Rising Power Prices in Norway Put Pressure on Industry's Competitive Advantage
Spot power prices in southern Norway are expected to exceed an average of €50/MWh for the first time since 2010, compared to the 20-year low average of €9.29/MWh seen last year. This increase in power prices comes as Norway's hydropower-dependent energy production faces a deficit rather than the usual surplus, with hydropower accounting for approximately 95% of the country's energy generation. The rising prices have raised concerns among industries that rely on affordable electricity, potentially eroding their competitive advantage.
The surge in power prices is part of a broader trend across Europe, driven by the rebound in industrial demand following the pandemic-induced slump and record-high carbon prices. To prevent carbon leakage, the Norwegian government provides compensation to power-intensive industries for the rising costs of carbon emissions. In 2020, NOK 2.5 billion (approximately US$278 million) was paid in CO2 compensation to 46 companies, and this figure is expected to increase in 2021 due to higher carbon costs.
Initially, industries were concerned that this policy would be affected by the proposed carbon border adjustment mechanism (CBAM), which aims to equalize competition. However, the European Commission's Fit for 55 package allows Norway's compensation policy to coexist with the CBAM during a 10-year transitional period. Industry representatives are now urging policymakers to incentivize investments in new generation capacity to ensure Norway has an adequate power supply in the face of rising demand resulting from the electrification of various sectors.
