Several Nordic countries could face a power shortage next winter if hydro levels return to normal conditions. Dry weather could lead to electricity rationing in Norway to prevent blackouts at times of peak consumption, according to Norwegian Oil and Energy Minister Olav Akselsen. He said Norway, which produces 99% of its electricity from hydropower, could find itself in a serious supply squeeze, unless the country makes an effort to overcome the growing gap between consumption and production.

In a comprehensive study of 17 wholesale electricity markets in Europe, ICF Consulting said shortages could lead to extremely high spot prices on the NordPool, and possibly blackouts across the region.

“Hydro has saved the Nordic countries so far,” said Neil Cornelius, managing consultant at ICF Consulting in London. “A mild winter combined with heavy rainfall led to abundant hydro conditions throughout the region. Favourable hydro conditions enabled Sweden and Norway to be net exporters of electricity in 1999 and 2000,” he said, “while normal hydro conditions may have led them to face shortages and rolling blackouts.”

Akselsen also noted Norway is becoming increasingly dependent on imports, and said in a dry year Norway would be in a critical situation because it would not have enough import capacity to cover its domestic consumption.

ICF said supply shortages create opportunities for developers in Nordic electricity markets. It predicted 10,000 MW of new capacity is needed across Scandinavia by 2005.

The underlying problem in the coming electricity crisis is that excess capacity has eroded over the years, ICF said. In addition, the Nordic countries are relatively isolated from the rest of Europe.

Norway has not built any new large plants since the late 1980s because there is strong public opposition to the use of natural gas, while Sweden has retired existing nuclear and other plants,” said Gerhard Mulder, ICF Consulting senior consultant. He said systems need a planning reserve margin of 15-25%. Last year Norway’s State Secretary Bjorg Sandal advocated the country make natural gas an integrated part of the Norwegian energy system because opportunities for further hydropower developments in Norway are diminishing. But regulators relying on the NordPool are implicitly assuming others will solve their problems, said Judah Rose, ICF Consulting’s director for the wholesale power practice.

While most electricity transactions have been bilateral contracts, there has been an increased reliance on the NordPool spot market. The spot price for electricity has been at its lowest level since the inception of NordPool, but Cornelius said he expected increased volatility and higher prices on the spot market in the near future.

If a cold spell combined with normal or below average hydro conditions occur, it could be accompanied by price spikes. Incidental price spikes occurred earlier this year under favourable hydro conditions, after cold weather drove up demand and a submarine cable linking Scandinavia with continental Europe tripped.

The only Nordic country that does not have a capacity deficit is Denmark. However, as Denmark becomes increasingly integrated with the broader Nordic electricity market, ICF said, the spillover effect of the coming electricity crisis will have a strong upward pressure on electricity prices. ICF said the pressure for Denmark to increase exports to Norway and Sweden will be controversial.

While both Norway and Sweden have signed up large industrial customers who are willing to be interrupted in return for a discount on regular electricity rates, there are limits to this approach. “Interruptible contracts typically have a maximum number of interruptions, and companies may not extend their contracts next year,” said Mulder.

Several Nordic countries could face a power shortage next winter if hydro levels return to normal conditions.