Norway’s electricity prices recently soared to $1.18 per kilowatt hour, the highest level in 15 years and 20 times higher than the previous week. Historically, Norway has enjoyed relatively low electricity prices thanks to extensive hydropower generation, which accounts for almost 90% of the country’s energy supply. However, this sharp increase in prices is mainly due to the lack of wind energy from Germany and the North Sea. Accordingly, the Norwegian government will bear 90% of the additional costs above a certain threshold, based on agreements with neighboring European countries. As a result, the government plans to cut off electricity interconnections with Denmark and halt exports to Germany and the UK in 2026, when the current agreement expires. Critics say Norway should prioritize domestic affordability by ensuring low prices for its citizens before exporting electricity, as it has done for decades.
Since Russia’s invasion of Ukraine disrupted Europe’s energy supply, Norway has become an important energy supplier to the EU, not only of electricity but also of oil and natural gas. EU countries are keen on a unified electricity market, with Norway claiming it would benefit from the deal when it imports power through interconnectors with other European countries.
A similar situation is occurring in Sweden, where electricity prices in the southern city of Gothenburg have recently become 190 times more expensive than in the northern city of Lulea. Both Sweden and Norway have inadequate domestic electricity transmission infrastructure, resulting in higher prices in the south, where demand is concentrated, than in the north, where much of the electricity is produced.
In Europe, the transition to renewable energy sources such as solar and wind faces major challenges. These intermittent power sources require backup generation to maintain stability. For example, according to Danish energy analyst Björn Lomborg, even though Germany has 82 GW of solar capacity and about 70 GW of wind power, it will still account for only 80 GW of the country’s energy mix in 2023. Fossil fuels account for 50% of the total, which is the same percentage as in 2010. This resulted in significant costs for both German consumers and industry.
In addition to the challenges posed by the intermittent nature of solar and wind power, which requires expensive backup generation and drives up consumer prices, European policies are also increasing the cost of generating electricity from these sources. Masu. In the UK, for example, the government paid 1.3 billion pounds ($1.64 billion) this year to compensate wind power producers for cutting their output due to a lack of grid capacity. To cope with this, it is estimated that the UK will need to invest £40 billion ($50.6 billion) a year in expanding its electricity grid infrastructure. These costs are ultimately passed on to UK consumers, who face higher energy bills both from paying curtailment fees and from relying on expensive electricity imports during periods of low winds. .
The situation is expected to worsen after the UK government recently approved a new interconnector with Europe to ensure power supply during the dry period. As a result, UK electricity prices are expected to rise further. UK industrial consumers already pay four times more for electricity than their US counterparts, even taking into account the rising costs associated with climate change policies under the Biden administration.
Even major European oil companies are withdrawing from energy transition plans that involve these intermittent sources of supply. Both Shell and BP have exited wind power, with Shell selling its US onshore wind business and BP spinning it off into a joint venture with Japan’s JERA. With governments stopping subsidies and subsidy reductions for wind energy, wind energy is no longer considered economical by the big oil industry. Warren Buffett told us that many years ago. “With wind energy, for example, if you build a bunch of wind farms, you get a tax credit. That’s the only reason to build them. If you don’t have the tax credits, there’s no point.” It will only be a matter of time before solar power is no longer a good investment.
In addition to sourcing electricity from Norway, northwestern European countries are increasingly turning to wood as a fuel source for power generation. Policy makers classify wood pellets and other forms of wood fuel as renewable energy with low net emissions, as long as they meet sustainable forest management standards. This classification has been welcomed by European utilities, as wood fuels offer a more reliable energy source compared to intermittent solar and wind power, and can be stably supplied by system operators around the clock. I am.
However, the European Union revised its Renewable Energy Directive in 2023 to require a clearer and more detailed definition of what constitutes sustainable forest management. The aim is to ensure that the use of wood fuels contributes to reducing net emissions and to address concerns about the environmental impact of large-scale biomass burning.
Global wood pellet production has more than doubled from 21 million tons in 2013 to 47 million tons in 2023. Europe and North America accounted for the majority of world production (51% and 28%, respectively), with Europe accounting for 70%. In 2023, the UK imported 6 million tons of wood pellets and Denmark imported 3 million tons. metric tons, the Netherlands and Italy imported 2 million tons each, and France and Belgium 1 million tons each. The situation has become almost comical. The UK’s largest power station (Drax) currently runs entirely on wood pellets (converted from coal), the majority of which are sourced from US forests and shipped directly across the Atlantic. There is. It’s a gesture of “protecting the climate.”
conclusion
Power prices in Norway are soaring because of interconnectors the country shares to supply electricity to mainland Europe, where wind energy is weak. Even though Norway has abundant and cheap hydropower, European countries’ use of that energy is driving up domestic energy prices. Norway may need to revert to old policies and only allow electricity exports if demand meets the complaints of its European neighbors.
European countries are realizing that once subsidies are eliminated or reduced, it will no longer be economical to build wind and solar power facilities. Mainland Europe’s foray into intermittent wind and solar power generation has not been fruitful, adding huge costs to consumers’ bills. Some countries are therefore turning to traditional wood energy sources, importing wood pellets from North America, which European policymakers have recognized as a renewable fuel with lower net emissions.
The United States has 148 gigawatts of wind power and 138 gigawatts of solar power, but still generates about 60% of its electricity from coal and natural gas, and nearly 20% from nuclear power. All of these can be distributed by the system operator 24/ 7. President-elect Trump has indicated his intention to eliminate many of the tax credits in the anti-inflation law passed by Democrats, which would result in cuts to many renewable energy projects. It will lead to
