The NordLink Cable: 5 Ways It Will Impact the European Power Market

NordLink, the first subsea cable connecting the Norwegian and German electricity markets, changes the way the European power market works. Tor Reier Lilleholt, Head of Analysis at Insight by Volue, tells us how.

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Although NordLink has been operational for more than six months, many Europeans first heard about it when it was officially opened at the end of last week by German Chancellor Angela Merkel and Norwegian Prime Minister Erna Solberg.

Merkel praised NordLink as a milestone for modern energy supply in Europe, while Solberg said that it would contribute to more efficient use of power resources.

At 623 km, NordLink is the world's longest subsea electrical interconnector. It has a capacity of 1,400 MW, enough to power 3.6 million German households with renewable energy.

We speak to Tor Reier Lilleholt, Head of Analysis at Insight by Volue, about the change the cable is bringing to European power.

#1 Better balance between “volatility” and “flexibility”

Europe is fully focused on decarbonisation and every country has a roadmap for reducing its CO2 emissions. Wind and solar are quickly replacing coal, oil and gas.

However, in a recent Forbes article, energy analyst James Conca writes that just putting up wind and solar without planning for the infrastructure needed to efficiently employ them, leaves us at the mercy of nature.

This is because compared to coal, oil and gas, energy from wind and solar is volatile and unpredictable.

“We need a plan to make up for the volatility of these new renewables by balancing them with more predictable, flexible clean energy,” says Tor Reier Lilleholt. “The NordLink cable is an example of how to utilise and balance resources across Europe.”

In recent years, Germany has invested in wind and solar, and when the wind blows and the sun shines, there’s a surplus of renewable energy (coupled with prices lower than in Norway).

Norway, on the other hand, relies almost exclusively on energy from hydro production. Hydro has an advantage over wind and solar in that power operators can shut down hydropower plants and conserve the water until the energy is actually needed.

“With NordLink, Norway can import German surplus power while Norway can shut down its hydropower plants and conserve the water in its many hydropower reservoirs. By connecting the Norwegian and German power markets, NordLink adds major flexibility capacity to European power.”

#2 Increased market for power in case of surplus in national markets

In the direction of Norway, the cable has full capacity at all times since Norway is able to shut down the hydropower plants and take in the imports from Germany.

This major flexibility is not only valuable for balancing the market but helps lowering the prices in Norway. “When prices in Germany are low, this is a signal to import the surplus volumes to Norway.”

In the direction of Germany, with strong winds in the north of the country, the grid operators are restricted to only 12% transport capacity to the south.

“From what we have seen so far, the market in Germany cannot take in big volumes of power. This is because there is too much power in the north of Germany and a limited transport capacity to the south where the consumption is higher. This is often shown in very low prices in Germany, including negative prices.”

The transport capacity is expected to increase by a further 12% per year in the following years. Also, the capacity will not be limited if there’s very low wind in Germany and there is room for more power in the German system.

When that happens, Norway can produce hydropower and export it. Thus, electricity producers in Norway have an attractive alternative to export some of their oversupplies and sell at higher prices in Continental Europe.

By connecting the Norwegian and German power markets, NordLink adds major flexibility capacity to European power.

Tor Reier Lilleholt Head of Analysis at Insight by Volue
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#3 Contribution to climate-friendly energy in Europe

There is a growing interest in green energy and consumers all over Europe have financed the shift to green energy and will continue to contribute in the future.

With NordLink in place, Norway can support wind and solar energy with its massive hydro capacity, as well as contribute with its own growing wind and solar capacity to the green transition.

“Our models show that in the future Norway will have an oversupply of green energy.”

In addition to green commodities, Norway can contribute know-how from its highly knowledgeable experts.

“The investment in NordLink is an opportunity for Norway to maximise green energy resources and accelerate the green transition.”

#4 Security of supply

With all the changes taking place in energy production, the power grid of the future needs to ensure optimal flows and resource sharing.

Even with a surplus of energy, it will be difficult for European countries to stay self-sufficient on their own.

“Cables like NordLink will help countries reduce investment in grid and production capacity at home.”

Without cables, Norway would need a significant investment in even higher production capacity or reserve capacity.

“This is because in Norway we use a lot of electricity in one peak period – winter. During some hours, our production capacity is too low and the power grid will collapse as a consequence.”

Cables like NordLink will help countries reduce investment in grid and production capacity at home.

Tor Reier Lilleholt Head of Analysis at Insight by Volue

#5 Slight increase in power prices for Norway

Up until now, Norway has had the lowest electricity prices in Europe.

With the cable in place, electricity producers in Norway have an attractive alternative to export oversupply and sell at higher prices than those at home.

Overall, this will slightly increase prices for Norwegian consumers. Indeed, some observers believe that NordLink is behind the recent spike in electricity prices.

“Our analysis shows that there are several other important price drivers in the market and the cable alone cannot be responsible for this. The total volume exported over the past six months – 1TWh – is far from the total expected export this year of close to 25TWh.”

Power prices in Norway depend on more complex, interconnected factors such as the short term weather conditions, hydro resources in the system, and the price situation in neighbouring countries.

“NordLink will help Norway hold onto some of the lowest prices in Europe. Our calculations show that the NordLink cable might bring in an average increase of 1-2Øre/kWh for the Norwegian consumer.”

Images by Statnett show the vessel that lays down the cable leaving Norway.

Questions regarding this subject?

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