Norway's looming "supply squeeze"

Hello, listeners, and welcome to Plug-Din, the energy news podcast from Montel, where we bring the latest news, issues, and changes happening in the energy sector. Norway normally has an abundance of hydropower, and is often a net exporter to its neighbours. But are we reaching the crucial turning point for this regional powerhouse, perhaps a looming supply squeeze, as demand starts to overtake supply? That, at least, is the view of many experts. In this episode, I sit down with Nordic market experts to tackle some of the key issues facing the region. But first, I spoke to our Norway reporter, Peter Udland, to understand how soon we are going to see the shift in supply and demand, and to get a gauge on the current political bad drop. And I'm joined by Peter Udland, reporter Norway, a warm welcome to the podcast, Peter. Thank you very much, and we're talking here about the Norwegian supply and demand balance in general. Would you say that Norway is facing a power supply squeeze in the coming years? There's several analysis that points towards that. Certainly, the TSO in their analysis assume that we will have another deficit, but certainly a weakening power balance, increased consumption, not as much increased production. And it's worth noting that they have said this for a long time, and it has been postponed several times. The time when this, supposed to deficit, will occur, this tightening power balance will occur. But certainly, several players are pointing to it. It's not only the TSO, though, right? No, no, no. Several others as well. And they add the regulator, for instance, and several of the bureaus and market players actors in such a point of the same direction, DNV, for instance, are also pointing in that direction. So maybe not actual deficit, but certainly a weakening power balance, every sort of experts are pointing in that direction. So these are the signs that are coming from various different angles, from different associations and bodies. What's been the political response, Peter? It's quite varied. We have spoken to the Prime Minister who has said to us that he's very wary of any kind of political intervention here, sort of prioritizing one industry over the other, saying that, well, we can only have that type of industry and not the other. So he's been signalling, anyway, that is not, he's very reluctant to do anything. At the same time, the government is exploring actually prohibiting crypto centers, mining crypto, and such. They want to ban that, actually, or they're having quite figure out how to do it yet. But then there's also other political players in Parliament, for instance, who have proposed a concession system for data centers, want a more tighter control over this. So it's not clear, but certainly the ruling government who is a minority, it must be said in Parliament, doesn't have a majority there, they seem to be reluctant to politically intervene in this. So they don't want to pick winners, but they've only picked to lose over the crypto people in a sense. And they are concerned about this, so they are continuously arguing that, well, we need to facilitate builds out of a more power, that is their melody and their cure. They want to build themselves out of the problem, essentially. What about data centers, is Norway building out data centers as a keen to incentivise them to come to Norway and could want to describe as the new kind of aluminium smelters of Norway better? Well, certainly the interest from investors, as seemingly there, there's a lot of data centers are queuing up, asking the TSO for connection. And it's certainly the category of industry that is by far asking for the most capacity in the grid. Politically, I think it, again, it's varied on type of data centers, certainly welcome. Other things like crypto or more sort of speculative things are not as welcome. And again, it varies in the political environment. I think the government, the signals that they are given, giving are that, yes, they do welcome this type of industry. They want to see it established, but not maybe all types. Other players are simply saying, no, we don't want any kind of data centers, but certainly the interest from the investors and the people who want to build this seems to be quite so significant. And we were speaking to some data centers later, but Patta, thank you very much for setting this in here, telling us what the situation is currently like in Norway. Thank you. Thank you. Are Norway's household energy subsidies, specifically the Norgespris, the equivalent of an opioid crisis for Norway? Well, that's certainly the opinion of one of our guests, so I spoke to at the Peretta Securities Conference in Oslo last week. I sat down with last August, Scorping, Director of Power, Renewable NG at Peretta Securities, as well as the CEO of BWS, Eric Strumser, and the CEO of left our mine data center, Jürgen Skornheim. Here's what they had to say about how subsidies are distorting investment decisions and why there is an urgent need for grid reform and faster connections. So, lots of, I'd like to start by asking you a question. We're here at your Peretta Securities Conference in Oslo, it's the end of January. You made some very interesting comments this morning about Norgespris, the way that Norway basically subsidises householders. What did you say? I said it's wrong, this is in reality our opioid crisis and we are sedated by this because it makes us not care about when we consume and how much we consume of electricity. That's problem. In reality, that also means that we are not insulating our houses, we're not investing in heat pumps and we're not putting a rooftop solar in our home homes, so that's the problem. And it's something that certainly I have written about before and we continue to write about the Montenews and I'm, you can be rest assured that I have my solar panels firmly in place as a large over. But what is the investment climate like at the moment in Norway and the Nordics about investing in renewable energy? Where are we? I think it's been a little bit challenging because let's say we have had a government that has been a little bit back or forth on the tax side. They have introduced tax, for instance, for wind power that costs quite many of the international investor to decide to divest their stakes. Hopefully now we can get more stability from a politician so that Norway could perceive a more volatile, low risk country to invest in going forward. I think right now the sentiment is better and data centers is by far the hottest infrastructure to invest in. The problem with the data centers is that they don't get the grid. They have the money, they're ready to invest and they are investing, but there's not enough grid because we are not building enough and we are too slow in moving. And that's what I called upon to the TSO and the TSO today, start investing in grid. I mean that's an important message and it certainly applies to all of Europe, plus I think the applications to get on the grid are huge whereas the successful grid connections are not so large, put it that way. But what's happening on the supply side? Where's that coming from? Well as you saw my grass on the supply side, you probably didn't see them because it's hard to see them because there's nothing there basically compared to what it used to be. So basically I think we're seeing like maybe 800 gigwatt hours of the five last years. If you go back six, seven years we had seven tower hours in the single year of new supply into the market. That was of course during the wind boom and then everyone stopped because the municipality has got a V to write on this one, but I think we have to come back again and start to invest in wind because it is by far the cheapest cost of energy with levelized cost. That is maybe around Norway's price. Any other source actually is much higher. Yeah, absolutely. We'll want to touch upon some of those questions a little bit later. But Erik if I can ask you, what's your view here? I know you may not have any sites or locations in Norway but you have, you know, in the Nordics and the wider European markets. What do you see happening here in terms of new supply coming online? What we're seeing is that exactly what Luxorva says is that if you look at the market like Norway, they're actually distorting all of the signals that we are seeing in other markets. In other markets, you're seeing negative prices, high volatility and other challenges, but the right challenges, standing in the way of bringing new supply into the market. For instance, whether it's solar or wind, in most markets outside of Norway where you stabilize the prices, the biggest challenge is you have a lot of negative prices, which basically kills the case for solar and wind you have major challenges with imbalance pricing. These are things that we need to solve and if you don't get the signals through, then you don't see that these problems exist. So those signals are coming in Europe and that's why there is a very, very strong push for energy storage because energy storage is helping to solve some of these problems essentially by shifting energy from when it's produced to when it's needed and also helping to sort out the imbalance pricing for things like wind. But surely, I mean, it's a perfect incentive full battery storage operators when there's a high instance of negative prices, for example. Yes, it is, but the beauty of it is that you can actually support a battery business case while at the same time improving the business case for a solar developer that wishes to build this solar plan, saving the consumer money because when they come home from work, they get cheaper electricity. So it's a wind wind for everybody. How do you overcome these challenges then? You mentioned a few, is it all in hands of governments and policymakers or is there something also general the market participants can do as well? Well, I think in general, of course, what we're looking for as storage developers, just like any other developers or data center operators for that matter, is predictability and increase speed from the grid operators. And in many ways, there are issues with the grid, but the grid is also on average under utilized. And so the constraints happen at certain times and in certain locations. Those problems can typically be solved by thinking about the grid in a slightly different way. You can't build the grid the way you did 50 years ago. You need to think differently about grid. You need to think about conditional grid connections. And you need to make sure that the projects that you prioritize are the projects that are getting built. It's very difficult for a grid operator to basically decide what's the best project. But it's easy to know what's the worst project, because the worst project is the one that doesn't get built. But they're still in the queue, potentially, so there's a way of filtering them out, maybe the grid operators need some help in doing that. Yes, exactly. But we don't have a grid operator here with us on this panel, so we have to take that to the matter at a later date. What's your view here and what you're hearing? The grid operator should take a lot of the blame here that some of the issues here could be alleviated through absolutely sorting out the grid. I don't think we shall turn this into some kind of a blame game because the explosion in demand for power, when we applied for 60 megawatt extra in 2019, it was just a formality and we got it. Now there's a struggle, and there's a queue, and there's a maturity assessment, and this situation has come fast on both the TSO and the TSO, saying that it's important that when the world now has turned around and everyone wants access to power or a lot of projects, then they also need to adapt to the new situation, not continue working as they have always done. And that may be something they could be challenged a little bit more about. And I think they are getting there, but maybe not as fast as obviously we who are in the queue now could have hoped. What's your view of what you're hearing from Rudlash Over and Enelko is saying about in terms of the rollout of supplies, that there's still some challenges here, in no way? Like I said, we are in the queue, and we know that in front of us there are several projects related to battery factories, hydrogen ammonia, and they have this powered reserve, at least not all of them will be materialized. And then it's kind of important that the TSOs, Daltonet do their proper work in reviewing the progress plan annually, and are tough enough to take the project that has no, that the market is not there, the funding is not there, the customers are not there, and then take them out of the, at least out of the reserved part, and then back in the queue again. And to make sure that the power now, which is there, is put into use. And for us, we can see how much we can make out of the power we have, the 80 megawatt, we are producing job, making competence, large, we are about 200 people, my work is showing up at left all every day, between 200 and 250, and that's some organic growth, and that we want that to continue for many years, but then we need more power. It's fascinating here, because I think it's a lot to do with that queue, isn't it? It is sorting out the queue, getting that criteria right, and making sure that the good projects get to the head of the queue, and we get the week ones out, is that something you'd agree with as well? Yes, I totally agree, but it's the grid company, let's face it, they're not set up to do this job, because they are not Warren Buffett, who picks winners and losers. So in reality, they have this first-com first-served criteria, which probably is bright, but then, as Jon says, you know, you have to have the assessment criteria, to see if you have a customer, you have financing, et cetera, et cetera, and I think you're, and it's actually very kind when you say that maybe some of the ammonia hydrogens players are not going to be there, because if you look at what stuff that themselves are saying, who's actually then also the one who look at the application for grid, they're actually saying that not even 10% of this is going to be realized. For the ammonia nitrogen, I mean, if you look at what they actually say, they say that there's going to be 1.2 hour hours from this sector in 2030, and they are actually queuing for effect of 3.5 gigawatts. But if you take Stateness estimate, that means that only 170 megawatts will be realized. Versus, again, I repeat, the 3.5 gigawatts they are asking for. So in reality, Stateness should look at her own research, she says, "More or less none of these are going to be here." Yep, and I think you say if you say the same picture is, you know, it's a similar picture across Europe, because this is happening, you know, we've seen over the years that people are very keen to announce plans, but they're not so keen to announce them when they scrap them. But what other challenges are there for the data centers in Norway? You mentioned certainly the grid queue, and I think there's a very important point that that needs to be sorted out and made much more efficient. But are there other challenges, Bjorn? So I would say that is the challenge number one, two, and three, because the funding is there, the market is there, the customers are there, so everything is in place, but what without the power, we don't have anything, right? So we need, so to get access to more power is crucial for the entire industry. Absolutely, yeah. But that's not, it's also a amount that the power needs to be there, isn't it? No, that could be ramped up in modules, so it's several ways to handle it, and also about this power on, oh I forgot the word, but we go on condition and seek for alternatives way to handle it and be a little bit creative. Can this be handled the more different, how it for a shorter period for loan, this could that could be a condition, so there are several ways to handle it, but we need to be creative and think a little bit more business like then a government, the old monopolist are used to do. But if the world is there, there's always a way. And also maybe I'll add, they need to run the grid harder as well, you know, these guys are actually, they're having a highway, the speed limit is 110, but in reality they're asking everybody to drive at 70 kilometers an hour. We have to be able to at least drive closer to the speed limit. Absolutely, that's fair point, I think, where do you see, I mean, what do you see as this or hotspots in terms of energy storage in Europe? Well, I mean, we've been focused on this market for almost 10 years now, and what we quite early had conviction on is the fact that you're going to need energy storage everywhere. And there's a few exceptions here and there, there's a business case in Norway as well, but it's not quite so strong because you have a lot of hydropower, but in general there is a real need for energy storage in most markets. And there's a good business case for it as well. Markets go in and out of fashion, Germany is a very hot at the moment, there are recharge opportunity there, looks amazing, but there's a lot of uncertainty around tariffs and fees that you need to pay in timelines and conditionality around grid connections, so it does have its challenges. Italy was very hot for a while, Turner, the great operator there did a very good job in running an auction that was very competitively priced. So a positive comment on the TSO down there? Yeah, no, I made this comment earlier today as well. I think the biggest winner of that auction was Turner themselves, and they basically taken their destiny into their own hands. They said, we want batteries, we're going to control the batteries, we'll give you 15-year contracts, and that gives them more flexibility and buffers in their system, which probably will make them more comfortable, letting everybody else drive at 110 kilometres per hour because they have batteries to avoid some of the issues that can otherwise arise. And which segments of the market are you seeing most action in terms of the balancing side of the intraday? I mean, we're quite far away from their head, I would presume, but. Well, I mean, the typical sort of way that these markets evolve is that you start with ancillary services, the balancing and the frequency support being a major part of the business case. And then slowly, batteries monopolize that entire market so that hydro power and gas and others are just not able to participate anymore because they're too expensive and too slow. And then gradually, batteries also then start to get a substantial amount of the revenue stack from basic energy arbitrage, which is much more difficult to saturate because it's the whole market. And that is the long-term business case that you need to believe in if you're going to build batteries. And as long as we continue to build wind and solar, then that goes in sort of a natural lockstep with the development of flexibility, that unlocks the ability to build more solar and wind, which again supports building more flexibility. So it's a virtue circle in some ways, have you, Google? I've been reading as well, that some analysts, some forecasters have said that no way may need to rely on inputs of electricity in 10 or 15 years' time. What's your view here? That's true. Some would say that they also said that five years ago, and last year we had a record export of 23-hour hours. It is correct that we had record export last year, but we also have record production. And there's been delay, call it in the demand for power. But right now, I would say there's nearly an infinite demand. The problem is that they don't, as we've discussed now, they don't get grid. So actually the power here, but the grid is not here and at the right place. And then I think that all the analysts expect that power surplus, if you like, that's going to diminish over time, and maybe we're going to get to a balanced market, which I think is fine, because that just means that we have actually then done something value added with that electricity instead of sending out as raw electrons on the cable. And then let other people call it do that value add. So I think that's fantastic. But then again, back to the problem here, is that we have to build more renewable power in order to be ahead of the curve, because obviously if we get to that bounce point, then power prices are also going to increase. And we unfortunately are grown up with consuming a lot of power. Our houses are big, we only use power, not gas like in the continent. And obviously, you know, building winds in certain localities is always very problematic. It's not very popular. And there's a lot of nimbism. How can you overcome that? In a way, that's also the problem with Stremstadt, the Norwegian price, and all this piece, because then people don't feel in need for new power, because, you know, why should we have new power? I pay 40 or a per kilowatt hour. That's not a problem. So I think that you have to face the real power price in order to make, you know, change your mind on this one. Absolutely. And there's a debate building up in no way about nuclear. Is that the answer you think, Jon? That's a big question. At least it's not a quick fix, but personally, I think that will eventually be here, I think so. Because you're looking to, you know, other data centers, you know, across the world. I mean, that's, they're closely aligned themselves with SMRs in the States or as way. You see that developing in Norway in the Nordics? I cannot see why, but it's a political thing and it's, and it's a bit up and ahead. In my opinion, we will have new clear power on SMRs within a period of time. Damn, that's very interesting. Even though that may come as a higher price. I think so. Mm-hmm. What's your view? Well, I think, you know, of course, everything is relevant when it comes to time, because I think Jon is right. This is more, more a timing issue. I don't think it's going to be here the next 10 years, maybe the next 15. But of course, it's, it's expensive. I went through the levelless cost of energy today on nuclear power and let's say if the forking is right, that's around 150 to 200 euros per megawatt hour. And of course, you know, if you're going to build that and need that price in order to, you know, have a profitable business, then obviously we see that either there has to be huge support to do this or the price has to go up significantly. And I think that we probably cannot see the price go to that level because then we should have built a lot of wind before that. So I think it has to come to an addition, but it needs support. Mm-hmm. Do you think I think that SMRs can coexist with batteries and storage systems? I think they can. I think they can play a role in the energy system. I think it's fascinating how much we talk about nuclear and how little we build of it. This is not a new technology. Even SMRs, it's not a particularly new technology. It is expensive, as the show have mentioned. And also we talk about base load as if it's the solution. But actually, if you look at the man patterns, it's not base. We don't need the same amount of energy every hour, every day. And so for nuclear also, battery is actually a hell because when you have negative power prices and a lot of volatility and large sections of the day where actually you can't profitably run your nuclear power plant, then your business case also weakens. So I think we will have some nuclear, but I think the amount of time we spend talking about it is orders of magnitude more than what it will actually impact the energy system. Absolutely, I can hear there's a background that I think the DJ has started. So probably we'll have to draw this discussion to a closed gentleman, but just one final question really. And we're past Christmas now, but I was thinking, if you had a wish, one wish for policy makers in Norway or even the European level, what would it be? Number one, work on the Q and the projects that are there and also have little research. Number two, like last year said, perhaps the highway of power could, the speed could increase from 70 to 80, that will probably solve a lot of problems. And also consider what project that adds most to the community. Not just first come, first search regardless of everything, but see this a little bit broader. Not actually contributes and make ripple effects in the area. I've seen make sense, last year. Do as little as possible. And let me clarify that because very often when they try to do something, it ends up doing the wrong thing. So you know, taxes, changing regulatory regimes, et cetera, et cetera. So I would say, but I would say be more business friendly and try to see where we're going where Norway is going to be as a nation because we have to capture this wave. This is a new industrial wave that we see here in the right now. And I think that the Minister of Digitalization who was here today, she has a fantastic attitude towards this. But I think there's, you know, politicians here on the fringe that it's not so positive. But I think this could be the new oil moment for Norway. Okay. Stay off. Stay away. Erik, what's this? Yeah, well, I think as Lorshoff has said, it's probably a case of not doing too much. It's very difficult to assess these projects. I think one easy thing that you can do without too many resources is just make sure that people do what they say they were going to do and invest when they said they were going to invest. Instead of letting them linger in the connection queue and holding up other projects that are actually ready to commit and to build the industry in Norway. I think those wishes are loud and clear. So you're on Erik and Lorshoff, thank you very much for being guests on the Plug-Din podcast. And to you listeners, thanks for listening to this episode of Plug-Din. If you enjoyed this discussion, please like, rate and follow to make sure you get the latest podcast episodes as soon as we release them every Thursday. We'd also love to read your reviews of the podcast. It helps us to keep up to date with what you, our listeners, think of the podcast and what content you want to receive more of. Finally, you can head to Montenews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.