The government of Norway decided to reject NorthConnect’s license application to build a cable between Norway and Scotland which would have strengthened the exchange of electricity across the North Sea. Norway prefers to cancel this renewable energy export project to keep it for its population.
Norway’s minister of Petroleum and Energy, Terje Aasland, eventually announced on March 16 that the license application of NorthConnect for a new power connection between Norway and Scotland is rejected. NorthConnect’s project was suspended for nearly two years as Norwegian authorities couldn’t decide on the controversial proposal, torn between exporting electricity and protecting its population from international market fluctuations.
The project was meant to build a 1.4 GW undersea interconnector between Norway and Scotland. This 665-kilometer (413 miles) hybrid electric cable would have allowed exchanges between Scottish wind power and Norwegian hydropower.
Although more expensive, hybrid cables allow for buying and selling from both sides and promise a better balance between supply and demand, and better management of price fluctuations. It will become crucial with the increase of renewable energy, whose production can be uncertain and depends on weather conditions.
There will be a growing wind power supply from Scotland in the North Sea, but the production volume can fluctuate, and storage is challenging. On the other hand, Norway has a surplus of hydropower, which can be stored and turned on and off more easily.
NorthConnect estimated the cable would save over 2 million tonnes of CO2 equivalent per year, the emissions of 1 million passenger cars in the United Kingdom. By selling hydropower to Scotland, it would reduce its needs in gas.
Moreover, exporting electricity can be lucrative for Norway as the United Kingdom can pay a high price for it – their population has the most expensive electricity in Europe.
The Norwegian Water Resources and Energy Directorate in 2019 assessed the NorthConnect project would be economically and socially profitable for Norway.
Cables exporting electricity coincided with an increase in prices in Norway
Nevertheless, “it is important for the government to ensure we have a power system that meets the basic objectives of power supply at all times,” declared Mr. Aasland, a member of the Labor Party, according to a government’s written statement.
For the ministry, the economic consideration alone “is not sufficient” to grant the license, justifying it with considerations related to limitations in grid capacity between the southern and northern parts of the country, the uncertainty of exposure to Norway’s power grid to energy systems of other countries, and changes in Europe’s energy market.
NorthConnect applied for a license to establish a connection with Scotland in 2017. The Scottish government approved the project in 2019. But the Norwegian government of Conservative Party leader Erna Solberg put the license application process on hold in 2020.
Since 2021, Jonas Gahr Støre of the Labor Party has led a minority coalition government in Norway with the Centre Party. Both parties have disagreed with the path forward. The prime minister favored exporting energy and investing in hybrid cables. But the Center Party considered power should first and foremost bring affordable power to the population and cover industrial needs in Norway.
The government recently said it would not allow any international connection project for the next four years.
Two cables connecting Norway’s power grid with Germany and Great Britain have been operational since 2020 and 2021. They increased Norway’s export capacity by 2.8 GW, reaching a total export capacity of approximately 9 GW. The export capacity of Norway increased by 60 percent in the last ten years, and NorthConnect’s project would have increased the export capacity by another 15 percent by 2030.
But the cables also coincided with increased energy prices for the Norwegian population. Connection to foreign energy grids also means that external market turbulences affect Norway.
Large price differences between the south and north of Norway
And the south of the country, the region where export cables are located, has been heavily affected by the European energy crisis from Russia’s decrease in gas supply. Electricity prices jumped in Southern Norway at the end of 2021, contributing to a large gap between the south of Norway and the central and northern regions of the country.
In July 2022, the price of electricity in the north of Norway was about 2-3 øre (0.2 to 0.3 cents) per kilowatt hour, and around 300–400 øre in the south (0.26 to 0.35 euros; 28 to 37 cents).
This confusing situation creates frustration among the population mainly living in the country’s south. Trøndelag (Central Norway) and Northern Norway only account for 16 percent of Norway’s total population.
And half of the Norwegian population finds it difficult to understand such price gaps between the north and the south, according to an IPSOS for NorgesEnergi, one of Norway’s largest low-cost companies in the electricity delivery market.
Norway’s five major geographical areas have different electricity prices.
While Northern Norway can’t really export its power, it is hermetic to the fluctuations of the European energy market. The south of Norway can export electricity at a high price when other countries need it, but it affects electricity prices in the region. The north is exempt from electricity tax and VAT, too.
Last summer, the south also experienced a lack of rainfall and water in reservoirs for hydropower was low, bringing more fears from the government about the uncertainty of supply with more and more dry seasons for the years to come.
Moreover, transmission capacity between the regions of Norway is limited. Norway can transfer only 500 MW between the north and south of the country. In its Swedish neighbor, it is 6,000 MW.
Reluctance to export renewable energy to secure domestic needs
“We need to use Norwegian energy to build Norwegian industry and contribute to competitive prices in Norway. The experience gained from the last two foreign cables indicates that we should not plan for further exports now. That is why we say no to this private foreign cable,” says Research and Higher Education Minister Ola Borten Moe, from the Center Party.
NorthConnect is a joint venture between four publicly owned Scandinavian companies: Lyse, Agder Energi, Hafslund E-Co, and the Swedish state-owned Vattenfall. The three Norwegian power companies are owned by 47 municipalities in the southern counties of Rogaland and Agder and the city of Oslo.
The license application process restarted in early February and the government answered a few days after NorthConnect submitted its documentation. The company asked the government to refrain from jumping to conclusions, arguing that the cable would not be operational before 2030, that it would not influence Norwegian electricity prices before then, and that the United Kingdom would have a large surplus of wind power.
But for the minister, the security of supply is already assured by the two other hybrid cables. And he considers the current extraordinary tensions in the European energy market may become more standard in the years to come.
The project was estimated to cost about 1.7 billion euros (1.8 billion dollars), split between Norway and the United Kingdom. Several million have already been spent on it.