Norway’s unexpected energy crisis

Norway is in many ways a lucky country. Its abundant oil and gas resources are much in demand since Russia’s full-scale invasion of Ukraine. Numerous rivers and reservoirs up and down the vast country mean that more than 90 per cent of its electricity needs are covered by its own hydropower.

But in a sign of just how deeply an energy crisis is shaking Europe, Norway is suddenly facing its own electricity problems that are affecting everything from politics and international relations to business.

An unusually dry winter and spring has left many reservoirs in southern Norway with historically low levels of water for this time of the year, leading to the government in Oslo pledging to curb electricity exports until they are replenished.

That could be a headache for countries from Germany and the Netherlands to the UK that have imported significant amounts of electricity over the years from Norway through cables, even before Russia sparked panic about what could happen this winter.

The most striking demonstration of the problems is the gaping price discrepancy between northern and central Norway — with close to half of the country’s hydropower production — and southern Norway, with all the export cables.

Electricity in the three southern areas of Norway will cost between €263/MWh and €327/MWh on Wednesday, but in the north and centre of the country they will be just over €1/MWh, according to the day-ahead prices from power market Nord Pool.

The pattern has lasted long enough that some businesses are voting with their feet: Kryptovault, a Norwegian bitcoin miner, is moving its activities from the south to above the Arctic Circle to slash its power bill.

The main reason for the 160-fold difference in prices is a lack of transmission capacity between the north and south. It is a similar situation in neighbouring Sweden but it leads to absurd situations. Norway’s national broadcaster NRK earlier this summer ran stories only hours apart with power companies in the north of the country complaining prices were so low that they could not afford to invest in new capacity, and industrial companies in the south complaining prices were so high they could not afford to keep manufacturing.

The issue has leapt to the top of the political agenda in Oslo as the government warns it cannot rule out electricity rationing this winter, even if it currently believes it is unlikely.

The centre-left government faces a difficult balancing act: it has gone out of its way to present itself in Brussels as a reliable energy supplier, keen to sell as much oil and gas as it can; but it has become almost impossible to justify selling electricity abroad at sky-high prices when many Norwegians are having to pay the same.

Sylvi Listhaug, leader of the rightwing populist Progress party, has called for Norway to build gas power stations and said “it would be a scandal” if “energy nation Norway” would need electricity rationing. Other politicians have called for expensive plans to electrify Norway’s offshore oil platforms — which run on gas turbines — to be dropped.

The government has responded carefully. Some of the most generous support to consumers in Europe will be increased, meaning the state will pick up 90 per cent of electricity bills over a certain price level. Harder though is devising a scheme that could help businesses without merely encouraging an increase in consumption.

Left unsaid is how a big green transition in Norway’s industry is likely to fare if there are already problems with supply. Norway is far ahead of the rest of the world in areas such as electric cars — eight in every 10 new vehicle sales produce zero emissions. But it also has ambitious plans for green batteries, shipping, and hydrogen that rely on plentiful — and cheap — hydropower.

Squaring all of that with continuing exports to Europe is a tricky feat. The government has given itself a week to come up with a mechanism that would allow it to stop exports when reservoir levels are below their seasonal average, something that is currently the case in most of southern Norway.

These are still mostly the problems of a lucky country but the warning signs flashing in Norway highlight just how tough this winter could be across Europe.

Read the latest issue of the OGV Energy magazine HERE