Analysis of selected measures in the Norwegian power market
AFRY Management Consulting and Menon Economics conducted a comprehensive analysis for the Norwegian Ministry of Petroleum and Energy (OED) to evaluate measures that could reduce the risk of strained supply situations and mitigate consumers' exposure to high and/or highly variable electricity prices. The study focuses particularly on measures to reduce household expenses
The study, prompted by low hydropower reservoir levels and high electricity prices in southern Norway during 2021–2022, used the BID3 power market model to assess the impact of proposed measures on prices, supply security, and reservoirs. The interconnected nature of Norway’s power market with neighbouring countries was a key factor, as fluctuating reservoir levels, combined with European energy shortages and price surges, increased market volatility.
Key measures in this report focus on balancing electricity supply, price stability, and market efficiency in Norway’s power market. They include:
- Maintain minimum reservoir levels to enhance supply security
- Limit exports or introduce an export tax to reduce price volatility
- Expand the power grid to decrease regional price differences
- Price caps could provide short-term relief but risk disrupting the market and supply security
- Cash payments are more cost-effective, flexible, and reduce consumer exposure to high electricity prices without distorting market incentives
- Establishing a state-owned electricity company was considered but found ineffective due to legal and economic challenges; improving transparency and customer choice through existing mechanisms is preferred
The study emphasises that while some measures could provide short-term relief, long-term solutions lie in fostering more efficient market conditions, better interconnectivity, and clearer regulations. The BID3 model was crucial in assessing these measures' feasibility and impact, providing powerful stochastic hydro modelling to quantify Norway’s complex power market.
>> Link to download full report [PDF] (Norwegian only) - external link External link.
>> Link to download full report [PDF] (Norwegian only) - internal link pdf, 5.9 MB.
