Norwegian electricity prices increased by over 20% in the first six months of this year. But by 2020, prices will drop by 20 to 30%, said Norway’s largest the energy supplier, LOS Energy.
The explanation for the price gap lies in China, while the reason for the price reduction is the development of renewable energy.
In the first half of this year, the average price in the Nordic energy market was 5.3 euros ($6.3, £4.8, 49.5 kroner) per megawatt per hour above the price in the first half of last year, an increase of 22%.
Chinese coal power sets the price in the global coal market because China is the world’s largest consumer of coal energy. The electricity price is closely linked to coal prices.
Most of the power in Norway comes from renewable energy, such as hydropower. But renewable energy depends on weather, and temperature, and can’t always meet demand.
During these periods, Norway mobilises energy from the ‘Northern European Energy Pool,’ which includes Denmark, Germany, the Netherlands and Poland. Some of these countries depend largely on coal to meet their energy needs.
‘Norwegian hydropower plants price their water close to coal to balance the power market in all weather conditions, which means that Norwegian power is priced close to coal for much of the time,’ said senior analyst, Olav Johan Botnen of Markedskraft, to NTB news agency.
During periods of power surpluses in Norway, we export energy to the pool, and hence stop production from some of the most expensive coal power plants.
Chinese cuts increased the price
Over the past four years, global coal prices fell sharply, and many Chinese mining companies were on the verge of bankruptcy.
‘In order to save the industry, which employs many millions of people, the government intervened and cut work time in the mines by 15%. They also reduced the extraction of coal by 15%, which contributed to a doubling, and tripling of coal prices up until November last year’, explained Botnen.
Market developments in China yielded twice as high prices in most of Europe, but the Nordic power market didn’t increase by as much, as rain and wind contributed an affect in the opposite direction.
More renewable energy will yield lower prices
In future, the ups and downs of Chinese coal production won’t be as important.
‘No, not in the future. When there’s a change in the European pool to less coal, and more renewable energy, the electricity price won’t be linked to coal prices,’ said Andreas Myhre, Director of Power Production of LOS Energy, to NTB news agency.
Because you can trade energy in time, the power trading director can determine that prices will fall below the price levels of 2016.
‘Prices are going to fall by 20 to 30% by 2020,’ he said.
Asked about what could nevertheless contribute to higher prices, Myhre believes that global economic levels could rise, and energy demand would thus increase, and that hot and cold periods could possibly cause more spending on coal than expected.
© NTB Scanpix / Norway Today