Norway’s electricity market has emerged as a Nordic power exchange. Wholesale traders trade large volumes between power producers, brokers, and energy companies while end users enter agreements to purchase electricity directly from suppliers.
The generation of electricity relies primarily on hydropower plants connected to reservoirs. Water levels fluctuate within these facilities and as a result, production fluctuates with seasons and years.
While hydropower electricity generation can vary depending on the region and the time of year, it is important to note that these measures towards creating an eco-friendly power structure are essential to the long-term health and safety of the environment.
Market-based dispatch of generation
Norway’s electricity market operates under market principles.
The cheapest assets are dispatched first and cross-border capacity is then available to export energy once local demand has been satisfied. Furthermore, its emergency preparedness systems are highly organized – thanks largely to abundant hydropower resources and Statnett, its state-owned transmission system operator – contributing significantly towards reliability.
Norway’s power sector is overseen by the Ministry of Petroleum and Energy, which sets forth requirements for security of supply and emergency preparedness in accordance with both the Energy Act and Regulation on Security and Emergency Preparedness in Power Supply System.
Furthermore, regular sector reports are produced by government officials in order to monitor compliance by grid companies with such regulations.
As of 2015, Norway’s transmission grid extends over 11,000km. Spanning five bidding zones, the system also has significant interconnection capacities with neighboring countries like Sweden. Furthermore, expansion plans call for adding 1,065.km high voltage lines by 2026.
Norway typically exports electricity, with annual production estimated at 130 TWh. However, Norway experiences fluctuations in production due to water inflow into storage reservoirs, leading to price fluctuations in Nordic markets.
Norway participates in both domestic and European power markets through membership in Nord Pool power exchange, interconnected through Day-Ahead Market coupling. Norway can respond quickly to changing conditions in these markets and remain an efficient supplier.
Norwegian hydropower-based systems differ significantly from their thermal counterparts in continental Europe by having relatively flat daily price profiles, due to it costing minimal amounts to regulate power production. This allows Norway’s hydroelectric generators to export electricity when prices are lowest while simultaneously importing power when prices increase during the daytime hours.
Competition in the end-user market
End-user markets involve individual consumers (whether this means households, industries, or large industrial firms) entering contracts to purchase power from suppliers of their choice.
Power suppliers compete to win the patronage of end users which often results in lower prices for them. In the Nordic region, multiple power suppliers compete in this market, from large industrial firms and energy supply companies to energy distribution firms and grid companies that supply end users.
Small end users are generally supplied by their local grid company which is responsible for grid operations in their area.
A full electricity bill typically comprises the raw material electricity price (power price), grid tariffs, consumption tax on electricity use (CTU), value-added tax (VAT), payment of an Energy Fund fee as well as certificate charges.
Major reforms of Norway’s electricity sector began in 1991 with commercialization and market-based pricing reforms. These measures included unbundling into separate entities for generation, transmission, and distribution as well as creating a central regulatory body and introducing point tariffs – producers pay an amount for the power they deliver into the grid while consumers are charged fees to take it from it.
Market-based pricing systems ensure the cheapest power resources are used to satisfy society’s electricity demands, as well as encouraging energy efficiency and renewable production – two key considerations in an energy-intensive country such as Norway.
Norway has an advanced electricity market with strong competition between multiple power suppliers. Nord Pool Spot power exchange was founded in 1993 and expanded to cover the Nordic market in 1996 – becoming the world’s first international market for trading in power contracts.
Furthermore, its interconnectors link Norway directly with Denmark, Sweden, and German markets for easy integration.
Market-based electricity prices
Norway’s energy market is open to competition and prices reflect supply and demand, as well as variance among different regions due to precipitation levels and temperatures; transmission conditions also play a part. These changes are determined by the Nordic Power Market Grid which links all of the strømregion in the country. It also connects to markets in other countries.
Market participants in the wholesale power market include power producers, brokers, and large industrial customers. They can trade their production and consumption directly on the Nord Pool Spot market or purchase it through power suppliers.
Small end users typically purchase their power either directly from wholesale markets or form bilateral agreements with suppliers. Competition in these markets ensures they can find contracts to suit their individual needs, while it also contributes to improved service quality.
Norway boasts some of the lowest electricity residential sector prices worldwide, due in large part to their use of hydropower – one of the most cost-effective sources of energy – as well as low transmission costs and energy efficiency measures.
As well as the wholesale market, electricity suppliers also compete fiercely in an end-user market that serves households directly. This market serves as a powerful driver of energy efficiency and has resulted in significant savings for households; more end users with smart meters are contributing to more dynamic retail tariffs as well. That is because these users are able to save significant amounts of energy through the use of their technology.
Power zones
Norway has an advanced electricity sector with strong infrastructure and emergency preparedness measures in place, consisting of hydropower, renewables, and ample interconnection capacity, with well-organized market mechanisms.
Statnett, owned by the Ministry of Petroleum and Energy and responsible for 98% of Norway’s grid ownership, is responsible for its maintenance, upgrades, and security maintenance whilst offering market access for customers – as well as producing regular sector reports and monitoring compliance with security and emergency preparedness regulations.
Norwegian energy policy advocates for market-based dispatch of generation, as well as diversifying renewable and flexible thermal generation sources.
Statnett as TSO is responsible for maintaining sufficient primary reserves to address imbalances. These resources are traded on hourly and weekly markets. If an imbalance persists for several minutes, secondary regulation activates enable Statnett to purchase tertiary regulation on the regulating power market – this form of manual regulation has an estimated response time of 15 minutes.
Although Nordic regions boast abundant flexible hydropower resources, it is still essential to incorporate demand flexibility. This is because keeping the system balanced requires imports from areas with surpluses to be sent abroad in exchange for exports from deficit regions; however, increasing consumption in some key areas reduces the availability of flexible supplies which necessitates TSO relying more heavily on demand-side flexibility in the future.
As the power situation varies across regions, congestion on the transmission system may result in uneven distribution.
This is especially the case when one region experiences an energy surplus while another suffers a shortage; therefore, it is essential that TSOs ensure sufficient energy can be imported into areas with shortages while surpluses are exported off; additionally, they must consider any impactful power flows as this may influence energy prices.
