-savings method
may create a disincentive for the buyer in a power pool.91 For a formal, closely-knit pool, this might
prove potentially unstable, disintegrating the pool since the benefits of the pool is shared unevenly.
The article mentions, as an example, the large discrepancies that can exist between, on the one
hand, buyers using oil in their own production and, on the other, sellers using nuclear or hydro
88
These are contemporary currency levels. I have used the abbreviations in the report to denote the national
currencies.
89
Minutes of meeting from Nordel board meeting October 9, 1964. Vattenfall Staben F1b vol 82.
90
Nordel (1971), p. 16.
91
Cramer & Tschirhart (1983), p. 28-29.
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power. The sellers receive a high mark-up, a price far above the marginal cost, which serves as a clear
disincentive to the buyer. According to the article, the large discrepancies between buyers and
sellers at that point (1983) in the Pennsylvania-New Jersey-Maryland Power Pool (PJM), probably a
development of the power pool I mentioned above in connection with the UCPTE, the one the
European electrical engineers visited in 1949, the Pennsylvania-New Jersey Interconnection (PNJ),
there was “…growing pressure within the pool to abandon the split-the-savings method”.92 One
solution, the article suggested, was, just as Nordel recommended, a price ceiling on the seller’s price,
a limit to the mark-up.
However, a price ceiling, if it were to be introduced, must meet certain requirements, the report
specifically argued. For example, it must be easy to manage, used solely in extreme situations and in
these cases invoked automatically. Moreover, it must not cause over- or underinvestment, that is set
too high or too low respectively. In short, the price ceiling must have a low transaction cost and not
introduce distorting effects on the incentives to investment. The price ceiling was apparently
implemented and in use in 1980. 93 If that included the rest of the recommendations (that the
planning and power exchanges should be based on power value and marginal costs, the profits
evenly shared) without exclusion, this thesis cannot say, but I suspect so. What is certain, however, is
that Nordel reviewed the recommendations in 1978 and in 1986, but the principles were
reaffirmed.94 These rules, then, were stable. The appropriators / providers could then, as Ostrom
argues, find solutions on their own, without the help from external bodies.
Before moving on to the coordinated construction, I would like to make a final note: only variable
costs were included in the power exchanges, which means that no incentive was introduced to push
investments towards a permanently cheaper producer. Including fixed costs might have, at least in
theory, have pushed construction of plants to the country where it was the cheapest. However, the
main purpose of the power exchanges in the Nordic system, as I understand it and as was the case
elsewhere I suppose, was the utilisation of excess hydropower, a situation where fixed costs would
be wrong. But one may also question if a reason the fixed costs were excluded, was not to destabilise
a system based on, as the UCPTE power pool, rather independent and self-sufficient sub-systems
that may from time to time need to buy power. The basic plan was domestic self-sufficiency,
supplemented, if necessary, with imports for increased reliability and cost efficiency.
92
Cramer & Tschirhart (1983), p. 29, note 9.
Ålfors (1980), p. 41.
94
Nordel, ed. Sven O. Lalander (1988), p. 33.
93
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Planning and coordinating construction
The theme in this section will, as the heading indicates, be about the planning and the coordinating
activities regarding building plants and high-tension transmission lines. This was mainly, as the power
exchanges, a bilateral affair between the power companies. But Nordel and its Planning committee,
created in 1966, made important contribution when it came to strategic information and knowledge.
Charting the unknown future, making prognoses was namely as important as the actual building
since the required capital often were huge, the facilities took a long time to build and should be in
operation for many years, probably decades. Let us start with the discussions at the board meetings
of Nordel and the efforts to estimate future electricity consumption, continue with examples of joint
ventures and end with a discussion of the reports and recommendations of the Planning Committee.
Estimating and stimulating future consumption
As we saw above, the statutes of Nordel stipulated that one of the main tasks was to follow the
consumption of electrical energy, set up prognoses for the consumption and plans of construction.
This was also a regular, and quite large, point on the agenda of the annual board meetings. Due to
the different energy systems on the one hand Denmark (effect-dimensioned thermal power) and
Finland, Norway and Sweden (mainly energy-dimensioned hydro power), the estimation was
conducted differently. In Denmark, the prognosis was made by extrapolating from the maximum
load during the previous 10 years. In Finland, Norway and Sweden, the principle was to try to
estimate the future consumption in each sector of the society.95
The investigating was done by ELSAM and Kraftimport in Denmark, in Finland by Imatran Voima, in
Norway by The Norwegian Water Resources and Energy Directorate (NVE) and in Sweden by Centrala
Driftsledningen (CDL). CDL used the Ministry of Finance’s 5-year plans for the economic development
as a basis for their reports. The Norwegian NVE had in 1969 also made a similar move, based on
similar data, by initiating cooperation with the Norwegian Ministry of Finance.96 These latter
cooperations indicate, I believe, the importance of electricity in modern society and in these
countries.
These prognoses provided the foundation on which the construction plans were made. In Sweden
the general worry was that construction could not keep step with consumption, with shortages and
rationing as a result. But it was also the other way around, that the consumption could not keep up
with construction, with overcapacity and unnecessarily high capital costs as a result. Due to the longterm character of these infrastructure projects, the consumption must be encouraged “just about
right” in order for demand to have grown suitably to fit the supply of a new, high-capacity, cost95
96
Nordlöf (1969), p. 44.
Ibid., pp. 44-47.
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efficient, power station.97 Though there were certainly differences in these considerations among the
Nordic countries, I suspect the basic consideration of matching construction with consumption
without hampering economic growth was much the same.
The question of encouragement was discussed in Nordel at the board meeting in 1967.98 The
statutes’ formulation to “promote” consumption seems, in fact, to have been taken literally. In other
words, it was not just about foreseeing the future, also to shape it. The benefits of promoting
consumption of electricity was at this time, a rather widespread idea in the Swedish power industry.
More consumption would make profits for the power companies, which could then invest in more
efficient power plants, which in turn would result in orders to the Swedish manufacturing industry.
The more efficient plants would make even lower tariffs possible, which in turn would lower the
costs for the energy-intensive industry, which could invest in more efficient … In other words, a
positive spiral of economic growth.99 This view was expressed by the Swedish representative at the
meeting in 1967 when he noted the connection between consumption and tariffs and between
growing consumption and reduced marginal costs, that is economies of scale. This concerned both, as
we saw above, both plants and transmission lines. The conclusion in the Swedish power industry had
made, the Swedish representative noted, was that marketing campaigns and promoting
consumption was a good economic investment. A larger consumption, in other words, was both
conducive to the power companies and to the society at large. Tariffs, prices to end customers, were,
however, out of control. The Danish chairman had at the meeting proposed a discussion on the
principles and differences of tariffs in the Nordic countries. The board members, however, concluded
that these were “highly influenced by politics” and not much one could do about, and the chairman’s
proposal fell flat.
Marketing was thus a more promising road to higher profits. Consequently, some of the larger power
companies in Sweden had established market organisations “which had grown considerably during
latest years”. Vattenfall had set aside 2,5 million (in contemporary price level) for marketing
purposes for the year 1967/68. This was 0,3 per cent of the total budget. The increase in domestic
heating were said to be due to market campaigns organised jointly by the power companies,
manufacturers of electrical appliances and electricians. There had even been established a specific
domestic heating section in FERA, The Association for the Rational Use of Electricity, an association
created in 1927. The focus in the campaigns the coming year would be on lighting appliances. A
sunny day, the minutes reports, exposes people to about 100 000 lux and clouded day to about
10 000. Yet people were satisfied with only 100 lux in homes and in offices. Modern lighting,
97
Högselius & Kaijser (2007), pp. 43-44.
Minutes of meeting from Nordel board meeting August 25, 1967. Vattenfall Staben F1b vol 83.
99
Högselius & Kaijser (2007), pp. 40-41.
98
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providing more light and consuming more energy, would therefore automatically, the argument
went, improve the competitiveness of domestic heating.
But not all subscribed to the view on the importance of marketing and that consumption should be
promoted. Finland referred the question of marketing to the power station associations. Norway had
no marketing whatsoever due to the reason for keeping down consumption, perhaps, as we saw
above, to ensure that industry had enough available power.
Strategic investigations
Besides the prognoses about the future consumption, Nordel was also deeply engaged in producing
strategic information and knowledge about coordinated construction and other technical issues
related to the operation of a future, more integrated, Nordic electricity system. Again, in Ostrom’s
words, these were aims at reducing uncertainty and lack of knowledge regarding the common-pool
resource, the expected benefits of tighter cooperation. Nordel’s Planning Committee was created in
1966, three years after the organisation’s inception.100 Its creating was, however, not self-evident. It
was proposed already in 1963, during the first meeting after the constituting meeting, but gained no
unanimous support at this point.101 The original aim was to coordinate plans of construction,
investigate the need for improvements or new transmission cross-border transmission lines. Most
members saw no immediate need, since coordinated construction, they argued, was mainly a
bilateral affair. Another reason for the reluctance might have been the current amount of work. As
we saw above, a number of committees had been created during the power pooling conference
organised by Centrala driftsledningen (CDL), in 1961. Apart from preoccupying staff in the individual
companies, the work of these committees was also reported to and discussed during the Nordel
board meetings. This was, as far as I can judge, a fairly large amount of work, given that it had to be
carried out at the same time as other, regular duties at the companies.
In other words, reducing uncertainty and lack of knowledge carried a certain amount of
transformation costs, costs for investigations and committee meetings. However, many of these
investigations and meetings were related to plans for physically and technically altering and changing
the electricity system. Ostrom mainly refers to transformation costs refer to change of rules, that is
institutional change. However, we could call also the costs related to the investigations information
costs, costs related to making strategic decisions. Costs for committee is work is a regular feature in
100
101
Minutes of meeting from Nordel board meeting August 26, 1966. Vattenfall Staben F1b vol 82.
Minutes of meeting from Nordel board meeting October 16, 1963. Vattenfall Staben F1b vol 82.
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power pools, simply due to the necessity of making collective decisions. The costs, time and
expenses, carries a potential disincentive for forming a pool.102
Although the Planning Committee experienced a somewhat reluctant start, it soon gained firm
support and granted wide and strategic responsibilities, for example: to conduct a survey of the total
power balance (consumption vs. production) for the Nordic countries in the next 5-10 years,
coordinate construction planning for power production in general and specifically large power plants,
investigating the need for improvements regarding or completely new high-tension transmission
lines or other measures that could lead to lower costs, investigating the distribution of load in the
total Nordic system, investigating the need for exchange of power due to low water supply and high
loads, coordinating the development of computer programs for planning purposes, provide advice
regarding transmission problems and disturbances such as breakdown or failure of large power
plants as well as long-term reserve capacity. 103 The Planning Committee, then, was nothing less than
the “think tank” of Nordel.
Nordic cooperation was, however, already being carried out in the so called Nordic section of CIGRE’s
committee number 13, System planning, Operation and Stability. CIGRE (Conférence Internationale
des Grands Réseaux de Transport d’Énergie Électriques à Très Haute Tension) was as I mentioned
above concerned with the construction and technical issues of high voltage transmission networks.
Whether the “Nordic section” was in fact an official sub-committee of CIGRE’s committee number
13, is unclear. My guess is that it was an unofficial association of Nordic members of the CIGRE
committee who met regularly to discuss specific issues concerning the Nordic system.
Nevertheless, the Nordic CIGRE committee worked with strategic issues regarding system stability,
for example the effect on the transmission network from breakdown and subsequent reconnection
of large power stations.104 Well aware of the work of this committee, the Planning Committee
therefore argued it must avoid double work and set out to take care of and focus the strategic issues
related to construction and improvement aimed at a more integrated Nordic system.105 A looming
and important issue seems to have been, both for the Planning Committee and the Nordic CIGRE
committee, the introduction of nuclear power. This was seen from the point of view of a network
planner’s or network builder’s point of: just another large thermal power plant. The safety issue, so
ubiquitous today, though probably discussed within the companies, is completely absent in these
documents. Vattenfall conducted calculations in order to determine the appropriate effect of the
102
Cramer & Tschirhart (1983), p. 27.
Enclosure no. 3 to minutes of meeting for Nordel board meeting August 25, 1967; point 6 on the agenda.
Vattenfall Staben F1b vol 83. Minutes of meeting from Nordel Planning Committe meetings in June 7, 1967,
and October 26, 1967. Vattenfall Staben F1b vol 83.
104
Minutes of meeting from the Nordic CIGRE committe January 18-19, 1967. Vattenfall Staben F1b vol 83.
105
Minutes of meeting from Nordel Planning Committe June 7, 1967. Vattenfall Staben F1b vol 83.
103
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future Ringhals nuclear power plants, as well as the effect and necessary improvements on the
Swedish and parts of the Nordic network.106 This issue was also discussed in the Planning Committee
as well as in the Nordic CIGRE, though with regard to operation and stability.
A tool with growing importance when handling technical issues as stability, distribution of load and
reserve capacity was computer programs. This seems to have been the case both concerning day-today operations and the long-term system planning. According to the minutes from a meeting in the
Nordic section of the CIGRE committee an “extensive amount of work in the field of machine
computing has been started at most large Nordic power companies”.107 It was also a field in which
the companies cooperated to a large degree. Vattenfall which developed programs for controlling
the distribution of load and stability had been provided by data from the Danish company NESA, with
the result that development costs had been reduced considerably.
Another issue related to stability, and thereby indirectly to the power pooling, was information
necessary to evaluate the reliability of the total system and the national sub-systems. Statistics on
failures and disturbances was, according to an article in the 1968 annual report, essential when
dimensioning and designing a power system.108 This meant, in a power sharing, power exchanging
system, a common terminology, statistical categories and definitions. A Nordic committee set up in
1961 during the power pooling conference held by the Swedish Centrala Driftsledningen (CDL), The
Committee for Statistics on Outages proposed common definitions of failures, what exactly should be
meant by a failure, different types of faults, how they should be classified and how their severity
should be graded.109 The committee was thus created before the creation of Nordel, but its work was
reported to Nordel and discussed on the Nordel board meetings. These statistics, it was pointed out
in the annual report, avoided misunderstandings and made it possible to compare the national subsystems. In other words, to assess whether further power pooling was possible within existing the
capacity of the network or if improvements had to be made.
The relevance of the common terminology and definitions had to with the fact that Nordel, in its
dimensioning rules for the total, Nordic power-exchanging system, recommended that the reliability
of the system was expressed in so called fixed network criteria, by which was meant a number of
well-defined types of faults that the system must be able to handle without propagating the faults
106
Stability analysis for different sizes of generating capacity in Ringhals. (”Stabilitetsanalyser för olika
aggregatstorlekar i Ringhals. Vattenfall 2.2.67.”) Vattenfall Staben F1b vol 83.
107
Enclosure to minutes of meeting from Nordel meeting October 16, 1963. Point 7 on the agenda. Vattenfall
Staben F1b vol 82.
108
Gustafsson & Nordlöf (1968), p. 36.
109
Report October 1, 1964 from The Committee for Statistics on Outages. Enclosure to point 8 on the agenda
to minutes of meeting from Nordel board meeting October 9, 1964. Vattenfall Staben F1b vol 82.
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and causing a total system break down. 110 In that way, the common statistics could provide an
overview of the status of the system and the sub-systems. This standardisation, the statistics, the
terminology and the dimensioning rules, aimed at a system with the same reliability in all its parts in
order to be able to “treat the individual national systems as a complete integrated power exchanging
system”, that is to exploit and reap the benefits of a fully integrated power exchanging system.111
Standardisation, to be sure, has historically been an important part of the development of large
technical systems.112
The gains from power pooling and coordinated construction
As I tried to explain in the section “Incentives driving cooperation in electricity systems” above, the
main reason for cooperation in electricity systems has to do with increased reliability and cost
savings. We had the combination of hydropower with thermal power, using excess hydropower to
replace thermal power during seasons of large water flows and thermal power during dry seasons.
We also had the hydro-hydro combination, using temporary or natural variations in annual water
flows as well as the enlargement of a thermal power system, using the largest, most cost efficient
plants to supply the baseload while smaller but quickly started plants could be used as a supplement
during periods of peak load, etcetera.
In general, what were the estimated, expected, benefits in Nordel from power pooling and
coordinated construction? A Nordel report published in 1969 estimates the overall gain from power
pooling and coordinated construction to about 90 million SEK per year from 1970 to 1975/76
(contemporary currency level),113 which corresponds to approximately 400-600 million SEK per year
in 2006 year’s prices. 114 These figures had been obtained by comparing two hypothetical situations:
one where the Danish, Finnish and Swedish systems operated with power pooling under the
assumption of no limits in transmission capacity, and one in which the national sub-system were
viewed as separate entities, with no power pooling. The estimated gains were due to the peak loads
in the participating sub-systems did not coincide, providing an even baseload and enabling
economies of scale, and the fact that is the peak load in the total pooled system was lower than the
sum of the peak loads in the subsystems, meaning less required installed effect, and by using the
temporarily advantageous combination hydropower and thermal power, mostly by letting excess
hydropower replace thermal power. The reduction in installed effect was estimated to approximately
110
Appendix ”Dimensioning rules for the power pooling Nordic network” published in (Nordel, 1972) s. 25.
Ibid.
112
Kaijser (1994), pp. 202-204.
113
Nordel (1969), pp. 368-369.
114
Sveriges Riksbank/Riksbanken - Priser. Available at: http://www.riksbank.se/templates/Page.aspx?id=26813
[Accessed May 22, 2011].
111
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1000 MW. 115 As comparison, Vattenfall calculated with three sizes of plants for the future nuclear
plants Ringhals (the same calculations referred to above concerning possible improvements in the
Nordic transmission network): 600, 750 and 900 MW.116 This was thus quite a considerable saving.
The gain from the participating sub-systems did not coincide (providing an even baseload and
enabling economies of scale) was estimated to about 400 MW per year.117
Though this might look impressive, the total estimated savings was rather low compared to the value
of the total electricity generation in the Nordic countries, about 1 per cent.118 But then again, it is
necessary to point out the advantage which lay in increased reliability and security of supply, which
allowed the partners to import instead of resorting to rationing.
In the section “Incentives driving cooperation in electricity systems” above, I also described a specific
type of joint venture when it came to investments in production and transmission facilities. The idea
was to take advantage of the larger plants’ economies of scale without risking overinvestment and
unnecessary high capital costs (that, as we saw above, was a concern among the Swedish planners)
by letting a partner company share the cost for construction, but also benefitting by letting it use the
plant’s excess capacity. This process was called staggering, or saksning/saxning in Norwegian or
Swedish.
In Nordel, which was a loosely-knit power pool, this appears for the most part to have been done
bilaterally by two companies. As in the principle, one company would construct while the other
helped finance by “subscribing” to the power for a limited period, such as a few years. It could also
be combined with a counter-trade of energy in the opposite direction, but not necessarily. In sum,
this planned procedure, one considered the output of the total system and avoided overinvesting
and excessive capital costs.
In a report published by the Nordic Council in 1972, but originally prepared for a power pooling
conference the same year, the Planning Committee specifically mentions what it considered to be
two examples of successful projects. 119 One was between the private Swedish company Sydkraft and
the Danish organisation Kraftimport. The agreement had been signed in 1970 and export of power
during the years 1975-1979 from Sydkraft’s future nuclear power plant in Barsebäck. The other
example had been signed in 1967 and concerned the Swedish State Power Board, Vattenfall, and the
115
Nordel (1969), p. 361, 368.
Stability analysis for different sizes of generating capacity in Ringhals. (”Stabilitetsanalyser för olika
aggregatstorlekar i Ringhals. Vattenfall 2.2.67.”) Vattenfall Staben F1b vol 83.
117
Nordel (1969), pp. 361, 368.
118
Ibid., p. 369.
119
Nordel (1972), pp. 14-15.
116
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state-owned Finnish company Imatran Voima, an agreement that concerned export via a new 400kV
transmission line to Finland during the years 1970-1976, with and option of extension to 1979.
But these types of joint ventures could of course also, in principle, be done not only by planning
investments and allocating costs over time. Factors such as suitability of location could also have
been considered, irrespective of national borders. This was, and probably is, a procedure that is used
occasionally in more closely-knit pools in the USA.120 This was a possibility the Planning Committee
discussed, hypothetically, in the report from 1969 referred to above. The hypothetical example was
large-scale investments in Norwegian hydropower. In the historical context section above I wrote
that Norway has a potential of 172 TWh of hydropower per year, Sweden about half that amount,
Finland four times less than Sweden.121 In 1969, the average annual production was slightly over 60
TWh,122 so there was a rather large amount of water resources still available to exploit and the
hypothetical example quite realistic, if just technical and economic aspects were considered. But
whatever the merits of this way forward, it was not a path the Planning Committee recommended.
The reason was the large movement in employment. On the one hand, a temporary and large in
increase in Norway, and a similar combined decrease in the other Nordic countries, though
somewhat later in the report when discussing the period 1975-1980, the committee seems to think
that the idea is worth considering.123
Let us say, for the sake of the argument, that the Planning Committee recommended large-scale
investments in Norwegian hydropower, what would the Norwegians think? (for the moment
disregarding the fact that Norwegians were, from time to time, members of the committee) During
the board meeting in 1964, a proposal under discussion in the Nordic Council was submitted for an
opinion from Nordel. The proposal, in the minutes dating from May 1964, was a Swedish-Norwegian
joint venture whose main purpose apparently mainly was power export from Norway to Sweden. 124
In an enclosure to the minutes, the Norwegian Ministry of Industry answered the Nordic Council that
a major concern in the assessment of the proposal had been the question whether it was compatible
with the need to set aside sufficient exploitable and cheap hydro resources for domestic
consumption. This was especially important for regions that lagged in economic development, but
also in for the competiveness of the Norwegian industry in general. A “radical increase in the export
120
Cramer & Tschirhart (1983), p. 25.
Thue (1995), p. 17.
122
Nordel (1969), p. 15.
123
Ibid., pp. 341-342, 377.
124
Minutes of meeting from Nordel board meeting October 9, 1964. Vattenfall Staben F1b vol 82.
121
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of electrical power from Norway to Sweden, in such a way that the proposal aims at” could therefore
not gain the support of the Norwegian Ministry of Industry.125
In the list of consultation bodies were the board of The Norwegian Water Resources and Energy
Directorate (NVE), the Department of Industry at the Norwegian Ministry of Industry, the Department
of Planning and the Department of Commerce at the Ministry of Finance, Norway’s central bank, the
Federation of Norwegian Industries, plus a number of other associations related to the power
industry, the electro technical and the manufacturing industry, who without exception rejected the
proposal.
I have not been able to locate the original proposal,126 but it seems to have been a widely shared
view, if we accept the Norwegian Ministry of Industry’s interpretation of the proposal, that
Norwegian hydropower should be reserved for Norwegian industry. The Ministry had, on the other
hand and in principle, nothing against an investigation of possibilities for closer cooperation within
electricity generation. It specifically mentioned Nordel and meant that this organisation was the right
forum for the proposal.
What was the Swedish view of the proposal? Vattenfall, which had provided an answer to the
Swedish Department of Communications, thought that considering the current prices on regular
power from Norway, it was at present out of the question to buy power from Norway. A Swedish
member of the board said that the private Swedish power companies were of the same view as
Vattenfall.
I am not in position to judge whether projects as this, initiated at the institutional level of the Nordic
Council, in general stood a lesser chance than the bilateral, that apparently were more frequent, to
gain approval. I also would like to remind the reader of the difficulties the local power companies in
Trondheim, Norway and in Stockholm had in reaching an agreement. These proposals both concern
Norway, and the country no doubt appears to have had, perhaps still has, a highly divided view on
who is entitled to the countries rich resources and how they should be used. Nevertheless, the
Planning Committee’s assumption and starting point in this matter was not to question the national
programs, but instead see what “modifications” could be achieved that could be favourable to the
overall Nordic system.127 Concerning the location of the production, they concluded that “nothing
has yet emerged that indicates that it should be advantageous to systematically locate baseload
125
Copy of letter September 16, 1964, from the Norwegian Ministry of Industry to the Nordic Council.
Enclosure to minutes of meeting from Nordel board meeting October 9, 1964. Translation by author.
126
It is not on the list of proposals in the Nordic Council’s series Nordiska Råd for the year 1964, which it ought
to have been if the proposal was submitted that year.
127
Nordel (1969), p. 342.
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production outside the own [national] system”.128 This is a very similar approach as one of the
strategies pursued by the UCPTE some eighteen years earlier, supporting the national programs of
electricity generation, which would resulting in a limited need for power exchanges.
The Planning committee’s recommendations, approved by the Nordel board about 1969-72, was, in
my view, pointing in a slightly radical direction, but were very carefully worded.129 The Nordic
countries should work towards a common reserve effect of 15 per cent. The Norwegian companies
should, instead of securing the power supply during years with low water flows by constructing its
own thermal power plants, ”consider” importing power from the other Nordic countries. The other
countries should, for their part, should ”consider” investing in hydropower in Norway to satisfy their
demand of top loads. Specific recommendations regarding transmission capacity was to start
investigations and negations about one more 400kV line between Norway and Sweden, increase the
voltage on an existing line between mid-Norway and mid-Sweden and finally a new 400kV line
between Denmark and Sweden.
Conclusions
Summary of Nordel’s proposals on power exchange and construction coordination
Regarding the rules for power exchange, Nordel’s recommendations more or less reaffirmed bilateral
rules established by the companies. However, it apparently did not approve of Norway’s principle of
“the determining year”, instead promoting the calculated power or water value and marginal costs as
a basis for the power exchanges. It did introduce a price ceiling to retain the cohesion within the pool
and prevent disintegrating forces.
When it came to the recommendations regarding construction planning, the assumption was the
national programs and national priorities. Recommendations had to work within that frame.
Cautiously urging import instead of overinvestments, or investment in a neighbouring country. This
was, as in UCPTE, a recipe for a loosely-knit pool, comprising self-sufficient entities that from time to
time could support each other.
Nordel’s institutional position, authority and importance
How should we view Nordel? A paper tiger or a strategic think tank? From Nordel’s statutes and its
recommendations, especially regarding planned construction, it is apparent that Nordel was
constrained within the national framework of power supply. When it comes to the power exchanges,
there was probably not much to change since the rules were long established seemed to work. I
128
129
Nordel (1972), p. 14.
Nordel (1972), Nordel (1969).
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nevertheless believe that Nordel’s nominal weakness also was its strength. It was created as forum
for exchange information, to discuss common problems and, like UCPTE, foster a ”spirit of mutual
trust”. It could appoint committees to investigate strategic issues, think wide and far and publish the
results. This would hardly have been possible if Nordel’s recommendations were binding. In short, it
was a knowledge producing organisation, something I believe made a large and lasting impact,
although such influence is notoriously difficult to measure. In other words, I believe this knowledge
production lowered transaction costs and transformation costs, the latter not as institutional change
(change of rules) but as physical modification of the system.
The Nordic countries and Nordic power companies thus opted for a flexible, loosely-knit power pool,
for mutual assistance and to help solve common problems. A rather peculiar thing is that Nordel was
a product of technical change, perhaps necessary to handle the information exchange concerning
new transmission lines and the increased power exchanges,130 (which, however, is the same as to
accept that Nordel actually had influence) and at the same time created to initiate technical change.
In other words, technology initiates institutional change and institutional change initiates
technological change. That technological development initiates institutional change has, as Arne
Kaijser notes, in fact, been quite common in the electricity systems,131 as well as in other technical
systems, for example the medium-wave band used for broadcasting in Europe in the 1920s.132
However, it also clear that a corporate form – municipality, cooperative, private or state-owned –
seems not to have been a determining factor to the possibility to take part in increased power
pooling and joint ventures in construction. The power pools in the US had public as well as private
utilities as members, and the ownership in the Nordic countries, as we have seen, was also quite
diverse. This points to the great importance of technical and economic incentives as opposed to
organisational form.
I would also like to, if a bit speculative perhaps, suggest another reason than as an administrative
body. My guess is that the creation of Nordel was partly due to the power companies’ wish to keep
politicians out the field of electricity system. These should be handled rationally, and not by political
manoeuvres. An indication of this is a discussion during the board meetings 1968-1969. Nordel had
been asked to provide an opinion on NORDEK, the joint Nordic cooperation in economic affairs
referred to above. The members are generally positive to the idea, but at the same time express
concern over a perceived risk: What would be Nordel’s task in the greater scheme of things? Will we
become micro-managed by politicians? The latter development must be resisted.133 What I mean to
130
Nordel, ed. Sven O. Lalander (1988), pp. 11-16.
Kaijser (1995), pp. 51-52.
132
Wormbs (2011).
133
Minutes of meeting from Nordel board meeting, 1969 or 1968. Vattenfall, Staben.
131
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say it that a workable, bilateral cooperation already existed before the creation of Nordel, and that
Nordel, to some extent, became the power companies’ alibi for the greater, Nordic cooperation.
I believe Nordel was, both in spirit and body (the links to CIGRE were at least clear), very much a part
of an international community of professionals and engineers that saw a more liberal and
international system as economically and technically more rational than a politically managed
electricity system. There were certainly exceptions on the personal level and there may even have
been a certain “Nordic” flavour of professionalism that was linked to the Nordic balance referred to
in connection with UCPTE, a more careful and cautious variant of cooperation within the electricity
system.
Can the Nordic electricity system be regarded as a common-pool resource?
In the theoretical section above I argued that the Nordic electricity system could be viewed as
common-pool resource and that Ostrom’s theoretical framework thereby could be applied. It had a
stock, flow, renewability, and as we saw later there was rules on provision to join power pools, etc. A
conclusion from above is, moreover, that the mere interconnection, pooling of power, planned
construction, created resources and saved costs, in essence, created a common pool of resources. 134
On the other hand, ownership of did not exchange hands, and whatever its importance, the power
exchanges and construction planning, compared to the total production was quite marginal, about 2
to 6 per cent of totally produced TWhs in the years 1963-1970 for the exchanges and about 1 per
cent of the value of the total production for estimated savings due to coordinated construction from
about 1969 up to 1975/76. This, then, was marginal features in a loosely-knit power pool consisting
of largely self-sufficient and independent sub-systems, and the common-pool resource character
thereby also quite marginal. It should be added, however, that the great advantage lay in greater
reliability and security of supply, which allowed the partners to import instead of resorting to
rationing. The shortage prices were, as we saw above, considerably higher than ordinary prices and
should, in some way, reflect to cost to society for such a situation.
But perhaps the most clear factor pointing away from the applicability of Ostrom’s framework on this
topic is the fact that I have put Ostrom’s problem on its head: this was about cooperation to exploit
potential gains and advantages from a position of relative independence, not, as in most cases
Ostrom studies, from a situation of dependence on and cooperation about, at times, scarce
resources. This means that monitoring of conformance to rules, conflict resolution, etc., tend to
recede in the background in my study. Why, then, not just talk about economies of scale and
134
I have to admit, however, that this creation of common resources also is a minor part of my initial
assumptions regarding the boundaries of the CPR. My application of Ostrom's framework is, in other words,
not flawless.
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economies of scope? In my view, because Ostrom’s framework focuses on cooperation and relates
those to the internal variables (discount rate, expected benefits and costs) and the situational
variables (the condition of the CPR, the number of appropriators, providers, etc.) to the cooperation,
as well as to the different levels of activity and authority (operational, collective and constitutional).
This relates constraints to opportunities, and makes the incentives and processes governing
cooperation in situations where humans handle common resources more clear. The framework can,
as Ostrom puts it, not only be used to develop theory and models of collective behaviour, it can also
be used to “organise further empirical research to generate findings about the relative importance of
particular variables”,135 as I understand this, try the framework on new and, in a sense,
unconventional issues to analyse what is important and what is less important, much as I have tried
to do in this thesis.
Suggestions for further research
This brings me to the last section of this thesis, which contains a few tentative suggestions for further
applications of Ostrom’s framework. In general, I would say that it could be used in any situation
characterised by cooperation or competition, or both, on scarce and common resources. In
globalised world, this could be about the fishing industry, prowling the oceans, the pharmaceutical
industry likewise scavenging for plants and species as a basis for future drugs, or the “land-grabbing”
activities of countries like China, Saudi Arabia, South Korea, searching for farmland outside its own
borders.136 In other words, in situations where our oceans, rain forests and farmland respectively are
considered as a common human resources. This has, I admit, a touch of conspiracy to it. The subjects
are probably also quite well covered, but I am not sure in Ostrom’s framework.
The above suggestions are perhaps not economic history. On the other hand, human economic
existence has, for the most part, been characterised by scarcity. So there should be plenty of
opportunity for applying Ostrom’s framework in this context.
As a last suggestion, I would propose a theoretical comparison between Elinor Ostrom’s, Thomas P.
Huhges’ and Alfred D. Chandler’s frameworks and concepts. This comparison would not aim at
producing new knowledge, but to combine and perhaps synthesise frameworks and tools to study,
for example, the above suggested topics, where technology, incentives and authority all play a large
part.
135
Ostrom (1990), p. 192.
See for example Macfarquhar, N., 2010. African Farmers Losing Land to Investors. The New York Times.
Available at: http://www.nytimes.com/2010/12/22/world/africa/22mali.html [Accessed May 23, 2011] or
Buying farmland abroad - Outsourcing's third wave. The Economist. Available at:
http://www.economist.com/node/13692889?story_id=E1_TPGJNRRJ [Accessed May 28, 2009].
136
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http://www.nytimes.com/2010/12/22/world/africa/22mali.html [Accessed May 23, 2011].
Buying farmland abroad - Outsourcing's third wave. The Economist. Available at:
http://www.economist.com/node/13692889?story_id=E1_TPGJNRRJ [Accessed May 28, 2009].
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