The analyst team at Volue Insight, headed by Tor Reier Lilleholt, has created a power price scenario in which Norway doesn’t utilise the two interconnections to the UK and Germany.
Aug 29, 2022
Volue Insight analysts have run a price scenario using SINTEF’s EMPS model, simulating the unavailability of the interconnecting cables running from Norway to the UK and Germany, and has compared the results with a base case where the cables are fully available.
This scenario is unlikely to happen and was done mainly to address a common question in the media: “What if Norway hadn’t built the two cables connected to southwest Norway (NO2)?”
Volue Insight’s findings show a far higher effect on the market prices in southern Norway than previously thought, with previous forecasts based on simulations done before the invasion of Ukraine.
"Several outlets in Norway have referred to a 10 percent effect of the current price increase. This percentage increase should take into account the energy crisis in Europe and an extreme hydrological situation with very low hydro reservoirs," says Tor Reier Lilleholt, Head of Analysis at Volue Insight.
By removing the two cables in the simulation, Insight’s analysis team have observed that the price expectations in southern Norway fall as much as 115 to 125€/MWh below the base case forecasts, approximately 450€/MWh.
The results appear to show a 25 percent lift in prices that might be caused by the new cables connected to southern Norway.
“Next year, if we see a lower price level, the price uplift effect from the cables might be even higher,” says Lilleholt.
The chart below shows prices in the NO2 bidding area, with and without the direct connection to the North Sea Link (UK) and Nordlink (DE). Since last week, the input has further lifted the prices higher in the latest simulations.
The chart shows both forward price forecasts side by side.
The table below shows the effect of the price forecast decrease in €/MWh on all Nordic and Baltic price areas. As the cables are located in NO2, this shows the largest difference.
The chart shows the reservoir actuals between 2020 and 2022, and forecasts from 2022 until 2024, with both base and cableless scenarios presented.
In addition to the price forecasts, the Volue Insight team sees a major effect on forecasted hydro reservoir levels. Without the cables, we see the hydro reservoirs in southern Norway lifted significantly faster to normal levels compared to the base case scenario with cables. This shows that the strong European prices over time contribute to higher production and stronger export out of southern Norway.