Main factors
FactorBrief context
Amount of precipitationA large proportion of the Nordic power market is supplied by hydroelectric power. Therefore, the amount of precipitation is hugely important to the prices in the Nordic power market Nordpool. High precipitation provides more water for power production, which in turn increases the supply on the power market and drives the prices down.
Temperature factorsIn the Nordic countries, heating of homes is largely based on electrical power. For this reason, the temperature has a direct effect on the supply. The lower the temperature, the higher the demand, which in turn causes the prices to increase.
Activity level in the economyThe Nordic power market is affected by fluctuations in other commodity and currency markets, mainly in Europe, but also to some degree all over the world. General economic fluctuations such as downturns and upturns also affect power consumption and thereby trade.
Coal pricesWhen the coal price increases, it becomes more expensive to produce coal power in Europe. Unlike wind power or hydroelectric power, for which the ‘raw material’ is free, the coal plants in Europe need to purchase coal in order to produce electrical power. If the coal price rises to a level at which it is unprofitable to burn coal for power production, production is stopped in the coal power plants. A high coal price gives lower production in coal power plants, which in turn decreases the supply and gives higher power market prices.
Gas pricesEurope has a number of gas power plants. Like the coal power plants, these plants are dependent on purchasing ‘raw materials’ in order to produce power. A low gas price will give higher production in European gas power plants, which will in turn increase the supply and give lower prices in the power market.
Nuclear powerThere are several large nuclear power plants in the Nordic region. Whether the region will have more or less nuclear power in the future is largely a political question. Sweden is planning to shut down some of its nuclear power plants, while also upgrading its existing plants. Finland is planning to develop a large new nuclear power plant which will give a significant increase in supply for the Nordic power market.
The US dollarA weaker US dollar will give lower coal prices, as coal is priced in US dollars. A weak US dollar will improve conditions for instance for German coal power, which in turn can give increased export from the German to the Nordic power market.
Exchange with non-Nordic countriesThe Nordic market is also linked to power markets in other countries. Power is transferred from countries such as Russia, Germany and Poland. Therefore, the supply and demand on the continent will also affect the Nordic prices. The differences in price between daytime and nighttime are much greater on the continent than in the Nordic countries. The forces in the European power market secure cheap nighttime power from Germany and transport as much of it northward as the network allows, while as much daytime power as the network is capable of handling is purchased cheaply in the Nordics and transported southward. This exploits the Nordic hydroelectric power plants’ efficient regulation capacity. In years with high precipitation, power leaves the Nordic region for the majority of hours in the year, and in dry years, power enters the Nordic region for the majority of hours.
CO2 pricesFrom 1 January 2005, carbon credits were implemented for CO2 emissions. As a result, power plants emitting CO2 need to purchase carbon credits to cover their emissions. These credits are traded in a separate market, and if the price of carbon credits rises to a certain level, it may be unprofitable to produce power from fossil fuels. A high carbon credit price may give a lower power market demand, which in turn will lead to higher prices.
New production capacityIf the production capacity is extended, the supply of power will increase. Prognoses show that it will cost around NOK 0.25-0.30 per kWh to develop new power plants. For this reason, it is reasonable to expect that this will be a maximum average price level in the power market over time – given that it is possible to extend production capacity to cover the demand.
Power consumption over timeIn Norway alone, power consumption is rising by around 1-1.5 TWh per year. 1 TWh is enough power for approximately 50,000 households. In the last 10 years in Norway, consumption has risen five times more than the increase in production capacity. Increased consumption gives higher power market demand, which in turn leads to higher prices.