Nordic electricity prices are significantly influenced by policy decisions beyond the region’s borders. The report examines how developments in countries such as Germany, Great Britain, and Poland could affect prices, trade, and risk levels across the Nordics.
The study identifies key drivers including the expansion of firm capacity, investment in renewable energy, the availability of interconnector capacity, and potential trade restrictions.
Based on scenario analysis towards 2035, the report assesses how different regulatory outcomes could shape the Nordic electricity market.
The analysis points to several key findings:
- Less firm capacity increases price volatility: A shortfall in firm capacity in neighbouring markets, particularly if Germany fails to meet its gas capacity targets, would lead to more frequent price spikes, including in Nordic bidding zones, especially those closely connected to continental Europe.
- Offshore wind could sharply lower prices: If Germany, Great Britain and the Netherlands deliver on ambitious offshore wind targets without corresponding demand growth, Nordic electricity prices could fall by more than 50 percent in some scenarios. Expansions in solar and battery capacity have more moderate, though still significant, effects.
- Trade restrictions risk net welfare losses: Reduced interconnector availability or limits on cross-border trade would lower prices for Nordic consumers but reduce revenues for generators even more, particularly in net exporting countries such as Sweden, resulting in an overall welfare loss.
- Tariffs would curb trade and revenues: Transmission tariffs or surcharges would dampen cross-border flows and significantly reduce congestion revenues, even if the impact on average electricity prices remains relatively limited.
- German bidding zone split could lower Nordic prices: A division of the German bidding zone could reduce prices in northern Germany and, through market coupling, also in the Nordics, though to a lesser extent.
The findings underline the close integration of European electricity markets and how decisions taken outside the Nordics can have direct and far-reaching effects on the region’s power market.
