Norway’s energy policy does not add up

Norway’s electricity debate rests on a contradiction, Klaus Mohn argues: households and industry want power to remain cheap, stable and predictable, yet the country’s energy system is becoming more exposed to scarcity and price swings.

Electricity does not feel like an ordinary product to many Norwegians. Homes and holiday cabins often rely on it for heating, with few good alternatives. Norwegian industry and employment also developed around long-term access to affordable power. At the same time, communities gave up natural areas and other shared resources for extensive hydropower development. Those factors help explain the demand for low and predictable prices.

The market conditions have changed. The Nordic electricity market is more closely linked to Europe, while the energy transition has increased the share of intermittent wind and solar power. That has produced greater short-term price variation. The war in Ukraine has also put pressure on electricity prices by pushing up the cost of natural gas.

Demand for power is meanwhile expected to rise in Norway. New renewable generation is not keeping pace with projected household and business consumption, which could weaken the power balance in the coming years. Interest in establishing new data centres has added another potential source of demand.

Mohn criticizes the government’s response to periods when prices became unaffordable for households and businesses. He says Norgespris, a fixed-price crisis measure with an understandable political rationale, reduced incentives for energy saving and efficiency because prices no longer signal scarcity. Economists have instead recommended giving households in need a fixed payment unrelated to their electricity use, while leaving them to pay the market price. The political response, backed by business and trade unions through the Energy Commission, has focused on mobilizing new renewable power, described in the column as “more of everything, faster.”

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More of everything, faster.