Montel Magazine 1 - 2020 - Page 35

Blowing down Nordic prices A potential doubling of wind power capacity in the Nordic region this decade could put lasting pressure on power prices. By Olav Vilnes » [email protected] On 8 January, hourly spot prices in the Nordic region fell as low as EUR 0.10/MWh, unprecedented for what is generally one of the coldest months of the year and when they can spike to well above EUR 100/MWh. Traders then cited a combination of wet, mild and windy weather for weighing on prices in a region where hydro, nuclear and wind are the main sources of electricity generation. Analysts say such incidents of volatility will occur more frequently in the future with an expansion of intermittent renewable power capacity, notably from wind turbines. Since 2010, annual output from wind farms in Sweden, Denmark, Norway and Finland has risen from 39 TWh to 47 TWh, thanks mainly to lower development costs and government targets to boost renewable energy and to slash greenhouse gas emissions. Looking ahead, annual wind power output could swell further to 103 TWh by 2025 and to 116 TWh by 2030, covering a quarter of demand, says Marius Holm Rennesund, partner at Thema Consulting. Analysts say such growth in intermittent wind capacity will add to the Nordic region’s power surplus and likely keep prices below those elsewhere on the continent, with potentially more extreme highs and lows depending on the weather situation. Over the past 15 years, average annual Nordic spot prices have varied from EUR 20.98/MWh in 2015, a year with heavy precipitation, to EUR 53.06/MWh in 2010, when the weather was very dry. Hydropower still accounts for more than 95% of Norway’s total electricity production. Looking ahead, there is a risk of low prices in northern price zones in Norway and Sweden, where strong wind conditions have spurred heavy investment in new wind power capacity, while transmission capacity to more populous areas further south is still relatively limited. By 2030, average spot prices in northern Norway could be EUR 9/MWh lower than those in southern Norway, Norwegian regulator NVE said in a report last autumn. And while there are plans for new cross-border links from southern Norway to Germany and to the UK, there will still be risk of negative hourly prices in the north – as is the case in Germany, home to Europe’s biggest fleet of wind turbines, on very windy days. “Our region may in a few years, when current wind power developments are completed, become like a mini Germany with frequent periods of negative prices,” Stale Gjersvold, CEO of Norwegian utility Tronderenergi, said at a recent industry event. The Trondheimbased company operates in Norway’s NO3 price area, where utility Statkraft and partners will soon commission the 3.4 TWh/year Fosen wind power project and several other projects are in the pipeline. Northern parts of Sweden are also at risk of very low prices, since new wind farms, like the giant 4.5 TWh/year Markbygden project, are being developed in an area with high hydropower output and relatively low demand. “Investors are clearly aware of the risk of lower prices in the north. This is already having an impact on new power purchase agreements [PPA], where developers have to carry a higher price risk in the north than further south,” says Justin Fitzhugh, partner at Augusta, a London-based company that advises investors on renewables investments. He says international investors are still flocking to invest in Nordic ➤ Montel Magazine 1–2020 35