NEXIT: A Norwegian Decoupling Scenario in the European Power Market Implications of removing interconnector capacity
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- Master Thesis 
This thesis investigates the consequences of "NEXIT", the decoupling of Norway from the European electricity market, as a contribution to the current electricity market debate in Norway. Impacts on prices, social surplus, power flows and electricity market stakeholders are illuminated. The analysis is conducted through an optimisation model, using data from 17 selected European price areas over a 60 day time period in early 2022. By looking at three distinct interconnectors to Germany, Great Britain and the Netherlands, different NEXIT scenarios are compared and contrasted. This thesis is inspired by similar investigations done on British decoupling, and analyses from Statnett on the impacts of interconnectors. Findings from this thesis suggest that NEXIT leads to a reduction of the total Norwegian and European social surplus. Southern Norwegian price areas experience lower and more stable prices, while Western Europe sees a price hike and increases in price variations. Hourly prices in the south of Norway are simulated to fall €12 /MWh or 9% on average if all interconnectors are disconnected simultaneously. This causes a similar drop in southern Swedish prices. In Western Europe, Great Britain and the Netherlands are the most affected, with a price hike of 15%. Consumers in the south of Norway benefit from the lower prices, but this is outweighed by losses to Norwegian producer surplus and congestion rent, causing an hourly net loss €1 2 4 000 in social surplus on average. Overall for Europe, the impact of disconnecting all three interconnectors amounts to an hourly average loss in social surplus of €2 4 0 000. Congestion in the Nordic power grid isolates the effects of NEXIT to the southern price areas in Norway and Sweden. A key limitation of the thesis is assessed through a sensitivity analysis accounting for changes to water-values. The sensitivity analysis suggests that the NEXIT impact on water values significantly affects results on prices and social surplus. Results are contingent on the current power mixes, which are likely to change in the future. A Norwegian exit from the European electricity market would nevertheless be expected to have far ranging consequences on prices and social surplus in Norway and Europe.