- Cheap renewable power make out a competitive advantage

Read the summary from the Process 21 report here (English summary page 5-7)

Hydro-electricity was the enabler for manufacturing industry development in Norway, an industry which has since grown in size and stature. It is well-established even though most industrial products made in Norway are sold on competitive global markets where most competitors benefit from various subsidies not permissible in Norway and the EU.

Renewable electricity

What enables the manufacturing industry to stay and thrive is a set of competitive advantages not available elsewhere. Access to renewable electricity at relatively low prices is the most important one.

Hydropower plants in particular, some still in operation after 100 years, is why Norway remains host to many industry facilities. Hydropower is renewable, flexible and, if there is plenty water available, cheap.

- The larger the surplus, the lower the price

For the past 20 years electricity generation in Norway has exceeded demand. This is good for the manufacturing industry. When there is a surplus of generation, and the hydropower magazine filling is high, the water in the magazines is less valuable and the electricity is bid to the markets at lower prices. The larger the surplus, the lower the price. Most Norwegian hydropower magazines are single-year and cannot store large volumes of water for multiple years. When magazines are full, more surplus electricity must be exported on interconnectors that can transmit both ways. The more the interconnectors are used to export, the more exports effectively have to outcompete imports. For this to happen, Norwegian electricity prices must be lower than those abroad.

Committed to climate goals

There are compelling reasons to believe that, going forward, renewable electricity will be a scarcer resource. Norway is committed to achieving ambitious climate goals. These goals are achievable, but not without greater use of renewable electricity.

Climate ambitions apply for the industry too, meaning that today’s production technology will be replaced by a much more power-intensive fully decarbonized one. For transport, heating and oil and gas extraction, the perceived solution to cutting emissions is by replacing fossil energy with electricity. At the same time, a decarbonised and more digitalized future involves new types of power-intensive industries, such as datacenters, battery cell production and, hopefully, increased activity in “traditional” manufacturing.

Benefits for the industry´s electricity use

A higher demand for electricity means more network infrastructure development. The electricity grid is an expensive type of infrastructure that the manufacturing industry pays an ever-increasing share for, without necessarily being responsible for triggering the need for grid expansion. When electricity is scarcer and the grid more expensive, electricity consumption will be more costly, and the manufacturing industry in Norway risks losing its most important comparative advantage.

To prevent this, the industry’s grid tariffs must first be adjusted to what the industry should pay. This should take into account the benefits industrial electricity consumption provides to the grid and the direct contributions the industry already pays in terms of connection fees.

A common marked helps

At the same time, given the expected increase in demand for electricity, electricity generation must increase correspondingly to keep electricity prices competitive.

There should be certainty that renewable electricity will be an excess commodity and that electricity prices will be competitive well into the future. Being a part of a common Nordic electricity market may help.

Sweden has a larger electricity surplus than Norway today, and Finland will probably be a surplus area when the country's fifth nuclear power plant is finally completed. If these countries uphold their electricity surplus in the future, this will mitigate the price impact of a potential Norwegian electricity deficit.

However, trusting Finland and Sweden to uphold an overall Nordic electricity surplus is an insufficient strategy. The future of both Swedish and Finnish nuclear power, important components in each of the countries' electricity generation mix, is uncertain.

Read more in the summary from the Process 21 report here (English summary page 5-7)