Norway’s coalition collapsed last month with its finance minister blaming European Energy Policies. He said Norway must take back control and cited poor judgement by European countries that have become over reliant on it either being sunny or windy.
Driven by high demand in Europe, electricity prices have surged in Norway, which were being passed on to consumers. The government is now introducing a price cap.
Like almost all electricity markets the Norwegian price for all electricity users is set by the highest bidder, and when demand and prices are high in Europe this sets the wholesale price in Norway.
European policy makers have long held the dream that Norway will be the ‘battery’ for Europe, meaning that on dunkelflaute days (where there is no wind and no sun) the Norwegian hydro plants will kick in and keep Europe’s industry running.
Norway has 5 interconnectors, the three largest go to Denmark, Germany and the UK, a medium sized one goes to The Netherlands, and there is a small one to a hydroelectric plant in Russia. Almost 90% of Norway’s electricity is produced from Hydroelectric plants, with most of the rest coming from wind, with less than 2% being fossil fuel.
As governments and regulators design future markets, the interplay between wholesale and retail markets is an important consideration. Exposing consumers to real time wholesale prices may help to change behaviours and shift demand, but consumers’ affordability must be protected.
Ever greater integration of our electricity system is a good thing, but it needs careful planning if we are to avoid situations like this in Norway, and risk turning people away from the Energy Transition.
