Market developments
The most important market factors in the energy market.
Fuel prices (coal, oil and gas)
CO2
Demand from the industry and households
Precipitation and temperatures (the Nordic region)
Transmission capacity
Falling prices
Power prices plummeted in 2009, especially on the Continent. While the average spot price in Germany was 65.8 EUR/MWh in 2008, it fell to 38.9 in 2009. The Nordic spot price fell from 44.7 to 35.0 EUR/MWh during the same period. In January and February 2010, the average prices were 53 and 69 EUR/MWh, respectively. Long cold spells and little snow, combined with low availability for Swedish nuclear power has boosted prices significantly compared with 2009. The Nordic market saw low availability as regards Swedish nuclear power plants, which produced 50 TWh in 2009, compared with 61 TWh in 2008. The Nordic region net import in 2009 was 8 TWh.
See development of European power prices in 2009
Following the dramatic drop in commodity prices in the autumn of 2008, prices started to recover from January 2009. The price of oil in particular saw marked growth, from an average price in January of 43.4 USD/bbl to 74.5 USD/bbl in December. Coal prices remained at about the same level in December as in January 2009, about 78 USD/tonne. The lowest price was observed in March with 62.3 USD/tonne. The major increase in the availability of liquefied natural gas (LNG) in the Atlantic Basin resulted in gas prices in Europe following US gas prices for large parts of 2009.
See prices of raw materials 2006 - 2009
Lower CO2 emissions
The financial crisis, with the subsequent dip in demand and consumption, has had a major impact on CO2 emissions in Europe. Emissions from the industry were about 16 per cent lower in 2009 than in 2008 due to lower production. Emissions from the energy sector also fell by 7 per cent in 2009 compared with 2008, partly due to lower power consumption and reduced gas prices resulting in higher gas production instead of coal power. The emission reduction has resulted in an expected surplus of CO2 emissions in the EU's emission trading scheme (EU ETS) in the period 2008-2012, but the effect on prices will be mitigated by the fact that transferring emission allowances into the next phase (2013-2020) is permitted.
Lower power consumption
Preliminary figures from the European Network of Transmission System Operators for Electricity (ENTSO-E) indicate a dip in power consumption in Continental Europe of about 5 per cent from 2008 to 2009, while power consumption in Norway fell 5.7 per cent. The most dramatic reduction in Norway came in the power-intensive industry, with consumption dropping 18.9 per cent to 42 TWh. The regular consumption was almost unchanged from the preceding year.**
See industrial electricity consumption in Norway
Integration of marketplaces
On the Continent, the spot and derivatives markets in the German and French energy exchanges (EEX and Powernext) were merged. This entails an integration of the German, Austrian, Swiss and French power markets, covering one-third of the European power consumption. The cooperation is a determined step on the way to achieve the EU's ambition relating to one common European energy market and will result in more centralised and increased liquidity.
Trading on EEX in 2009 amounted to 1228 TWh, of which 196 TWh in the spot market. For Nord Pool Spot, the traded volume in 2009 was 278 TWh, which amounts to 72 per cent of the total Nordic consumption. About 1200 TWh was traded in the financial market, a decline from 2008.
Further liberalisation of the gas market
The European gas market is still characterised by large players offering long-term oil-indexed gas contracts. This has traditionally meant a market with little transparency and low liquidity. For several years, the EU has had a goal of creating more markets for gas in Continental Europe by liberalising the gas market using the British model, where gas is traded as an independent commodity.
The Netherlands and Belgium lead the development towards liberalised gas markets in continental Europe, but the positive development towards a well-functioning gas market also continues in Germany. During the past year, the number of market zones has been substantially reduced in Germany, an important factor in the considerable increase in spot and financial market liquidity.
German competition authorities are now putting pressure on established players to make it easier for other companies to gain access to transmission capacity and they are also considering whether there are clauses in long-term gas contracts which inhibit competition.
Low gas market prices, resulting from reduced demand due to the financial crisis in combination with increased availability of LNG, may also strengthen marketplaces at the expense of long-term oil-indexed contracts.
The potential for increased use of gas in Europe is mainly found in connection with growth in gas power. The energy sector is facing major investments in the coming years as old power plants will be phased out and the percentage of renewable energy production increases. Gas power plants with flexible production are well-suited to balanced production in the power market, for example in combination with wind power.
Outlook
The financial crisis resulted in plummeting prices, demand and investments. The duration and consequences of the crisis are still uncertain. However, Eurostat's industrial index shows that the EU economy has been growing since the second quarter of 2009, but with major national variations. The end of 2009 and especially the beginning of 2010 saw little differences in Nordic and German prices, but the market expects larger differences in the years leading up to 2016.
The development of the Nordic energy market until 2020
The potential power surplus in the Nordic region towards 2020 is gaining attention. The Nordic transmission system operators (TSOs) have prepared an overview which shows an expected power surplus of 16 TWh in 2013. For purposes of comparison, the Nordic energy market had a net import of 1 TWh in 2008.
As a result of political objectives relating to increased renewable energy production in the period leading up to 2020, a new nuclear power plant in Finland and increased capacity in Sweden, a substantial increase of new production capacity is expected in the Nordic region. The agreement between the governments of Sweden and Norway, which lays down the principles for the realisation of 25 TWh by 2020 in a common certificates market from 2012, is a specific example. At the same time, electricity consumption in the industry over the past year has fallen, and the future development in consumption is uncertain.
Focus on transmission capacity in Europe
A stronger awareness has emerged of the fact that new transmission capacity, both nationally and between European countries, is a significant precondition for a practical and efficient development of the power system. This is largely due to clear and ambitious political targets for a greater share of renewable energy production, which will mainly consist of wind power. Wind power will be produced far from population centres, and, increasingly, offshore. This will require substantial investments in transmission capacity.
Other production capacity can be activated during periods when wind power falls short, while the flexible production capacity can be reduced when wind power production is higher. A well functioning European power system will require substantial transmission capacity as well as flexible energy production such as large-scale hydropower and gas power which can be produced when wind power production is low.
In 2009, we experienced a substantial number of hours with negative prices on the German energy exchange EEX. An example was the night between 3 and 4 October 2009, when prices briefly fell to -500 EUR/MWh. This took place while wind production was high and in spite of all other production technologies reducing their production as much as possible (see figure). This shows that the current system is not flexible enough to handle variations in wind power production properly.
See German power prices 2-5 October 2009
Following a resolution by the EU, a European transmission grid organisation, ENTSO-E, has been established. The organisation's membership includes transmission system operators from 34 countries. The purpose is to contribute to better cooperation and a greater degree of coordination between the European systems operators. The organisation has been tasked with preparing a transmission system development plan for the next ten years. The plan is scheduled for completion in the summer of 2010. Coordinated transmission system development in Europe will be extremely important to achieve a well-balanced power system.
For Norway, Statnett prepared a new development plan for the transmission system in 2009. Compared with earlier plans, the new plan calls for substantially increased transmission capacity out of Norway. The plan also calls for the construction of new cables to Denmark and the Netherlands, where connections already exist, and to Germany and the UK, all by 2020. In addition, new transmission capacity to Sweden is also being planned. This will require significant upgrades of the national grid, but will provide opportunities for increased production capacity in Norway and improved security of supply. Ongoing initiatives can be found, for example, in the NORGER project, which concerns a subsea power transmission cable running 570 kilometres between Norway and Germany. The companies behind the project are Agder Energi, Lyse, the Swiss company EGL and the German company EWE.
