Explanation: Why are electricity prices so high in Norway?

If you live in Norway, you must have noticed recently that electricity prices are high. This is the reason why prices are soaring in countries accustomed to cheap electricity.

Norway has been hit by record high electricity prices over the past few months. Some families are struggling to pay their bills, and many factories have been forced to stop production because the costs are too high.

The average kWh electricity cost in February 2021 was 0.61 NOK (0.06 USD), but jumped to 5.43 NOK (0.55 USD) in August 2022. This is almost a 10x increase.

yes Cost of living Electricity has always been an exception, although expensive in Norway. So what is going on? Why are the prices so high? These are the questions that we will try to answer in this article.

First, a brief description of Norwegian electricity tariffs and consumption habits. Next, I will explain why the price has been unusually high recently.

Electricity used to be cheap

In general, Norway had relatively low electricity prices until recently. There have been some spikes here and there (2003 was an exceptional year), but as a general rule electricity prices in Norway are cheap.

This is explained by the fact that historically domestic electricity was abundant. almost entirely hydro-poweredOther power sources are wind and thermal power plants, but their share is relatively small.

Electricity was so cheap that saving energy was not always a top priority. If you’ve been to the country, you may have noticed the Norwegian tendency to leave the lights on even when no one is in the room.

Even more wasteful is the tale of leaving the cabin’s hot tub permanently on “just in case” the owner prefers an unplanned bath. No one knows how often situations like this occur, but it is true that historically low prices have encouraged, or at least enabled, unlimited consumption.

electric heating

Norway’s high electricity consumption is not only due to low prices, but also because the country has a cold climate and most homes are heated by electricity.

Wood stoves are very common and district heating is an option in some urban areas, but by and large Norwegian homes are at least partially heated by electricity.

Over the past 15-20 years, the popularity of energy efficient heat pumps has grown rapidly. They are essentially air conditioners that work in reverse and are much more energy efficient than traditional electric heaters.

Still, even with efficiency improvements, electric heating means colder weather will trigger demand peaks and prices will skyrocket.

less rain in the south

2022 was characterized by a wetter-than-usual period in southern Norway and wetter-than-normal conditions in the north (basically all north of Trondheim).

Less rain means hydropower reservoirs don’t fill up, putting upward pressure on electricity prices.

This situation means that some power plants in the south generate less power, but their prices are very high, and their costs remain the same, making huge profits.central and part Northern NorwayOn the other hand, some power plants are operating at a loss.

Why can’t the power plants in the north send electricity to the south? It’s because the power grid isn’t working. The north-south transmission capacity is insufficient.

Plans are underway to remedy this situation, but it will be several years before the actual line is built and put into operation.

A new connection between the UK and Germany

Few people who have followed the debate over the state of Norway’s electricity prices have heard of the new undersea cables linking Norway with the United Kingdom and Germany.

Before these two cables went live in 2021, Norway already had 15 international connections.

For many, the conclusion was clear. The reason for the price increase is the new cable.

This view is not completely wrong. Various analyzes conducted over the past few months show that two new cables are responsible for about 10-25% of the recent price increase.

Exactly this task is very complicated, but in essence the cable is exportable. This means that if power prices are higher in the UK or Germany than in Norway, power will flow to these two countries via new cables. This makes Norwegian prices higher.

“cut the cable”

Rising prices and their association with power exports have made the phrase “cut the cable” something of a slogan for people fed up with skyrocketing bills. The problem with that idea is that it has its own downsides.

Even in years when Norway is a net exporter of electricity, there are periods of high consumption (usually winter) when it depends on imports from abroad. To provide the power needed to meet these demand peaks without access to imports, Norway will need to build a large amount of new power plants.

wind trouble

Norway is known for its spectacular scenery and rugged coastline. The multiple wind farms that popped up in the 2010s didn’t work well for some parts of the population.

in the meantime Majority of Norwegians support wind power Opinion polls show that support has declined over the past decade. And opponents seem more enthusiastic than proponents.

This means that the establishment of new wind farms has become a political topic. For this reason, no new projects have been started since 2019.

read more: NorthWind: Norway’s new wind research center

This has created a supply side shortage that has not improved the current situation. Recently, due to the energy price crisis, the government has Review the current moratorium on wind power.

EU energy market

Now is the time to say a word about the European energy market. We have already explained that electricity flows freely and automatically from low-price to high-price.

This happens across borders and within Europe. The system of determining electricity prices in a particular region is too complex to be detailed in this article.

Simply put, prices change hourly and are determined 24 hours in advance through a bidding process. Another important detail is that the current system will effectively be linked to natural gas prices.

This means that the higher the price of natural gas, the higher the price of electricity. After all, gas prices have risen sharply in the past few months.

Why is the price of natural gas so high

Here are some of the reasons why natural gas is so expensive right now.

covid recovery

The Covid-19 pandemic has caused disruption to demand and supply chains. Energy prices, including gas, were low during the initial lockdown as demand dropped significantly.

Petrol prices rose gradually as the economy rebounded due to massive government stimulus packages. The December 2021 peak is due to cooler temperatures, lower renewable energy production, and increased global demand for natural gas.

war in ukraine

The December 2021 price peak will be dwarfed by the ensuing rally following Russia’s invasion of Ukraine. Since most of Europe’s natural gas (40%) comes from Russia, the uncertainty caused by the war caused prices to skyrocket.

Already in March, the EU began making plans to exit Russia from natural gas. These plans include accelerating the pace of transition to renewable energy sources and measures to conserve energy.

In early September, Russia indefinitely suspended the delivery of gas through the Nord Stream 1 pipeline. This has caused energy markets to panic again.

Norway is in no position to complain

Prices are very high and times are tough for consumers. But overall, Norway is well positioned.

Remember when we said Russia will be the EU’s largest supplier of natural gas in 2021? Norway is the second largest.

Natural gas exports are generating huge revenues for the Norwegian government and, as mentioned above, electricity companies are earning record amounts. Of course, this comes at the cost of some families struggling to pay their bills.

But with oil and gas incomes rising, Norway can afford to support a family.

the government Electricity bill support system This covers 80% of electricity bills above NOK 0.70 per kWh. From October to December this year, that percentage jumps to 90%.