Cheap in Germany, very expensive in Norway. This is how electricity prices were turned upside down.
Several times around New Year, there have been far lower electricity prices in Germany and England, and elsewhere on the continent than in southern Norway, which for several days has had Europe’s highest electricity prices.
On the night of 3 January, there were several hours of minus prices in Germany, the United Kingdom and the Netherlands – three countries to which Norway has foreign cables. While between 03 and 04 last night you had to pay 121 øre / kWh in Norway, you “paid” 1 and 24 øre for the electricity in Germany and the UK, respectively:
The lower energy prices in Europe have several explanations. According to the energy website Montel is one of the reasons a lot of wind and thus high wind power production. In addition, energy demand has declined slightly due to milder weather.
But first and foremost, gas prices have fallen sharply – they are now at their lowest level since the turn of October / November.
– Have not thought about the consequences
– This market has not been set up to handle situations like this. Very few consequences have been considered when changing the market through foreign cables and so on. They have only looked at the possibility that the state and municipality could make money – it is not the private business community that makes money on this.
It says investor Peter C. Warren, who in a recent podcast refers to the European power market as “a colossal failure of common sense”, or “a violent loss of common sense”.
Warren believes that the reasons for the record high prices we have had were not at all unpredictable, but on the contrary probable:
– Now we have situations where the market is in great imbalance. As these power plants are set up for profit, you get a situation where they sell heavily. Then gas prices suddenly plummet, and then you do not want to sell more, but pinch again and say that you have to do it to secure the power supply. But before that, they have run out a lot of exports ..
Warren is not very impressed with the power subsidy, which he believes reduces the bill by 20-25 percent:
– Norway is in a special position because we make so much money from this – these are national resources owned by the citizens – and the government is the manager of the people’s funds. They could with a stroke of a pen make sure to do something more with this – they could, for example, say that “you should get the same price as last year” – one could well try to think a little more about such a situation could arise.
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– Secures against even higher prices
Usually, electricity is also significantly cheaper in Norway when we import cheap wind power from the continent. This is how Statkraft explains why it is not happening right now:
– For a short period, we have had higher prices in southern Norway than in the adjacent areas. We have much higher prices in the UK and on the continent for the rest of the winter, but lately it has been abnormally hot and a lot of wind on the continent – then we get a surplus of cheaper power. At the same time, there is a low degree of filling in our reservoirs, so we use the opportunity to save some of the water, says Arild Tanem, head of energy management at Statkraft.
When exports are reduced, it leads to higher prices in the short term, but in the long term the risk of more extreme prices is reduced, because that way we get more to go on later this winter, Tanem claims:
– If we had increased production now, prices in southern Norway would probably also have fallen more. But then we would not have taken the opportunity to buy cheaper imported power, which reduces the risk of extreme prices later.
– But why have we then exported too full jugs even though the degree of filling in the reservoirs has been historically low?
– We are part of a European power market. Now it is less strained in Europe, but in the period before this there was a shortage of gas, little wind and cold.
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In such a situation, the power flows from areas with a less strained to areas with a more strained power balance:
– As a hydropower producer, we must choose when we portion out our water. Then we benefit from producing the most when the need is greatest – if we have access to cheaper power, it is natural to produce less and store more water for later. Throughout the season, this benefits customers. If we send a lot of power south when there is a surplus in the market in the first place, we will have less left over when it gets tighter – and then it will easily be even higher prices.
– Swedish brake has a limited effect
While Norwegian exports have lasted and gone while prices have reached unprecedented heights, the Swedes have squeezed exports to Norway again.
– It is argued that we follow the European market, but then why can Sweden stop exports when it suits them while we do not?
– On the Swedish side, there has been concern about the stability of the network. Svenska Kraftnät (Sweden’s answer to Statnett, editor’s note) has therefore placed restrictions on the transmission capacity from Sweden to Norway, says Arild Tanem in Statkraft.
– But Swedish export ban pushes up Norwegian prices?
– I do not want to say that it pushes up. But the less restriction there is in the flow, the less difference there is in the prices between the different areas.
Peter Warren thinks the Swedish export ban on Norway may well have consequences:
– Water reservoirs lower than last winter, due to dry weather in southern Norway. It has been known that inventories have been low, but have sold as much as possible. Sweden runs a game, but then we should also consider how much we should export to Sweden when they want to import from us.
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– Putin can trigger new crises and price jumps
The main reason for the historically high electricity prices has been extreme gas prices. Russia accounts for 35 percent of gas exports to Europe and has ended up in a conflict with the EU and Germany over a new large gas pipeline, Northstream II, which Germany has put a lot of pressure on not to approve. Russia’s conflict with Ukraine exacerbates the situation.
– If one parameter stands out, it is the gas price. It more than doubled over the last year until just before Christmas. It fell approx. 60 percent after that, but is still at a historically high level, and is the main reason for the high electricity price level. We have seen that specific dates for Putin’s proposals affect the market price. The market reacts very nervously to the geopolitical situation, says Tanem.
In addition, Germany is in the process of closing down its nuclear power plants.
– Combined with the fact that they shut down coal power, the consequence is that pricing becomes more and more dependent on gas prices. More wind and solar power will be developed, but gas will be needed to compensate for the loss of stable energy production. Here, flexible hydropower will also be able to help with the situation. We will have more fluctuations in price, but as enormous fluctuations in gas prices as we have seen now, we do not think will come so often in the future, says Arild Tanem in Statkraft.
– An extremely vulnerable situation
The consequences of foreign cables in a highly gas-dependent market should not have been so difficult to predict, says Petter Warren:
– The decision makers chose this solution with cables without imagining that it could be significantly worse than it was. When Russia annexed the Crimean peninsula, some bells should ring. When one knows that such a large proportion of European gas comes from a “natural enemy”, it is natural to think that this “enemy” will choose to use gas as a means of power.
Before gas prices skyrocketed, it was Algeria that tricked exports again:
– Europe has found itself in an extremely vulnerable situation. One could not know that Algeria held back on gas, but neither did it rule it out. I would have liked to have seen the assessments that the intelligence services have provided to the decision-making authorities. I’m sure this is not an intelligence failure.
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– No way out of nuclear power
Warren points out that since coal power and nuclear power are greatly reduced, especially in Germany, the dependence on gas from the “enemy” becomes even greater than before.
– One of the factors that has instead weighed heavily is the green shift – unpopular to do something that goes against this. Then you have thought that it is best not to move that boat, says Warren.
– How do you explain what you say in the podcast about a “violent loss of reason” – what does it mean?
– You have let yourself be painted into a corner. Europe could solve this by entering into long-term contracts for gas deliveries, but has instead bought in the spot market. That solution makes Europe very vulnerable to sudden policy changes from Russia. This crisis has cost Russia at least $ 40 billion. Russia supplies about 35 percent of Europe’s gas needs, so it has become very dependent on someone it is in conflict with – impossible to imagine with a large gas need that Putin exploits this.
– Now the EU has just approved nuclear power as sustainable energy, under certain conditions. Do we need nuclear power to get through the green shift?
– In terms of security policy, you have no other choice, not least for a while to come.
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