Uneven benefits of German-Norwegian electricity link show need for coordinated policy responses – report
Clean Energy Wire
The cross-border electricity transmission line NordLink, which connects Norway and Germany, has had uneven effects on prices and the broader electricity system in the two countries, pointing to a need for coordinated policy responses, according to researchers at the Norwegian School of Economics.
Germany has clearly benefitted from the interconnector, but Norway has faced substantial negative effects. NordLink has raised average electricity prices and increased price volatility in southern Norway, while lowering average prices in Germany, the report said. However, the researchers state that focusing solely on average prices risks understating the full impact. There were much more significant price changes in southern Norway during certain periods, where prices fell during cheap hours but rose substantially during expensive hours. In Germany, the largest reductions occurred during the most expensive hours.
The researchers recommended to base the cost-benefit assessments for future European interconnector projects not just on average prices, and called for complementary policies to address the effects. These include state support for flexibility options like batteries, and effective redistribution of the gains for energy companies to consumers who bear the costs of integration.
The EU has worked for decades to merge the electricity markets of its member states and European neighbours like Norway, and make the flow of power across borders as seamless as possible. Cross-border grids can reduce overall system costs, research has shown. However, there is political backlash against integration, especially in countries with low power prices that export a lot, such as Norway and Sweden. "The challenge is how to integrate markets better without hurting end consumers," energy economist Alexander Esser at consultancy Aurora Energy Research recently told Clean Energy Wire.
Europe’s electricity grids have become a bottleneck rather than a driver of the energy transition. This comes with costly consequences for the EU’s competitiveness and green future. With its Grid Package, the European Commission aims to tackle structural challenges by bringing a European perspective to planning, strengthening interconnectivity, and supporting the rapid electrification of transport, heating, and industry.