Regulated income of power utilities and research
Norway is struggling to fulfil its aim to bring its research investments up to the average in the OECD. This has been an objective for the last 20 years, but there is still have a long way to go. Norway now uses approximately 1.7 per cent of its GDP on research, whereas Sweden and Finland have managed between 3.5 and 4 per cent. If the Norwegian government is to raise research investments to 3 per cent of GDP, industry will have to make significant contributions.
The challenges related to climatic change will place more and more emphasis on new energy technologies. The Norwegian Commission on Low Emissions and the Stern Review on the Economics of Climate Change to the British government both indicate this. The Stern report further stresses that public research expenditure must be doubled and public subsidies to technological innovation must be increased two to five times more than at present if we are to achieve the necessary changes in energy production.
The Stern report also points out that the energy sector needs more R&D than other sectors in society, as this sector is not as focused on innovation as other parts of industry.
The liberalization of the energy market in England in 1990 resulted in power utilities cutting back on R&D investments by 85 per cent over the following decade. The UK authorities have been concerned that this will hinder innovation in the energy sector and deprive electricity networks of technological developments. In time, this will reduce the quality of delivery for one of society’s key products – electricity.
In order to improve this situation, the UK authorities introduced legislation in 2004 that made R&D an integral part of the regulated income of the utilities. The new arrangement made sure that any reduction in R&D expenditure would also decrease the income of the utilities. Two years after the introduction of this arrangement, investment in R&D has risen and now exceeds the level prior to liberalization in 1990. This is likely to benefit the quality of delivery in the long run.
The low level of research expenditure in Norwegian power utilities is causing concern. This is especially true if we wish to take active steps to confront the challenges related to energy and climatic change.
Perhaps the Norwegian authorities should learn from their UK counterparts and include R&D as an element in the regulated income. This may have a positive effect on both the quality of energy and the environment. In addition, such a contribution from industry would bring us closer to fulfilling the ambition of raising R&D investments to 3 per cent of GDP.