Nordic Power Market Outlook

Details and Specifications

Key discussions for the Spring 2023 Nordic Power Market Outlook.

The dramatic energy market events over the last year have long-term consequences.

Investments in new renewable power generation have generally never looked more profitable than today, and the consequence is record-breaking investments, especially in solar power.

We model continued strong growth in renewable power generation for the Nordic power market.

Onshore wind power is slowing down due to regulatory obstacles and land use conflicts, but investors are eager. Solar power and, in a few years, offshore wind power will take over as growth drivers. The potential for building new renewable production in the Nordics and the Baltics is tremendous and we model that much of the potential will be utilized.

Consumption growth in the coming years will be reduced due to high power prices, but consumption will increase significantly in the long term. The potential linked to the production of green hydrogen is large, and we model the development of emerging hydrogen production in the Nordics.

Electricity consumption has understandably fallen significantly over the past year.

At the same time, wind and solar power production continue to increase rapidly. The power production surplus in the Nordics records high and will increase further in the coming years as new wind, solar, and nuclear power production increase faster than consumption growth. This naturally leads to expectations of falling power prices in the coming years. We discuss whether and possibly how quickly power prices fall back to the cost of building new production.
 
There seems to be a general expectation that power consumption will increase tremendously in the years and decades to come. We problematize this expectation and argue that consumption growth as a function of Power-to-X will largely depend on relatively low electricity prices. 
 
A key condition in the analysis is what build-out potential it is realistic to assume for new renewable production, given that it is very land-intensive. The overall potential for the development of wind and solar power is believed to be very large and therefore the power price in the long term will largely be determined by the development cost for this potential.

Large area price differences have persisted for almost two years now

We see that the price signal works and that power consumption falls in the high-price areas relative to the low-price areas. There is an increasing willingness to invest in a new production in the high-price areas and a lower interest in the low-price areas. Therefore, the area price differences will gradually become smaller in the next few years but will remain relatively high for another 3-4 years.

Hydrogen and other forms of Power-to-X technologies will play an increasingly important role in the power markets, also in the Nordics.

Power-to-X (mainly green hydrogen) has the potential to equalize the power price level between Nordics and continental Europe in the long term. Other things equal, Power-to-X will gradually lead to decreasing price differences between Nordic and Continental power prices.

To achieve carbon neutrality, much higher EUA prices are necessary

We present our view on the EUA market and an alternative CO2 price better aligned with a climate-neutral Europe by 2050

Cost elements for the power system until 2050

The report describes in detail the various cost elements for the power system until 2050, focusing on the development of Long Run Marginal Costs in renewable power production, energy storage, hydrogen production, and hydrogen-fired power plants.