Electricity prices in Norway are affected by prices in other countries because we are part of an international power market. But how does this market actually work? What determines the price you pay to cook or take a shower. The physical journey In order for the power to arrive at the place where it is to be used, it must go through several processes. One thing is about how the energy is transported. This is done through the mains. The grid companies deliver the electricity where it needs to go, but it is the electricity companies that buy the electricity on your behalf. The power is transported from the producers to the end users through the power grid. Graphics: Lene Sæter / news The power is transported from the producers to the end users through the power grid. Graphics: Lene Sæter / news The electricity bill – this is what you pay for the electricity price – the raw material price for electricity and the surcharge the electricity company takes. Grid rental – the price for connection to and use of the grid. In addition, there are taxes and VAT: Electricity tax – consumption tax on electricity. Value added tax. Surcharge earmarked for the Energy Fund Enova. Payment for electricity certificates, which are a support scheme for power produced from renewable energy sources. Households in Troms, Finnmark and Nordland are exempt from VAT on electricity, and households in Nord-Troms and Finnmark are also exempt from electricity tax. Sources: NVE, strömpris.no Who decides the price? The second process concerns how electricity is bought and sold, and how the price is determined. This is where the power exchange Nord Pool comes into the picture. The power producers do not sell directly to the electricity companies. Every day trading takes place on a market place. – It is an auction where Nord Pool calculates the price, every day, for the next 24 hours, explains Nord Pool manager Tom Darell. Ida Buhr Ødegård, Tom Darell and Atle Sebjørnsen in Nord Pool note that the desire to understand the power market has increased in line with electricity prices. Photo: Emma-Marie B. Whittaker / news The producers report available power to the exchange for the coming 24 hours, and at what price they are willing to sell. At the same time, electricity companies and industrial companies register how much power they want to buy, and at what price. Nord Pool then carries out a calculation to find out what the next day’s prices will be. – The price must signal the balance between supply and demand in the market. A high price signals a scarcity of resources and/or high consumption. In the same way as a low price signals a surplus of power and/or low consumption, explains Ida Buhr Ødegård. The power producers sell electricity on the power exchange to electricity companies or industrial companies. The electricity companies sell and deliver electricity to households, public enterprises or businesses. Graphics: Lene Sæter / NRKK The power producers sell electricity on the power exchange to electricity companies or industrial companies. The electricity companies sell and deliver electricity to households, public enterprises or businesses. Graphics: Lene Sæter / news An international market Nord Pool is often referred to as the Nordic power exchange. But here, manufacturers, electricity companies and industrial companies from other places in Europe can also take part and trade. The exchange currently operates in 16 markets. Together, they have around 400 companies as members. Private customers do not have access. – You have to trade a certain volume for it to make financial sense to be a member. That’s why you have the electricity companies creating a portfolio on behalf of x number of thousand households, explains Atle Sebjørnsen. – Because at my house we use kilowatt-hours, while at ours we trade in megawatts. Atle Sebjørnsen shows which countries Nord Pool operates in. Photo: Emma-Marie B. Whittaker / news This is how the price is set, hour by hour 10.00: Statnett and corresponding TSOs in other countries report to Nord Pool what capacity they have in their power grid. In other words, how much energy can flow from A to B every hour for the next 24 hours. This may vary, for various reasons such as maintenance work. 12.00: Deadline for power suppliers and power customers to report to Nord Pool how much they want to buy and sell every hour in the coming 24 hours, and at what price. 12.00-12.45: Nord Pool sums up the bids in an algorithm, which calculates the prices. 17 minutes have been set aside for the algorithm to work. 12.45: Nord Pool sends out what will be tomorrow’s prices in all areas where Nord Pool operates. The power flow must then be approved by Statnett and the other TSOs. An overview of the prices and how much electricity can go into the network is made available to everyone through Nord Pool’s website. – Here there is a great deal of information that is available to the general public. Everyone who lives in Norway can know what my electricity, which I pay for, is actually bought and sold for. So the raw material price, says Ida Buhr Ødegård. Facts about Nord Pool With the Energy Act, the Norwegian power market was deregulated in 1991. The Norwegian power exchange was established in 1993, the first in the world. Sweden joined in 1996, making it the first international power exchange. Nord Pool was established. In 1998, Finland joined, Denmark in 2000. 2010-2013 Great Britain and the Baltic states become part of Nord Pool’s market. Since 2014, the power markets in North-West Europe have been connected with one common price calculation. Today, Nord Pool operates in 16 European countries. Since 2019, Euronext has owned two thirds of Nord Pool. Euronext also owns other exchanges in Europe, such as Oslo Børs. The last third is owned by the central grid companies (Statnett, Svenska Kraftnät, Energinet, Fingrid, Litgrid). Turnover for 387 million in 2021. The income comes from a fixed membership fee as well as a fee based on the volume traded. The income has no link to the price of electricity. The stock exchange has approximately 140 employees. The head office is located in Oslo. Facts: Nord Pool, Great Norwegian Lexicon. Unpredictable future About 97 percent of the consumption of electricity is converted in this process. The participants can then make some adjustments in what is called the intraday market. It is a continuous market. With the green shift, this could become a far more important market for balancing production and consumption. – Because we get more production from renewable sources such as sun, water and wind, which are more unpredictable. Then the need to act in balance will become even more important than it is today, says Ødegård. With renewable energy sources such as wind and solar power, it becomes more difficult to predict future power production, explains Ida Buhr Ødegård. Photo: Emma-Marie B. Whittaker / news The most expensive electricity sets the price In the power exchange, the electricity must go from areas with a low price to areas with a high price. This is how the market is to be balanced, and the prices are evened out. When our neighboring countries have high production and low prices, we in Norway can import power and save water in the power reservoirs. It is supposed to be able to help us in dry years with little rainfall and meltwater. When the need for power is greater abroad, Norwegian producers can export at high prices. – The power producers decide how much is produced for sale. If they have power available, they must bid it into the market. But they themselves decide at what price. If there is little water, it would be wise to save so that they have water available for production in the periods when the price is expected to be high, explains Ingvild Vestre Sem in NVE. It is the most expensive electricity that is sold that sets the price in the market. When there is not enough power from renewable sources to cover energy consumption in Europe, the need must be met by coal and gas power. Therefore, the high price of gas has had an impact on the price of, for example, Norwegian hydropower. The Norwegian power grid is connected to the power grid elsewhere in Europe through transmission cables. Norway currently has 17 electricity connections abroad. Photo: Emma-Marie B. Whittaker / news Price differences The power exchange therefore arrives at the next day’s prices for the various price ranges. If there were free flights between different price areas, the areas would have the same prices. But due to limitations in how much electricity can be transferred between them, there will be price differences. In Norway, we have five price ranges. – Recently, we have seen that there are often similar prices in NO3 and 4, because the capacity in the network is often sufficient to cover the need for power exchange between the areas. The same applies to NO1 and 5, where there is good capacity between the areas, explains adviser at NVE Ingvild Vestre Sem. Previously, you could see similar prices for the three southernmost price areas. But when the capacity is fully utilized, from NO1 and 5 into 2, you see that price differences arise. – The power price in NO2 is affected to a greater extent by the prices on the continent, as this is where the foreign connections come in. The impact on NO1 and 5 is, on the other hand, limited by the capacity of the Norwegian power grid. Norway is divided into five price areas for electricity. – The market itself works well. This explains the huge price differences we have seen between the north and south of Norway this summer. Tom Darell in Nord Pool says that he spends a lot of time explaining how the electricity exchange and pricing work, and what is the reason for today’s prices. – We think that the market itself works well and as it should, considering that you produce a price signal when you need to. But it may well be that you don’t like that price signal. – Then it’s over to another discussion, which focuses on why you have the extreme results in price, and the price structure you have now that varies so much between price areas, or from day to day. At 12 o’clock is the deadline for registering how much power you wish to buy and sell. At Nord Pool, they check that the orders are correct. That, for example, a typing error has not been made. Photo: Emma-Marie B. Whittaker / news More unpredictability to come The point of the electricity market since the 90s has been two things, explains Darell. Security of supply and efficient utilization of resources. According to him, what has tipped the balance is the green shift. Stable energy sources such as coal and nuclear power have been phased out in many of our neighboring European countries, while efforts are being made to switch to cleaner sources. – You take out many predictable sources, which can produce stably from day to day, and you know exactly what quantity you will get. Then you have to replace this with solar and other renewable resources, which are also unpredictable. This creates large fluctuations in how much is produced, and thus also in price. In addition, Europe has become dependent on gas from Russia. With the war in Ukraine and the stoppage of gas exports to Europe, gas prices are skyrocketing. It signals an energy shortage in the market, says Atle Sebjørnsen. – In the short term, there are two ways to reduce prices. It is to reduce consumption, or to increase access to power.
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This is how the electricity price is determined on the power exchange Nord Pool – news Norway – Overview of news from different parts of the country
