As Norway invests in offshore wind farms to increase its renewable energy supply, projects are stalled between the opportunity to make profits exporting power and the fear that electricity prices increase for the population. The industry is pressing the government for a decision.
Norway wants to invest in its offshore power grid but is worried it would increase the price of electricity for the Norwegians. Exporting electricity can be lucrative but Norwegians will also pay for the investment while they already have to live with energy price increases.
Future low-carbon economies offer great economic opportunities for renewable energy industry players. And Norway could benefit from it with its expertise in offshore energy.
As the European Union has pledged to become carbon neutral by 2050, it plans to use 60 GW of power coming from offshore wind by 2030, and 300 GW by 2050.
In 2019, Norway exported NOK 11 billion (US$1.2 billion) of technology and services in the offshore wind industry. The country estimates the industry could generate NOK 50 billion in exports in 2030 and be among its five largest export industries within the next 15 years.
In 2020, Norway announced the opening of two new wind farms with a combined capacity of up to 4.5 GW. The two wind farms, Utsira Nord and Sørlige Nordsjø II, are located in the North Sea and are supposed to become operational in 2030.
With these projects, Norway can become a leading provider of renewable energy in Europe.
The race for leadership in the offshore wind power industry
The North Sea has among the world’s best wind resources and is surrounded by powerful economies. And Norway hopes to take advantage of it. As Norway’s oil and gas production is expected to gradually decrease until 2040, the country’s offshore expertise positions Norway as a future leader in the industry.
But the North Sea is also deep and while most wind farms are currently in shallow waters, deep sea areas require floating wind farms, which are also more expensive to build.
The Norwegian Water Resources and Energy Directorate estimates that floating wind farms would cost 37% more than traditional offshore power in 2030, and almost four times as much as land-based wind energy.
But Norway is not the only country investing in wind power. Countries with maritime rights in the North Sea do the same.
The United Kingdom has the largest offshore wind power capacity and plans big investments in the sector. Scotland recently granted seabed rights for 7,000 km² of sea space for offshore wind farms with a total capacity of almost 25 GW.
The Netherlands currently has 2.9 GW of offshore wind power. It was aiming for 11.5 GW by 2030 but decided to level up its ambition to 22 GW.
And as there are more wind farms building up in the North Sea, the possibility for connecting power grids between countries, and opportunities for making commerce of electricity, grows as well.
Denmark plans to build two artificial “energy islands,” one in the North Sea and one in the Baltic Sea. They are basically floating power plants located close to offshore wind farms that would collect electricity more efficiently. It would then facilitate its distribution across countries. Denmark has already signed trade deals with several of its neighbors.
Investing for future profits requires Norwegians to pay for it
But Norway is afraid that connecting its system with foreign countries and exporting power will lead to domestic price increases.
Meanwhile, Statnett, the state-owned operator of Norway’s power system, is waiting for approval from the government to build hybrid cables in the new wind farms.
Hybrid cables can supply power from offshore wind systems to both the Norwegian and European electricity markets. That way, Norway could export its surplus of electricity but also receive electricity when wind turbines don’t produce any.
However, the export of electricity is thought of as a reason why its price has increased so much in Norway recently. Energy used to be relatively affordable but the country is reconsidering its investment strategy.
As Europe is in the middle of an energy crisis, electricity could cost 7 times as much as in 2019 in Norway last December. The Kingdom is already one of the most expensive countries in Europe.
Norway already exports its power through cables. It opened two cables, one to the United Kingdom and one to Germany, last year.
Exporting electricity to the United Kingdom is lucrative for Norway. British are ready to pay a high price as their population has the most expensive electricity in Europe.
But Norwegians fear the power industry is more eager to make profits by selling to foreigners than supplying the domestic market, which in turn reduces supply and increases domestic prices.
Hybrid cables, essentials to profitability for the offshore wind farm industry
The government last year decided to suspend a cable project with Scotland. It also suspended all new licenses until the impact of the current hybrid cables is better understood. Nevertheless, the government also believed that licensing for hybrid cables should resume in the long run.
But the industry presses and pushes for hybrid cables arguing that wind farm projects will not be profitable without them. In the meantime, Norway aims to increase its sea-sourced exports, excluding oil and gas, by at least 50% by 2030.
For the Confederation of Norwegian Enterprise, Norway’s leading business lobby, and the Norwegian Shipowners’ Association, the trade organization of the shipping and offshore industry, the investment is necessary and can no longer be delayed to compete in the renewable energy market race.
“While our neighboring countries are investing in new renewable energy, there are many indications that we, in Norway, are more concerned about blaming Europe for high Norwegian electricity prices than actually doing what is needed to speed up the solutions”, the Norwegian Shipowner’s Association said in a statement on January 25.
The government of Norway unable to make a decision
In fact, the government is torn to make a choice. The Labor and Center parties, which make the government coalition, actually disagree with the path forward. The Labor party holds 11 ministry positions and the Center party is represented by 8 ministers.
Prime Minister Jonas Gahr Støre, from the Labor Party, is in favor of investing in hybrid cables. But the Center Party, which includes Minister of Finance Trygve Slagsvold Vedum, considers that offshore wind power should first and foremost bring affordable power and cover industrial needs in Norway.
Not approving new international connections means there will be no hybrid cables for the Center Party. But the prime minister said he wanted to be able to be connected with foreign power grids. Amid the confusion, Støre admitted on January 12 that the government may need to better understand what hybrid cables actually are.
According to NRK, the Norwegian Water Resources and Energy Directorate shared its calculations with the government.
Exporting power, and investing in it, will make more profits for the energy industry but Norwegians will pay for their electricity at a higher price.
“We don’t have clear conclusions”, said Henrik Glette, communications director at Statnett. The company is still waiting for approval.
