Norway's new government eyes more gas use, power link competition

OSLO Tue Oct 8, 2013 8:10am EDT

OSLO Oct 8 (Reuters) - Norway's incoming right-wing government has pledged to end a state monopoly on building power export cables and to increase local use of Norway's natural gas.

The Conservatives, led by prime minister-designate Erna Solberg, and their smaller ally, the populist Progress party, clinched a coalition deal on Monday and are due to take power next week.

Among other agreements on energy policy, the two parties said they would change the energy law to allow groups other than the state-owned Statnett to own and operate power interconnectors between Norway and the rest of Europe.

Countries such as Britain and Germany are keen to connect to Norway's grid to benefit from its vast hydropower resources to balance their volatile wind and solar power.

Norway, which belongs to a bigger Nordic power market, is already linked by undersea cables to the Netherlands and Denmark.

The outgoing centre-left government had said Statnett should have a monopoly on interconnections.

The policy change could help to revive plans by a group of companies including Norwegian utilities Agder Energi and Lyse to build a link to Britain.

However, the NorthConnect project has already suffered a setback with the withdrawal of its British partner, the power utility SSE.

While promising more competition in cable building, the coalition parties said they would "ensure a good balance between the development of new generation (capacities) and new interconnectors".

BOOSTING SUPPLY

Many consumers in Norway fear that an increase in power export capacities will lead to higher domestic prices as electricity will flow to more lucrative markets.

To boost the supply, the coalition parties promised to increase output from renewables, and to speed up licensing of domestic power cables needed to connect wind farms.

The country already meets about 95 percent of its own needs from hydropower, but generates less power from wind than its Nordic neighbours.

The incoming government said it would seek to facilitate increased use of gas in Norwegian industry with the aim of replacing oil and liquefied petroleum gas, which provide a better export return, encouraging investment and also improving the power supply to areas far from hydroelectric plants.

Norway exports nearly all its natural gas to customers in Britain and continental Europe.

Analysts said that, to make increased gas use in Norway practical and cost-effective, Solberg's government would have to open its market to competition, the same way the European Union (EU) is doing.

Norway is not a member of the EU but has a free trade agreement with the union, which means it implements directives from Brussels.

"One measure would be to implement the EU's gas market rules in full, and to set up an independent regulator for gas," said Dragos Talvescu, an analyst at Oslo-based consultancy Sund Energy.

"When you break up the monopoly and introduce price transparency, it will be easier for industries to consider alternatives for switching to gas from other fuels."

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