Norway Holds Up Power Plans with Germany

Germany’s grid flexibility hangs in the balance as Norway shelves electricity trading plans.
Published: Mon 19 May 2014

Germany and Norway have been in talks about how to boost electricity trading from renewable sources but plans are now being shelved as there are concerns that the undersea power cable, Nordlink, won’t be financially viable.

The cable, to be laid under the North Sea, will be 387 miles long and is expected to cost US$2.8 billion. But, these plans are at risk because Norway’s state-owned Statnett SF is worried about the project’s potential lack of profitability. Norway has called for assurances from the German government that Nordlink will be part of a future capacity market that pays for backup power, according to Christer Gilje, spokesperson for Statnett.

The cable, running from Tonstad in southern Norway to Wilster in northern Germany will be the first direct power link between the two countries. It would have the capacity to transmit 1.4GW of power and it could start transmitting by 2018. This cable will transmit Norway’s excess hydropower to Germany which will be used to offset intermittent production from renewables, mainly wind farms in the north. Germany’s excess wind power will be transmitted to Norway.

Germany’s grid flexibility hangs in the balance

The cable is seen by Germany as a key link to help ensure grid flexibility which has become increasingly critical as the country develops its renewable energy to completely replace nuclear power by 2022.

While reactors work around the clock, wind turbines and solar farms generate power during sunny and breezy spells. The cable will help create more stability when renewable power is at its lowest level.

Norway’s Statnett will own a 50% stake in the transmission-line project, while German state-owned bank KfW Group and the grid company TenneT each will hold 25% shares. The power-trading is meant to help develop renewable energy production on both sides.

The German and Norwegian governments are holding “intense discussions” over whether to include the cable in the capacity market.

Norway’s Ministry of Petroleum and Energy is reviewing the application to build Nordlink and its decision hinges on whether the project will be profitable, said Hakon Smith-Isaksen, a spokesman for the ministry.

Uncertainty surrounding profitability

Possible income from capacity markets can contribute towards economic profitability but the ongoing discussions of market interventions in Europe complicate the treatment of the application and are “creating a new type of uncertainty” about revenue that will flow from the interconnector.

Germany has adequate generation capacity to the end of the decade and will consider “medium-term” the need for a capacity market. The German government won’t focus on any one particular generation source and will be seeking cost-efficient and competitive market mechanisms that are in keeping with European Union law.

While integrating the project into the capacity market isn’t one of TenneT TSO GmbH’s demands, TenneT remains committed to Nordlink and want to build it as previously agreed.

Norway produces about 95% of its electricity with hydropower and is building a similar cable to the UK. The country is already linked with the Netherlands via NorNed, a 700MW subsea cable that began operating commercially in 2008. It also has connections with Denmark and Sweden.

The sharing of resources is the way forward. Perhaps it’s time that the European Union establishes a set of market rules for the region to follow in order to avoid unnecessary delays.