What is the worst-case scenario for electricity prices in Norway this winter?
The energy crisis in Europe shows no signs of retreat, and some analysts warn that the price of electricity in Norway could reach unprecedented levels. What are the realistic projections at the moment? The Local spoke to energy experts and analysts.
In recent months, electricity price records have become "business as usual" in Norway. Price levels that were considered almost incredible a few months ago are now part of everyday life for Norwegian households.
Furthermore, a respected industry analyst - Tor Reier Lilleholt, head of analysis at Volue Insight - recently warned that, in an extreme scenario, southern Norway could face a price of 20 kroner per kilowatt-hour this winter.
What are the odds of such a scenario actually materialising, and what should people living in Norway expect when it comes to electricity prices this winter?
Spring likely to be a crucial time for change in prices
As market and supply conditions now stand, analysts don't see any significant changes in Norwegian price levels in the short term.
"First of all, we need to make a distinction between the south and the north of the country. In southern Norway, which is connected to Europe, we'll likely see high price levels during the entire winter season, up until spring. In May and June, with the snow melting, things are likely to change," Reier Lilleholt told The Local.
Electricity production in Norway is dependent on hydropower, so it needs to have enough water in the reservoirs to have sufficient energy through the winter (alternatively, it must be able to import the energy it needs).
"But prices will remain high until there is enough water in the reservoirs – that is, until spring, which is a crucial point in time. When it comes to prices, of course, the temperature will play the most important role. With colder temperatures, the prices will be higher. If the temperatures are milder, it will be less challenging. As you know, the temperature is important for gas prices, which – in turn – are important for electricity prices," Volue's chief analyst added.
Senior analyst Dane Cekov at Nordea agrees with Reier Lilleholt's estimate that prices are likely to remain high throughout the winter.
"A lot of it, of course, depends on the energy situation in Europe, and there are no quick fixes for the European energy problems. Prices are likely to remain as high as they have been lately, and the situation will remain volatile," Cekov told The Local.
Worst-case scenario?
Both analysts think that the worst-case scenario for electricity prices in Southern Norway could involve prices of over 10 kroner per kWh.
With recent developments, even 20 kroner per kWh – the price levels recently seen in France – wouldn't be something unimaginable, as Reier Lilleholt recently told Norwegian Broadcasting (NRK).
"I've stopped saying that there is a ceiling for prices anywhere. There is an upper limit (allowed at auction) in Europe, but some areas are hit hard by prices.
"For example, we recently saw prices as high as 4,000 euros a megawatt-hour (in Estonia, Latvia, and Lithuania). The prices are also soaring in France, which is connected to Germany, the UK, and the Netherlands, as is Southern Norway," Reier Lilleholt accentuated to The Local.
Cekov, on the other hand, emphasized the protective role of Norwegian electricity measures.
"The worst case? What we see in the Baltics could be an example, yes. However, no matter how high spot prices rise, the subsidies in Norway will dampen the effect.
It is a good thing for Norwegian households that the government stepped in with electricity subsidies. Another positive thing is the fact that the grid rent will not rise as much as previously, as the government will also subsidize that.
"Therefore, Norwegian households will be shielded from the worst-case scenario this winter," Cekov pointed out.
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In recent months, electricity price records have become "business as usual" in Norway. Price levels that were considered almost incredible a few months ago are now part of everyday life for Norwegian households.
Furthermore, a respected industry analyst - Tor Reier Lilleholt, head of analysis at Volue Insight - recently warned that, in an extreme scenario, southern Norway could face a price of 20 kroner per kilowatt-hour this winter.
What are the odds of such a scenario actually materialising, and what should people living in Norway expect when it comes to electricity prices this winter?
Spring likely to be a crucial time for change in prices
As market and supply conditions now stand, analysts don't see any significant changes in Norwegian price levels in the short term.
"First of all, we need to make a distinction between the south and the north of the country. In southern Norway, which is connected to Europe, we'll likely see high price levels during the entire winter season, up until spring. In May and June, with the snow melting, things are likely to change," Reier Lilleholt told The Local.
Electricity production in Norway is dependent on hydropower, so it needs to have enough water in the reservoirs to have sufficient energy through the winter (alternatively, it must be able to import the energy it needs).
"But prices will remain high until there is enough water in the reservoirs – that is, until spring, which is a crucial point in time. When it comes to prices, of course, the temperature will play the most important role. With colder temperatures, the prices will be higher. If the temperatures are milder, it will be less challenging. As you know, the temperature is important for gas prices, which – in turn – are important for electricity prices," Volue's chief analyst added.
Senior analyst Dane Cekov at Nordea agrees with Reier Lilleholt's estimate that prices are likely to remain high throughout the winter.
"A lot of it, of course, depends on the energy situation in Europe, and there are no quick fixes for the European energy problems. Prices are likely to remain as high as they have been lately, and the situation will remain volatile," Cekov told The Local.
Worst-case scenario?
Both analysts think that the worst-case scenario for electricity prices in Southern Norway could involve prices of over 10 kroner per kWh.
With recent developments, even 20 kroner per kWh – the price levels recently seen in France – wouldn't be something unimaginable, as Reier Lilleholt recently told Norwegian Broadcasting (NRK).
"I've stopped saying that there is a ceiling for prices anywhere. There is an upper limit (allowed at auction) in Europe, but some areas are hit hard by prices.
"For example, we recently saw prices as high as 4,000 euros a megawatt-hour (in Estonia, Latvia, and Lithuania). The prices are also soaring in France, which is connected to Germany, the UK, and the Netherlands, as is Southern Norway," Reier Lilleholt accentuated to The Local.
Cekov, on the other hand, emphasized the protective role of Norwegian electricity measures.
"The worst case? What we see in the Baltics could be an example, yes. However, no matter how high spot prices rise, the subsidies in Norway will dampen the effect.
It is a good thing for Norwegian households that the government stepped in with electricity subsidies. Another positive thing is the fact that the grid rent will not rise as much as previously, as the government will also subsidize that.
"Therefore, Norwegian households will be shielded from the worst-case scenario this winter," Cekov pointed out.
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