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High Norway prices may spur offshore wind boom – analyst

(Montel) A halt to of onshore wind build, new interconnectors and import restrictions from Sweden could lift local spot power prices in southern Norway making offshore wind investments profitable, an analyst said on Thursday.

"Power prices in southern Norway are set to rise to a much higher level than we have been used to. That means wind farms off the southwest coast could be profitable much sooner than I had previously expected," Sigbjørn Seland at StormGeo told Montel.

The average spot price in Norway's three southernmost bidding areas had been EUR 46-47/MWh in the year to date, the highest level since 2010, despite well-filled reservoirs in the hydropower-dominant region.

Prices would likely remain high as demand increases amid a growth in electrification, while the construction of onshore wind farms has been halted following a series of local protests.

Onshore halt
In 2019 the Norwegian government halted all licensing processes for new onshore wind farms until fresh guidelines had been drawn up. This means no new parks will come online for several years once those currently under construction have been completed.

"You really should be building onshore wind in southern Norway now. There will likely be new developments further ahead due to the market connection to Germany and the UK," Seland said.

The 1.4 GW Nordlink cable from Norway to Germany came online at the end of last year, while a new 1.4 GW connection to the UK, NSL, will start operating this autumn.

Local Norwegian spot prices were further boosted by current limits on imports from Sweden, where TSO Svenska Kraftnat is allowing just 100 MW to flow to its western neighbour, Seland said.

If limits like this proved to be a long-term fixture, it would be very bullish for power prices in southern Norway and this could lead to more offshore wind to supply the region, he said.

Seland estimated a break-even price of EUR 40/MWh for fixed foundation turbines within five years, while floating units would require EUR 65/MWh. The latter technology would only require EUR 50/MWh by 2030, he said.

More upside?

A more permanent reduction in transmission capacity from Sweden could lead to prices in southern Norway similar to those in Germany and the UK, Seland said.

Front-quarter German power was currently trading at EUR 68.40/MWh, while in the UK it was seen at GBP 74.80/MWh, or around EUR 87.

Prices would also be more volatile in the future as windy weather often coincided with wet conditions and vice versa. There was also a marked difference in the situation in Norway and Sweden, said Thema Consulting.

It estimated Sweden's power surplus would increase from 30 TWh currently to 50 TWh in 2027 amid a huge expansion of wind power, while in Norway a surplus of 18 TWh would likely drop to zero over the same period as demand rises.

This meant prices were more likely to collapse in Sweden and spike in Norway.


Reporting by:
Gert Ove Mollestad
13:42, Thursday, 3 June 2021