Are lower energy prices in Norway here to stay?
Recently electricity prices in eastern and southwestern Norway have been at their lowest level since late 2021. But is this just temporary relief? Here's what experts think.
Generally speaking, since last summer's soaring electricity prices, energy prices in Europe have fallen.
As Norway's power grid is connected to the continent, and with mild weather, decent filling levels of water reservoirs, and low energy consumption, it is not surprising that domestic power prices have withdrawn from the covers of most Norwegian newspapers, making way for the broader cost of living crisis, and in particular, high food prices.
According to the energy industry site Europower, the average price in southern Norway up to the end of April amounted to 1.11 kroner per kilowatt hour.
The average price of electricity hasn't been as low for areas in eastern and southwestern Norway since November 2021. The site reported that April's prices in the said areas amounted to a third of what they were last summer.
Prices stabilised – but they're still high
However, despite the recent dip in electricity prices, the current price level is still high for the first quarter of the year.
In its latest quarterly report, the Norwegian Directorate of Water Resources and Energy (NVE) noted that - compared to the first quarter of 2022 - power prices were lower in southern Norway, but they were more than twice as high in central and northern Norway.
This is due, among other things, to more snow than usual in southern Norway. In northern Norway, however, there was less snow than usual.
Several other factors also affected prices. Overall, there was more rainfall than average in Norway in the first quarter, which led to power prices falling somewhat.
Furthermore, falling gas prices in Europe and lower consumption than usual also contributed to lower prices in the south. Further north, production fell, and it was also colder than usual in March.
A temporary development?
So, with the recent dip in electricity prices set to seemingly stay in place for the summer, should consumers in Norway relax when it comes to 2023?
"There has been an improvement in electricity prices in Norway due to the improved energy (gas) outlook in Europe. While it is most likely that electricity prices don't see the heights of last year, energy prices will likely remain volatile ahead," senior strategist at Nordea Markets Dane Cekov told The Local.
Arndt von Schemde, a partner at THEMA Consulting Group, pointed to potential uncertainty and volatility later in the year.
"The high prices (of 2022) were foremost the result of extreme gas prices that followed the gas supply crisis. In addition, nuclear challenges in France and lower-than-normal hydrology added to the price crisis.
"The gas supply situation is now much better than markets feared in August/September 2022, when gas and power prices peaked. This is the result of increased LNG imports and some gas demand reduction, leading to some normalisation of gas prices (though still at a high level compared to historical averages). Also, the French nuclear situation has improved, as has the hydrology.
"However, a cold winter combined with unexpected gas and power supply shocks could lead to increasing gas and power prices as a consequence. So, an element of uncertainty and price risk remains for the time being," von Schemde told The Local.
So, while winter – unsurprisingly - seems to be the season associated with the most price risk when it comes to electricity, what should people expect in the summer and autumn?
"We see prices broadly sideways from today's levels. A drier weather than historical averages could pose challenges for hydropower and thus electricity prices during the summer," Cekov said.
THEMA's von Schemde assures consumers that, as things now stand, the market does not expect to see price extremes comparable to those registered in 2022.
"The market currently expects prices of below 100 euros per MWh for the summer and, for some areas, prices above 100 euros per MWh for the winter. But there are strong regional differences, with prices in the north being in expectation well below prices in the south.
"But, although we may see prices above 100 euros per MWh in the south of Norway, the market currently does not expect market extremes as we have seen in 2022, for the time being. This, however, assumes that there are no problems with gas supply to Europe and that the winter is not extremely cold or that the hydrological situation worsens again," he said.
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Generally speaking, since last summer's soaring electricity prices, energy prices in Europe have fallen.
As Norway's power grid is connected to the continent, and with mild weather, decent filling levels of water reservoirs, and low energy consumption, it is not surprising that domestic power prices have withdrawn from the covers of most Norwegian newspapers, making way for the broader cost of living crisis, and in particular, high food prices.
According to the energy industry site Europower, the average price in southern Norway up to the end of April amounted to 1.11 kroner per kilowatt hour.
The average price of electricity hasn't been as low for areas in eastern and southwestern Norway since November 2021. The site reported that April's prices in the said areas amounted to a third of what they were last summer.
Prices stabilised – but they're still high
However, despite the recent dip in electricity prices, the current price level is still high for the first quarter of the year.
In its latest quarterly report, the Norwegian Directorate of Water Resources and Energy (NVE) noted that - compared to the first quarter of 2022 - power prices were lower in southern Norway, but they were more than twice as high in central and northern Norway.
This is due, among other things, to more snow than usual in southern Norway. In northern Norway, however, there was less snow than usual.
Several other factors also affected prices. Overall, there was more rainfall than average in Norway in the first quarter, which led to power prices falling somewhat.
Furthermore, falling gas prices in Europe and lower consumption than usual also contributed to lower prices in the south. Further north, production fell, and it was also colder than usual in March.
A temporary development?
So, with the recent dip in electricity prices set to seemingly stay in place for the summer, should consumers in Norway relax when it comes to 2023?
"There has been an improvement in electricity prices in Norway due to the improved energy (gas) outlook in Europe. While it is most likely that electricity prices don't see the heights of last year, energy prices will likely remain volatile ahead," senior strategist at Nordea Markets Dane Cekov told The Local.
Arndt von Schemde, a partner at THEMA Consulting Group, pointed to potential uncertainty and volatility later in the year.
"The high prices (of 2022) were foremost the result of extreme gas prices that followed the gas supply crisis. In addition, nuclear challenges in France and lower-than-normal hydrology added to the price crisis.
"The gas supply situation is now much better than markets feared in August/September 2022, when gas and power prices peaked. This is the result of increased LNG imports and some gas demand reduction, leading to some normalisation of gas prices (though still at a high level compared to historical averages). Also, the French nuclear situation has improved, as has the hydrology.
"However, a cold winter combined with unexpected gas and power supply shocks could lead to increasing gas and power prices as a consequence. So, an element of uncertainty and price risk remains for the time being," von Schemde told The Local.
So, while winter – unsurprisingly - seems to be the season associated with the most price risk when it comes to electricity, what should people expect in the summer and autumn?
"We see prices broadly sideways from today's levels. A drier weather than historical averages could pose challenges for hydropower and thus electricity prices during the summer," Cekov said.
THEMA's von Schemde assures consumers that, as things now stand, the market does not expect to see price extremes comparable to those registered in 2022.
"The market currently expects prices of below 100 euros per MWh for the summer and, for some areas, prices above 100 euros per MWh for the winter. But there are strong regional differences, with prices in the north being in expectation well below prices in the south.
"But, although we may see prices above 100 euros per MWh in the south of Norway, the market currently does not expect market extremes as we have seen in 2022, for the time being. This, however, assumes that there are no problems with gas supply to Europe and that the winter is not extremely cold or that the hydrological situation worsens again," he said.
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