7 December 2010
Higher electricity prices predicted for 2011

The Danish newspaper Jyllands-Posten says: "Electricity customers to pay billions". The reason is supposed to be shortage of water for Norwegian and Swedish hydro power plants combined with an increasing consumption of electricity during the cold of winter.
Between 5 and 7 pm today the Nord Pool spot price for East Denmark reaches 2000 Euro/MWh which is the highest level ever.
Some possible reasons for this development will be discussed below. The energy balance in Norway has a major influence on the Nordic electricity market. Therefore the system price in the Nordic spot market for electricity will be compared with the water level in the Norwegian hydro storages for the last two years:

The chart presents 2009 as a quite exemplary year with a stable spot price throughout the year and a storage level increasing from 30% before the spring season to 90% right before the winter.
2010 is different. The spot price is very high at the end of February. The minimum storage level is slightly above 20% before the spring season and the maximum level does not exceed 70% in October.

Unusual growth of Norwegian electricity consumption
The development of electricity consumption in Norway may be a part of the explanation:

The chart shows a surplus of energy in Norway in 2009. The export of electricity was 9 TWh and the hydro storages were filled up.
In 2010 the electricity consumption increases about 9% compared to 2009. So far the growth has been about 11 TWh. Besides the inflow of water during the last 12 months has been about 20 TWh below the level a year ago. Thus the overall Norwegian energy balance has been deteriorated by more than 30 TWh in a year.
In comparison the total Danish electricity consumption was 34 TWh in 2009.
It is felt in the neighbouring countries. The 9 TWh exported in 2009 were changed into 6.5 TWh imported so far in 2010. The hydro storages have provided for another 15 TWh.

Insufficient transmission capacity
My analyses of the spot market since 2006 have revealed another important element: the availability of the interconnectors is much poorer than expected.
The reasons are technical problems with cables ad substations and temporary reductions of the transfer capabilities.
Reduced interconnector capacity was the main reason for the very high electricity price in East Denmark on 7th December. The Kontek interconnection to Germany was out of operation for repair, and during the critical afternoon hours the Øresund interconnection from Sweden was administratively reduced to 0.
Such reductions of export capacity from Sweden have a considerable influence on the Nordic power market. During the critical hours on 7th December export from Sweden to West Denmark was curtailed to 0. Export from Sweden to Southern Norway was curtailed from 1745 MW to 95 MW.

The Konti-Skan interconnector between Sweden and West Denmark has been reduced from 700 MW to 150 MW for technical reasons.
Based on a Danish complaint the Swedish procedure has been dealt with by the European Court. See the settlement here.
Independently of cause and responsibility it can be concluded that transmission capacities are insufficient for an appropriate service to the international power markets. This is valid for both national grids and interconnections.
The supporters of a European supergrid should pay more attention to the availability problem.

Will the future electricity market become more volatile?
The electricity producers cannot afford to have large capacity reserves ready for operation in the future.
DONG Energy has announced that to coal fired power plants which were closed down permanently will be temporarily reopened for operation. The two power plants are block 4 at Studstrupværket (350 MW) and block 5 at Asnæsværket (650 MW).
It must be anticipated that the combination of wind power, closed thermal power stations and insufficient transmission grids will gradually create a more volatile power market.
This is not a problem. Only the prospect of large profits can attract new production capacity. Therefore there is no reason for the alarming headlines in the newspapers when the cost of electricity is growing.
I shall study the interesting trends in more detail in the New Year when data for 2010 is available for my annual statistical survey.

Opdateret d. 12.12.2010