Low power price threatens Norway's green targets

OSLO Wed Nov 7, 2012 6:31am EST

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OSLO (Reuters) - Norway's ambitious plans to boost wind power output to cut greenhouse gas emissions and diversify supplies are at risk because of low power prices and an underfunded subsidy scheme, industry sources say.

Norway, the second largest gas supplier to Europe after Russia, aims to cut its greenhouse emissions by 30 percent below 1990 levels by 2020, power more offshore oil platforms from its onshore grid, and diversifying its power supply.

But its dependence on hydro-power generation leaves it vulnerable to changes in rainfall, with dry and cold years resulting in high power prices and the risk of power shortages.

Government support is aimed at increasing the return on investments from electricity sales revenues to make wind power economical, but it can fund only a part of prospective investments.

"Without subsidies, (wholesale) power prices need to be around 600 crowns ($100) per megawatt-hour to make things fly," Andreas Aasheim, an advisor to Norway's wind energy association Norwea said.

But lasting wet weather periods can push power prices down, as was the case this year, reducing the appetite for investment into capital-intensive wind power.

Nordic electricity prices are so low that even with the subsidy, the total income from renewable power generation currently is only around $72.9 a MWh, lower than the cost of producing wind power which is between $90 to $110 per MWh.

As a result, only one tiny 1.6 megawatt (MW) wind power plant with two 0.8 MW capacity turbines has received green certificates in Norway since a joint Norwegian-Swedish subsidy program was launched in January 2012.

Many prospective investors may abandon their plans because the projects are not financially viable.

Under the market-based support scheme, renewable power producers receive green certificates which they can sell on the market to make production profitable.

"We issue a lot of (wind power) licenses, but we don't see many investments," Per Sanderud, the head of Norway's power market regulator NVE, told Reuters.

"Some projects were too optimistic in financial or technical terms while others have no grid to connect to yet."

As a result, data from the European wind energy association shows that Norway, a country with a long coastline exposed to Atlantic gales, had only 520 MW of installed wind power capacity in 2011, well below Denmark's almost 4,000 MW and Sweden's 2,900 MW.

A standard gas, coal or nuclear powered electricity station has an installed capacity of around 1,000 MW.

The NVE has issued 65 licenses for wind farms which would have a total installed capacity of 4,778 MW, but wind farms with only 520 MW of that capacity have been constructed so far.

NVE officials said they expected only 150 MW to come online within two to three years, while it would take until between 2017 and 2020 for any additional projects to materialize.

The government aims to add about 5,000 MW in new power generation from renewables by the end of this decade, and NVE predicts up to a half to come from wind power.

"You can't expect to have more than 6-7 TWh (of annual wind power production)," Sanderud said.

That would be equal to 2,200-2,600 MW of installed capacity.

LOW POWER PRICES

Nordic power prices have fallen sharply this year as ample rain filled water reservoirs above historic levels.

The average Nordic monthly power spot price in October was 34.8 euros ($44.48) a MWh.

"The prices of electricity and green certificates have been too low to finance new investments," said Peter Chudi, vice president at Stockholm's SKM brokerage, which trades in green certificates.

Average monthly prices for Nordic green certificates rose by 25 percent since June to 189.9 Swedish crowns ($28.38) a megawatt-hour in October, data from SKM showed.

If power prices remain unchanged, prices of green certificates need to double to reach the levels to cover the wind power production costs.

One of the biggest wind power projects approved by NVE, a 150 MW wind turbine park in central Soer-Troendelag county developed by SAE Vind DA, is estimated to produce power at a cost range of 510-620 crowns ($90-$110) per MWh. ($1 = 5.7370 Norwegian crowns)

(Editing by Henning Gloystein and Jon Hemming)

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