The power market and prices

The market price of power, which is determined each day on the Nord Pool Spot power exchange, is a result of supply and demand. Norway is part of a common Nordic power market and is integrated with the power market in Europe.

The Energy Act of 1990 provided for the liberalisation of the power market. Norwegian consumers were thus among the first worldwide to be able to purchase power from a power supplier of their choice. The ability to choose a supplier on the basis of price or other relevant concerns created a situation of competition between power suppliers.

Following the liberalisation of the energy legislation in the other Nordic countries, the Nord Pool Spot power exchange was established in 1996. This was the first power exchange in the world where power could be traded across borders. Today, Norway is part of a joint Nordic power market with Sweden, Denmark and Finland, and this is in turn integrated into the European power market through interconnectors to Germany, the Netherlands, Estonia, Poland and Russia.

Because of these interconnectors, power can be consumed where it  is most needed. Power trading is organised with the objective of ensuring that power always flows to where its value is greatest, i.e. from low-price areas to high-price areas. For instance, in times with little rain and low temperatures in Norway demand will be high and production low. Prices will then increase in Norway and it will oftentimes be possible to import cheaper power from abroad. When production in Norway is high and demand is low, power can be sold to other countries where prices are often higher.

Electricity is different from other goods in that it cannot easily be stored. There must therefore always be an exact balance between generation and consumption. In market-based trading, the power exchange sets daily prices that give a planned balance between overall generation and consumption for every hour of the next day.

The market price of power, which is determined each day on the Nord Pool Spot power exchange, is a result of supply and demand. Variations in precipitation and temperature result in considerable fluctuations in power prices, both within 24-hour periods and through seasons and years. The prices also depend on transmission conditions, both between areas and countries within the Nordic region and between the Nordic region and the rest of Europe. Since there are periodic capacity limitations in the grid, power prices may vary from one area to another.

Large volumes of power are traded on the Nord Pool Spot by power producers, power suppliers, brokers, energy companies and consumers. Consumers who purchase power for their own consumption are called end users. End users in Norway can freely choose their power supplier. The Norwegian Consumer Council in cooperation with the Norwegian Water Resources and Energy Directorate established the web site strø, which provides an overview of prices and gives consumers the opportunity to switch suppliers.

An end user’s total electricity bill consists of charges for several different components of the service: the raw material electricity (power price), connection to and use of the power grid (grid tariff), consumption tax on electricity (electricity tax), and value added tax. In addition, there is a fee earmarked for the Energy Fund (Enova), as well as payment for electricity certificates. End users who choose to purchase power from a power company that is also responsible for grid operations in the area normally only receive one bill, whereas end users who choose a different company as their power supplier normally receive two bills, one from their local grid company and one from the power supplier.