Norway's electricity export curbs could backfire, government committee says

The Norwegian government appointed a committee to assess Norway’s measures to address high electricity prices and low hydropower reserves. The committee recommended that the government avoid measures to restrict electricity exports, which it presented at the beginning of the year.

The Norwegian government appointed a committee to assess various policy measures to address exceptionally low hydropower reserves in Norway and record-high prices last year, when Europe was hit by an energy crisis.

At the beginning of the year, the Norwegian government proposed measures allowing the authorities to intervene and restrict electricity exports if reservoir levels fell critically low. The measures are part of a package to protect water reserves at Norwegian hydropower plants, which account for approximately 90% of Norway’s electricity generation.

The committee’s experts recommended that the government avoid similar interventions, such as export restrictions or price caps, and prioritise the current market model based on marginal pricing.

Export restrictions would generally have a dampening effect on prices in Norway, a net exporter, but could also weaken security of supply by triggering retaliatory measures from neighbouring countries and undermine local investment signals for new generation sources, the group of experts said.

Norwegian transmission system operator Statnett also spoke out against introducing restrictions on electricity exports last year, citing the risk of retaliatory measures by other countries.

Price caps could lead to suboptimal use of hydropower plants, the committee said, by discouraging generators from storing water in reservoirs while also discouraging consumers from saving energy, which is crucial during periods of peak prices.

Instead, the government should focus on maintaining a positive energy balance and address the challenges of redistributing income during periods of high prices through support mechanisms. The committee pointed to the current system of compensation for households as a good temporary measure for addressing problems caused by the sharp rise in wholesale prices.

The committee also backed the current division of Norway’s electricity market into five bidding zones, saying that merging them into a single zone would eliminate local investment signals and increase overall costs.