Future Norwegian Power Surplus and the Effect of Interconnections to the Continent

Abstract

AbstractEU goals and policies have significant consequences for Norway affiliated through the EEA-agreement. Through the EU Climate Package, EU aims to reduce total GHG emissions in all EU member states 20% and increase the share of renewable energy to 20% by 2020. Norway already has a share of renewable energy of more than 60%, and to live up to EUs requirements Norway may have to increase its share to 75%. New power production is expected to cover most of the increase. Because of energy efficiency and a shift to renewable heat in buildings, general consumption in Norway is expected to decrease. This implies that Norway may see a huge power surplus in 2025 in this report estimated power surplus equals 15-19TWh. This surplus can be exported out of the country to Continental Europe through interconnectors. To analyze possible effects on Norwegian power prices, and thus the effects on the investment potential for renewable heat, a set of scenarios have been prepared looking at the price effects of different interconnection capacities to the Continent. The modeling tool Samlast is used for the simulations.The report assumes that fuel and CO2 prices are high as a result of increased economic growth and climatic focus. The Continent, with its large share of thermal power generation in its system, is to a large degree affected by this and because of its connection to the Continental markets, Norway is also likely to be affected too. Results indicate that Norwegian power prices will rise from current price level in all scenarios and prices increase with increased interconnection capacity. Price differences between Norway and the Continent are significant in all scenarios, and decrease with increased interconnection capacity. With low interconnection capacity, water is spilled in Norway and power prices can drop to zero during years of high inflow. With high interconnection capacity is it unlikely that prices will come as low as current price level. Some of the results obtained in the simulations seem a bit unreasonable and it was therefore attempted to examine whether there was something wrong with the simulations. The examination led to nothing, and the results may even be correct. If so, Norwegian power prices are to a large extent affected by fuel prices and the price on CO2, also in case of relatively low interconnection capacity to the Continent.Price on renewable heat is fixed by law to be lower than the power price and the profitability of investments in renewable heat is determined by income versus total costs. The profitability of such investments is not discussed in this report.