Long-Term Power Outlook

The shockwave in the energy markets from the Russian-Ukrainian war dissipated much faster than anticipated; however, its aftermath has permanently altered the long-term energy landscape. Europe's energy strategies, aimed at reducing dependency on Russia and enhancing supply security, have proven successful in preventing major disruptions. The surge in renewable production due to higher price levels is already putting pressure on prices and capture rates. Moving forward, the future power system landscape undergoes a profound transformation with increased renewable goals and the need for new flexibility sources such as hydrogen and battery storage, along with widespread electrification and the transition from conventional thermal generation to achieve complete carbon neutrality.

The considerable volatility witnessed in 2022 has decreased, with thermal prices now nearing historical pre-war levels. However, the rise in inflation, capital requirements, and component costs is leading to an increase in the LCOE for renewable production. In the medium term, this factor is likely to exert pressure on the renewable project pipeline, shifting the focus towards profitability, taking in consideration area prices and capture rate differences. The anticipated strong rollout of offshore projects before 2030 seems to have slowed down and been delayed by several years, indicating the need for additional subsidy schemes. Pioneering battery projects have benefited greatly from recent price fluctuations, while future growth expected to be primarily driven by solar production increases and developments in ancillary service markets. Initial highly optimistic projections for hydrogen penetration across all sectors have been revised, as there is no apparent decline in the LCOH, while demand for hydrogen still seems to be low. Nevertheless, the future advancement of renewables, particularly wind energy, will necessitate a substantial integration of hydrogen as a flexible source, further reinforced by decarbonization targets.

While the implementation process for future development at the EU and national levels is still ongoing, understanding and quantifying the impact of these changes is crucial. During 2023-2024, all Nordic TSOs and energy regulators updated their long-term strategies, reaffirming the journey towards electrification across all sectors, significant growth in renewables, and the necessity for balancing sources. The anticipated significant growth in demand will be driven by widespread deployment of hydrogen electrolyzers, industrial electrification, and electric vehicles. Further increase in new renewable facilities, however, will set a new level of requirements for balancing sources in the power system. The necessary and mandated phasing out of thermal and nuclear capacity will also play a role in this transition; although, it might experience slight delays. Substituting conventional thermal generation with green hydrogen as the primary fuel source in the long term will fundamentally transform the operational landscape of the power system. Integrating these updated adjustments into power modeling provides a clear understanding of the energy system's future evolution.

This year's edition of the Long-Term Power Outlook analyzes and simulates most of the recent proposals from the EU, national governments, and TSOs concerning heightened requirements for supply security, the electrification process, and the transition towards achieving net-zero targets taking in consideration updated commodities price and power balance development projections.

The simulation is meticulously conducted through multiple control runs on the EMPS power market model to reach the most optimal solution for future power system development. The complexities are further analyzed by providing two sensitivity scenarios to delineate future uncertainties in assumptions regarding commodities and power balance development.

The ongoing changes have already initiated a new revolution in the energy market that is set to overhaul the rules of the game. Our comprehensive analysis, founded on meticulous quantitative modeling, offers a robust framework for anyone seeking to comprehend the latest developments in the European and Nordic power markets.

Base Scenario:
The expected development of the Nordic, Baltic, and European power markets, incorporating revised assumptions for commodities, adjusted renewable production, and flexibility requirements, taking into account the most recent EU and national decisions for transition to carbon-neutral power systems.

High Sensitivity Scenario:
A further increase in thermal fuel and carbon prices beyond current levels, driven by stricter environmental and energy security goals, impacts the growth of renewable capacity through enhanced competitiveness and a shift in the pattern of electrolyzes utilization.

Low Sensitivity Scenario:
The anticipated decline in thermal and carbon prices relative to current levels, coupled with less stringent commitments from the EU concerning renewable and carbon targets, is likely to lead to low price levels. These challenges exert pressure on renewable growth and present obstacles to achieving the required level of decarbonization.

For order or questions please contact

Kurt Sveggen
Deputy Managing Director
Tel: +47 90 95 30 44

Viktor Balyberdin
CEO
Mobile: +47 99 59 59 09