Electricity prices, Kjell Erik Eilertsen | The lies about the power cables
The comments expresses the opinions of the writer.
They have primarily carried electricity out of Norway and caused a structural shift in the price of electricity.
Those who profit from this are power producers with Statkraft at the forefront, the state through taxes and Statnettet through the price difference through the cables (bottleneck revenues), although only half of the latter, since half of the bottleneck revenue goes to the cable owners at the other end.
Those who pay the bill for this are mainly Norwegian companies and households.
The high electricity prices have been explained away
Even with only partial operation last year and despite some technical challenges, electricity was still exported through these to cables equivalent to annual consumption of more than 300,000 households in Norway – five billion kilowatt-hours. In 2022, this number will increase.
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The high electricity prices in southern Norway have been explained away by politicians, Statnett, NVE and their media advisers. We have heard about a little wind, the gas price, the coal price, the CO2 price and Russians. Without the cables to Germany and the United Kingdom, on the other hand, the exposure to these factors would have been considerably less, since these cables alone have increased Norway’s exchange capacity by 45 per cent. This capacity search has moved the point of pricing the country, to a place between Danish and German / British levels, respectively.
This is by comparing the price development in southern and northern Norway, which has limited exchange capacity in between, with net exports through cables.
While the price of electricity has been about the same across the country for a long time, the discrepancy between southern and northern Norway occurred at the same time as the first export to Germany in December 2020. This increased beyond ours and was further strengthened by the effect of cable to the UK from October.
The arguments with security of supply are a caricature
The pricing of electricity between two markets with different prices depends on the transmission capacity. Between Norway and Finland in Pasvik, the import / export capacity is 80MW / 120MW. It is not sufficient to affect the price in northern Norway, as the price in Finland is about four times as high.
The two northern power regions in Sweden and Norway have roughly the same price level. The power supply is sufficient on both sides of the national border and the capacity of these regions works according to the purpose – security of supply and exchange.
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This is not the case in the south, where there is a power crisis, to quote Prime Minister Støre’s New Year’s speech. And this is due to the two new cables to Germany and the United Kingdom, each of which has a capacity of 1400MW, ie a total of 23 times the capacity from Norway to Finland.
I add that they connect Norway with countries that have reduced their power production. During the last three years before the cables were opened, Germany and the United Kingdom have reduced their power production by 12 and eight percent, respectively. The annual loss of 106TWh corresponds to approximately one third of Norwegian power production. So it was no surprise that the power went one way as long as there was sufficient reservoir filling in Norway.
Electricity prices as a raw material where the price depends on fire factors: supply, demand, magazine filling and transmission capacity. The cables have increased capacity, which has increased exports and drained Norwegian power magazines. The scope has obviously shifted the point of pricing the country.
Arguing for these two cables with security of supply therefore becomes a caricature.
Systematic weakening of security of supply
But the foundation for the power crisis in southern Norway was laid long before the opening of cable to Germany and Britain. Under the influence of Statkraft, Statnett, NVE, various lobbyists, including Miljøstiftelsen Zero and the magazine Energi og Klima, the politicians have made decisions that have led to a systematic weakening of security of supply for Norway.
This has taken place with idealistic notions that Norway should become “Europe’s battery”, and with slogans such as “a European charity” and “the future is electric” for a former NVE chief Per Sanderud and former Statnett chief Auke Lont. There is reason to ask what these gentlemen and politicians mean by security of supply. Security of supply for whom?
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In 2008, the cable opened to the Netherlands with a capacity of 700MW. 87 percent of the power through the cable has gone from Norway to the Netherlands. In 2014, a similar cable will be opened to Denmark as expanded capacity to 1700MW. After that, 76 percent of the exchange with Denmark’s host exports. Prior to this expansion, exports to Denmark accounted for 63 per cent of the exchange. And this has come on top of the fact that 64 percent of the exchange with Sweden has been exported for more than 30 years.
You can follow how power exports out of Norway have increased, cable by cable. Well, with cable to Germany and the UK, exports have apparently passed a critical point for pricing electricity in southern Norway. Ergo, security of supply has weakened and the price of electricity has become structurally higher even though a large number of politicians have claimed that this would not happen.
Figure shows net exports to Denmark, the Netherlands, Germany and the United Kingdom since the cable to the Netherlands was opened in 2008.
Notice how net imports from Denmark roughly disappeared after 2014. Since then, Denmark has reduced its annual power production by 13 percent.
Increasing exports
The last 12 months per. November, the gross consumption of electric power in Norway was 138.7 TWh. The power production of 157.3 TWh gave a power surplus of 18.6 TWh, which was exported.
Net exports accounted for 12 per cent of power production, which means 88 per cent of the revenues for Norwegian power producers, led by Statkraft, have come from Norwegian consumers. And besides during the period, at European prices. This has led to a massive transfer from households and companies to Statkraft, municipal power plants and the state in the form of taxes.
Net exports accounted for 11.8 percent of production over the twelve-month period. This increased to 13.2 percent in the period September-November and further to 13.9 percent in November. It can be read from the table in the monthly net exports have increased both absolute terms and some percent of Norwegian production during the harvest, a period to be heated in Norway.
With constant reports of lower magazine filling, it goes without saying that the price had to go up. Does this qualify as security of supply?
How do we end up with her?
Some of the explanation can be read in Statnett’s report from 2013, «Cables to Germany and the United Kingdom – analysis of socio-economic benefits of spot trading». Statnett owns the cables. Statnett’s revenues consist of transfers to the state budget, grid rent and bottleneck revenues through the cables, regardless of which way the power goes.
The state network focuses on consumers wanting to profit from cable when there is a power shortage in the country. The last time there was a power deficit in Norway, in 2010, it accounted for 6.1 percent of consumption, and was handled without the latest cable to Denmark, cable to Germany and the UK, and at significantly lower electricity prices than we have today. In addition, the power deficit was about the same as that used to electrify the oil and gas business. Adjusted for electrification, the power deficit in 2010, which is described as a «dry year», was 1.7 per cent of consumption.
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Statnettet writes in clear text that the cables will lead to higher prices. “The cables will lead to us getting a somewhat smaller price difference hour by hour between Norway and Germany / Great Britain.” And, «With the specific assumptions we have based on our basic estimate, our simulations of the average price in Norway increase». At this time, it was known that Germany would phase out nuclear power by 2023 and that the Skagerak 4 cable to Denmark would come into operation the following year.
Statskraft also writes that «If we have a lower Nordic profit than we assume, and greater transmission capacity to other systems, the price increase will be smaller». This is outright wrong, but politicians clearly thought it would be so.
This is perhaps most interesting when Statnett describes what can happen if cables are not realized. Statnettet then looks for, say, lower prices, but “that there will be increased industrial consumption” and that, “If this happens, we will get higher prices even without the cables, and thus the cables’ real impact on the price level will be reduced.”
Result of political decisions and strong interests
It can not be understood otherwise than that Statnett sees that lower electricity prices without the cables could lead to more business activity. In other words, a recognition that low electricity prices are a competitive advantage for Norwegian business and industry. But the business establishment you will then get, will still increase the demand for electricity, which in turn will increase the price. So then you can easily build the cables since the price effect of them will be camouflaged by increased business activity.
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With this logic, we can state that Statnett’s report is not a socio-economic analysis, but a business economic analysis for Statnett. It is therefore reasonable to ask Statnett’s board and management if they consider Statnett to be a business player in competition with other business establishments in Norway.
The conclusion is that the electricity crisis is solely the result of political decisions over a number of years with strong interests that have put pressure on. That’s where we are now.
The facts that appear in this commentary are taken from SSB and Nord Pool.