How Do the EU’s Climate and Energy Policies Affect Norwegian Electricity Prices and the Outlook for Profitable Wind Power Development in 2030? : A grid parity analysis of onshore wind in Norway under different scenarios for the future power market in Northwestern Europe

Abstract

In this study, I conduct a scenario analysis of the power market in Northwestern Europe in 2030 to assess how different trajectories towards achieving the EU’s energy and climate objective affect the Norwegian electricity prices and thereby the market value for onshore wind. Due to the close integration of the European electricity markets, the EU’s long-term transition to a low-carbon and energy-efficient economy has vast implications for the levels and structures of the wholesale electricity prices in Norway, which in turn determine the revenues for Norwegian wind power projects. Following the Norwegian government’s decision to withdraw Norway from the electricity certificate market after 2021, the long-term development of the wholesale electricity price and the costs of wind projects will solely determine whether it becomes profitable to develop onshore wind in Norway in 2030. I find that the EU’s climate and energy policies lead to higher and more volatile electricity prices in Norway under all scenarios, which particularly favors the development of wind power in Norway. In the Base Scenario of this analysis, Norway’s average electricity price increases to 44 €/MWh in 2030, while the market value factor of onshore wind is 101 % in all Norwegian bidding zones. By comparing the volume-weighted electricity prices for onshore wind with my estimates of the levelized cost of electricity for 25 onshore wind power projects in Norway, I find that onshore wind reaches grid parity in 2030. Finally, I find that the wind value factors in Norway range from 99 % to 103 %, for wind shares between 5.8 % and 16 % of the Norwegian electricity mix across the four scenarios for 2030. This stands in stark contrast to the wind value factors in Sweden, Denmark and Germany, which drop to 94 %, 93 % and 82 % respectively in the scenario with high renewable energy development and low carbon prices in Europe. The study concludes that the Norwegian power market is particularly well suited for increased wind power development due to the high share of flexible hydropower generation, the correlation between demand peaks and wind power generation, and the limitations in cross-border transmission capacity that upholds price differences.