So far this year there has been a limited development of new production capacity in Norway, with the only new production coming from 179 GWh of hydropower, 56 GWh of wind power and 112 GWh of solar photovoltaic (SPV) production in total according to the Norwegian Energy Agency’s (NVE) quarterly report. We do not expect more than 2 TWh to be developed in total for Norway, while Sweden, Finland and Denmark are expected to develop more than 10 TWh of new power production the next 3 – 4 years. The largest hydropower producer of all price areas in the Nordics, NO2, (annual hydropower production of 46 TWh), has seen a miniscule increase of 41 GWh of hydropower year-to-date. Meanwhile, solar installed capacity has increased by 91 MW, mainly from rooftop installations, and produced approximately 90 GWh. So far this year, installed SPV capacity has almost doubled.
What we have experienced so far this year for new NO2 production is likely to continue for the next 3-4 years, as there is only 350 GWh of hydropower plants under construction. A similar SPV capacity as seen so far this year is likely to continue, with capacity increasing by 150% each year on average the next years.
So, what about wind power development? As of today, there are no windmills under construction in Norway in any of the five price areas. Furthermore, NO2 has not seen an increase in installed wind capacity since 2021 and will likely not see an increase before 2030. One of the reasons behind this is public opposition to windmills in the NO2 region, resulting in strong political pressure on the last local election 4 years ago. Since the last local election, changes have been made to the taxation of wind parks, increasing income to the municipalities and local politicians also have a stronger influence regarding the development and design of the parks. With a new local election coming up next month, these changes may be enough to convince politicians to open for new development of onshore wind power. If not the only new wind power in NO2 will come from offshore wind projects such as from Sørlige Nordsjø and Utsira Nord which are expected not to be developed before 2030.
On the consumption side, there are plenty of new industry plans under development in the next years in NO2. With a production growth rate mainly coming from strong growth in SPV capacity, the new production is expected to drown in the large increase in consumption from electrification of the petroleum and the process manufacturing sector. In addition, two battery factories are expected to be in operation well before 2030 alongside large datacenters already under development. This results in approximately 15 TWh of increased consumption in NO2 alone before 2030, including the transportation sector. On the production side, we expect just 2 TWh. Currently, NO2 has a large oversupply of 15 TWh, but as we move towards 2030, this will be almost used up by the increased consumption. When looking at the sum of price areas closely connected in Southern Norway (NO1+NO2+NO5), the power balance is expected to be negative by 2030.
So, what will this mean for the prices in the area?
In a normal year weather-wise (e.g. normal hydrology, wind and consumption), we would then expect net imports to NO2, meaning that we would be dependent on neighboring price areas and prices in NO2 would have to be higher than the average price in the neighboring areas. Most likely we would see maximum imports from Sweden, have net imports from Germany and Denmark (e.g. mostly hours of imports with some hours of exports) and exports to UK. This means the average price would be in the range between German and UK electricity prices.
These conclusions apply for a normal hydrological year, but if we were to see a dry year like 2018, with a deficit in the hydrological balance of 20 TWh during the first 5-8 months, we would have to import 20 TWh from abroad. This would mean that prices in NO2 would need to be higher than all the price areas surrounding the price area. There would also be a risk of not having enough electricity for single hours and extreme prices will accrue like we observed recently after the Russian invasion of Ukraine. Single hours of days with very scarce production could be well above 1000 €/MWh.
Main conclusions:
- Norway will build limited new supply towards 2030 as of today. NO2 will see its main contribution in increased production from roof-top solar.
- Consumption in the South of Norway will sharply increase compared to production, pushing both NO2 and all of Southern Norway (NO1+NO2+NO5) to a power deficit by 2030.
- In a normal year weather-wise, NO2 will be dependent on neighboring price areas to cover demand and become a net importer on average.
- For extreme years (e.g. low reservoir filling levels), NO2 would be dependent on close to full imports from abroad and would risk seeing extreme prices for single hours of the day.
