“ We need more demand before prices can return to previous highs ”
At the time of writing , the 2021 Nordic power contract is priced around EUR 12 / MWh , while all other annual contracts until 2030 are below EUR 30 / MWh . In comparison , the system price averaged EUR 35.90 / MWh between 2010 and 2019 . “ The picture is really depressing from a producer ’ s point of view . We need more demand before prices can return to previous highs ,” says Rune Jorgensen , trader at Norwegian utility Helgelandskraft .
Power demand in the Nordic region is expected to increase in the coming years thanks to new political targets at national and EU level that require replacing fossil fuels in transport and industrial sectors with cleaner alternatives like electricity and green hydrogen . This year , the region ’ s power demand has been affected by both mild weather and regional lockdown measures taken to curb the spread of the Covid-19 pandemic . Norwegian TSO Statnett has forecast Nordic power demand to rise from 407 TWh in 2020 to 504 TWh in 2030 and 577 TWh in 2040 – which will eventually almost wipe out a surplus of electricity generation that peaks at around 40 TWh in 2025 . Norwegian regulator NVE has a more conservative estimate of 442 TWh of demand in 2030 and 484 TWh a decade later . Both point to higher demand from industries and transport .
“ We expect power demand will rise by 75 TWh until 2030 , which will reduce a current structural [ Nordic power ] surplus of 20 TWh to zero by then ,” says Olav Botnen , senior analyst at Wattsight . “ Only since last year we have increased our estimates for consumption in 2030 by 17 TWh ,” he says , adding that 16 TWh of this growth will come from hydrogen-based processes like in steel production and other sectors .
Hybrit , a cooperation of Swedish firms Vattenfall , LKAB and SSAB , launched a pilot plant for carbon free steel production in Lulea , Sweden this autumn . A demonstration plant using 600 MW of electricity is set to follow in 2025 . “ If all of Sweden ’ s steel production shifts to carbon free technology , we are talking of a demand growth of up to 15 TWh , representing 10 % of Sweden ’ s annual output ,” said Vattenfall ’ s Michael Nordlander at a recent webinar .
And hydrogen will not only be used for steel production . Several companies across the region are planning to build large hydrogen plants that can supply anything from local industries to transport . Hydrogen will also play a key role in allowing more renewables to connect to the grid , since plans converting green electricity into hydrogen will provide key demand for surplus wind generation – which is of particular importance in Denmark , where wind power often meets more than 100 % of demand already and negative prices are frequent .
Other key demand drivers include electric cars , data centres and offshore oil and gas installations . Power demand from transport will probably rise from 3 TWh in 2020 to 27 TWh in 2030 and 52 TWh in 2040 , according to Statnett . The TSO estimates demand from data centres to reach 21 TWh in 2030 and 30 TWh in 2040 , up from only 5 TWh this year . Electrification of large oil and gas fields is confined to Norway , where most installations today get their electricity from onsite gas turbines . Annual electricity use in this sector will likely rise from 9.5 TWh currently to 10.5 TWh in 2030 , according to the TSO .
What does it mean for prices ? Demand growth , coupled with a rise in interconnector capacity to continental Europe and the UK from 7 GW currently to 13 GW by 2025 , should start to boost prices from 2022 onwards , analysts agree , with most expecting prices to follow continental levels but at a slight discount due to the domestic power surplus . By 2030 , power prices in the region will probably rise to around EUR 40 / MWh , according to Statnett and NVE , though both stress there will be huge deviations both between years and different bidding zones .
For instance , northern parts of Norway and Sweden will probably see lower prices than the rest of the region , because an expected jump in wind power generation will not be followed by sufficient grid capacity to large consumption centres further south . n
Montel Magazine 4 – 2020
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