Norwegian Paradox: Electricity Prices Climb Gradually Despite Massive Surplus

At present, power generation in Scandinavia is booming amid a weak growth in demand. The Nordic power surplus is therefore expected to rise more than fivefold from 2016 to 2030, Norwegian Water Resources and Energy Directorate (NVE) stated in a recent report. By 2030, the power surplus is expected to correspond to about one fifth of Norwegian electricity production capacity in a normal year.

Nevertheless, electricity prices are expected to rise by a third during the same period, NVE Director Per Sanderud forecasted in an interview with the Norwegian daily Dagbladet.

One of the reasons behind the rising prices is the EU's climate policy, which mandates increasingly expensive greenhouse emission quotas and contributes to further hikes in electricity prices across the continent in a bid to counter pollution.

​According to Per Sanderud, the EU has two basic measures at its disposal, which include a further tightening of emission quotas and are particularly painful for major electricity suppliers, as well as more direct regulation and subsidized development programs facilitating the use of "green" energy, such as wind power. Sanderud surmised that both instruments will be employed to reach the goals of the Paris agreement.

Another factor that is expected to push Norwegian electricity prices further upwards is Oslo's plans to expand to the European market using power cables. In 2021, two major power cables linking Norway to Germany and England are slated for construction, thus enhancing Norway's export capacity. Despite being touted as a gateway for the clean Nordic energy, the isolated effect of the two cables is expected to lead to a further upswing in Norwegian prices.

Leif Sande, the chairman of the trade union Industrial Energy, is strongly opposed to linking Norway to other countries via these monster cables.

"These cables mean higher electricity prices both for private households and industry. The cable to England is particularly dangerous. Besides, it will also outcompete Norwegian gas," Leif Sande told Dagbladet.

However, electricity prices in Europe and thus in Norway are determined by more than just emission quotas.

"The prices of coal and gas also decide what type of power sets the price. For instance, high growth in China spurs the demand for coal, which yields high coal prices and spreads to the European power market," Per Sanderud explained. "The choice between coal and gas will in turn affect the price of emission quotas. More coal means higher emissions and higher emission quotas," Sanderud explained.

​Putting it bluntly: Norway's electricity prices are dependent on whether it's good or bad times for the mining industry in China, regardless of the fact that over 99 percent of electricity in mainland Norway is produced by green hydropower plants. By contrast, coal accounts for over 70 percent of China's energy demand.