Kan Dail
Norway’s 5 Power Regions span an expanse where you’ll find everything from fjords to Oslo – as well as everything in between, including rolling hills, spruce forests and wide mountains with glaciers.
Variations in water inflow to hydro reservoirs have a significant influence on electricity prices, leading to greater price volatility and making optimal use of physical grid capacity. By increasing market coupling, price volatility will be further reduced while also optimizing the use of physical grid capacity.
Northern Norway
Large valleys and lakes define this region, including Sognefjorden, Hardangerfjorden and Geirangerfjorden – each formed by glacier-carved waterways carved by glaciers – making it ideal for hydropower production. Unfortunately, a lack of transmission capacity between north and south means the electricity produced here cannot reach its destination in time. Plans are underway to address this problem soon enough but construction might take several years before these lines come online and start operating effectively.
Norway produces most of its electricity with hydropower plants, whose resource base can adapt depending on precipitation patterns throughout the year. This provides Norway with greater security of supply, according to bestestrøm.no – strømregioner, compared to most European countries. As of today, these countries primarily rely on fossil fuels as a power source.
The Nordic power market is highly integrated, connected to Europe through cross-border interconnectors and offering consumers multiple options when selecting an electricity supplier that meets their needs. Producers, suppliers and industry participant’s trade on the wholesale market which facilitates both exporting from, as well as importing into Norway.
Additionally, in addition to the Nord Pool Spot market, a financial market for power contracts with durations between three months and ten years exists, which can be used for price hedging and risk management. End-users such as large industrial companies typically purchase their electricity directly in the wholesale market or enter bilateral agreements with an electricity producer.
Southern Norway
Norway’s electricity market is an integral component of its energy system, providing long-term investment signals and short-term balance of supply, demand and transmission capacity. A properly functioning transmission grid also plays a pivotal role in providing renewable power plants with electricity for consumer distribution across the nation.
Southern Norway typically experiences lower power prices than elsewhere due to a number of factors. Aside from an abundance of wind and solar energy sources, Southern Norway also benefits from interconnector cables with The Netherlands, Germany, and Denmark as well as from NVE’s work developing high-voltage connections into Sweden and across Europe.
NVE will introduce a new grid tariff model in 2022 which provides customers with incentives to reduce peak loads, helping to decrease household energy use in Southern Norway while simultaneously decreasing prices compared to the rest of Norway.
Norway is divided into five price areas based on geographical and dialectical considerations as well as administrative county borders. Certain counties like Nordmore and Romsdal more closely align themselves with Trondelag than Western Norway; nevertheless, in terms of governance the five regions function identically – their governors (fylkesmenn) report directly to the Ministry of Finance while regional ministers (kommisjonene) work under Petroleum and Energy Ministries.
Eastern Norway
Norway stands out among Nordic countries due to its low wholesale electricity prices as a result of hydropower’s zero marginal cost production; yet its power market requires greater flexibility due to fluctuating consumption patterns across years and seasons, necessitating storage solutions in future.
Norway’s system operator Statnett estimates that current capacity is adequate to handle peak electricity demand over the next five years; however, this decision can be affected by various external factors and conditions.
There is the risk of drought or cold and dry winter conditions causing demand for electricity to spike, necessitating an increase in demand. To address this risk, NVE proposed a grid tariff model that incentivizes customers to lower peak loads; and in 2021 the government passed legislation codifying this proposal as part of their new grid tariff scheme.
NVE publishes “area prices” daily on its Nord Pool power exchange, taking congestion in the Nordic transmission grid into account and calculating using a similar methodology as system prices. Furthermore, Nordic states feature various balancing markets including fast frequency reserves, primary reserves and secondary reserves which contribute further information regarding price formation in their energy markets.
The Norwegian Energy Exchange’s area prices ensure a healthy energy market by creating an equilibrium between production and consumption, but they also send signals to generators and major consumers when longer-term measures may be needed, such as investments in storage or additional generation capacity.
As part of Nordic electricity market integration, the Norwegian power system is tightly interwoven with others across the Nordic region both physically and through market integration; also connected via interconnectors to continental Europe via the Netherlands Germany Baltic states interconnection.
Western Norway
Norway’s northernmost region is famed for its scenic fjords and flourishing iron ore industry, connected by maritime shipping and rail networks with Europe as well as numerous airports that welcome visitors to Tromso, Bod, Narvik and Hammerfest.
The region’s economy is driven by energy-intensive industries and is strongly affected by weather conditions that directly influence electricity consumption and production, creating occasional capacity limitations in transmission grids which result in power price fluctuation both daily and seasonally/yearly.
Each day, Nord Pool Spot power exchange calculates a system price; this theoretical price assumes there is no congestion in the Nordic transmission grid and serves as a reference price for other Nordic power markets.
Large volumes are purchased and sold on the wholesale market by power producers, brokers, and suppliers who trade on behalf of end users – households, SMEs, and industrial consumers who typically enter bilateral contracts with their supplier of choice – trading for them directly. Competition ensures consumers purchase contracts that best suit their needs in this end-user market. Norway’s power market is closely integrated with Nordic systems as well as connected to continental Europe via interconnectors to Netherlands, Germany, Baltic States, and Poland.
Central Norway
Central Norway’s electricity market and power pricing is driven by its sizable hydropower capacity, which accounts for 90% of total energy consumption. Industry and consumers are served by a vast grid infrastructure consisting of transmission lines run by regional grid companies as well as retail suppliers that serve households directly.
Due to climate conditions, electricity prices are highly dependent upon precipitation for production and availability, making sustainable development in terms of both generation and consumption essential. As such, new technology enabling the conversion of thermal and wind power into liquid fuels are currently under investigation by governments around the globe.
Denmark is taking steps to increase energy efficiency, to reduce consumption and emissions. It has invested in an ambitious power plan for the northern Finnmark region that features major transmission lines as well as renewable energy installations that promote industrial development.
Nord Pool Spot power exchange provides the means for trading of much of Denmark’s hydropower, helping to maintain stable wholesale prices across the country. Denmark also enjoys integration into the Nordic energy market through interconnectors connecting them with Denmark, Sweden and Finland as well as continental European markets for export of energy from its energy exports.
Energy is an integral part of Norwegian culture and economy, contributing significantly to a dynamic economic climate. Norway enjoys high levels of prosperity and living standards thanks to efficient use of resources (renewable or not). A robust research and development base also plays a vital role. Innovation plays an integral part in Norway’s dynamic economic environment.