From Bloomberg, February 2:
The 30-year-long trend of integration and liberalization of the region’s electricity market is at risk
It may sound counterintuitive, but to grasp the government crisis rocking Norway, it helps to speak German. Because, putting aside local idiosyncrasies and political-party jockeying, it can’t be understood without knowing two Teutonic words that are today crucial in European politics and business: energiewende and dunkelflaute.
As European Union leaders gather for a “retreat” of informal discussions Monday at the Palais d'Egmont, in Brussels, they should pay attention to the upheaval in the continent’s north — and the two German words.
It’s not about Nordic politics: At risk is the 30-year-long trend of integration and liberalization of the European electricity market.
Energiewende is the German version of the energy transition championed by former Chancellor Angela Merkel: shutting down nuclear power stations and embracing wind and solar electricity. All were supported by successive right- and left-wing governments with generous subsidies. Dunkelflaute is a period of windless and cloudy weather that reduces renewable production.
The combination of both words means the German electricity grid is today more weather dependent than ever. Without sufficient baseload generation running 24/7 and dispatchable plants, which can be activated on demand, Berlin relies on imports from neighboring countries to fill the gap during long stretches of winter when it’s dark and windless.
In Norway, energiewende and dunkelflaute have collided, pushing up local electricity prices as the country exports a growing amount of power via cross-border cables. Average wholesale power prices in 2023-2024 were more than 50% higher in southern Norway than in the 2010-2020 period. The problem reached its zenith last week when Oslo debated whether to adopt new EU rules, known as the fourth clean-energy package, key to advancing the rollout of renewables.1 On Thursday, the euro-skeptic Center Party denied its support to the measures and abandoned the coalition government that’s ruled the country for three-and-a-half years, setting off the leadership spiral. The center-left Labour Party will now go it alone, in the party’s first minority government in 25 years, ahead of elections set for Sept. 8.The problem is both complex and simple. Thanks to cross-border cables, marvels of engineering often laid under the sea and costing more than $1 billion each, the European power market is far more efficient than before its liberation in the mid-1990s. But efficiency has a different meaning in economics than in politics. In the former, it means “lower average prices for everyone”; in the latter, it means “lower prices only for my own voters.” The flashpoint here is Norwegian voters are paying higher electricity prices so German ones don’t face even higher costs.
The collapse of the Norwegian government came months after a spat between Sweden and Germany after Stockholm rejected Berlin’s request to build another cross-border connection. In 2023, Norway rejected a British request for a submarine cable to Scotland. Crucially, whoever wins the next Norwegian election, they are likely to scrap a 50-year-old pair of cables connecting Norway with Denmark. If that happens, it would indicate that other cross-border interconnectors may be in danger when they reach their end of life, and that new projects to replace them — and also expand capacity beyond the current design — may never be built.
Nordic countries increasingly feel they are paying the cost of a failed German energy policy — one they weren’t consulted on, though it affects them.
France is starting to feel similarly, as are Austria and Poland....
....MUCH MORE
