Energy and Energy | The cost of producing electricity is 15 euros

Energy and Energy |  The cost of producing electricity is 15 euros

(The newspaper online): It is a common misconception that the price of electricity has some relationship to the cost of producing it.

According to the government, it costs . Add VAT, and you're just over 15 years old.

  • In the year of cheap electricity 2020, the average price in eastern Norway was just under 10 euros, It is lower than the production cost
  • In 2021, the price increased to 76 euros
  • In 2022, the average price is 194 euros
  • In 2023, the price drops again to €76
  • On the first Friday of 2024, electricity costs NOK 7.42 (including VAT)

The Norwegian costs are misleading

when Calculating this cost price, they look, among other things, at hydropower plants built many decades ago, for which they have been paid.

Producing electricity is cheap when you don't pay for a power plant or fuel. According to NVE, the cost of operating a hydropower plant is as low as €4 per kilowatt-hour.

But since we need more electricity, electricity prices must also cover the costs of new production.

In any case, hydropower is very cheap compared to electricity prices in recent years. For the construction of a new hydropower plant to be profitable, NVE believes an electricity price of €40 (plus taxes) is needed.

Hydropower accounts for approximately 90 percent of Norway's electricity production. Additionally, wind energy comes from onshore, which according to NVE costs about the same.

The purest form of capitalism

However, the price of electricity is determined in a purely capitalist model based on supply and demand.

What it actually is Costs For current production, it is essentially of no importance.

Quite simply, an electricity auction works like this: Every day, everyone who uses electricity enters the amount of electricity they want to buy in the next 24 hours.

  • Electricity companies do this on behalf of ordinary consumers, telling the electricity exchange that they want to buy this electricity The cost of what you will. This means that they get electricity no matter how high the price is. The maximum price that can be achieved is 4 euros per kilowatt hour – or about 50 Norwegian kroner before taxes.
  • Companies can proceed a little differently. They can say they really want 1,000 kWh, but they only want 300 kWh if the price is higher than NOK 1. If the price was 2 NOK, they would stop production completely and would have nothing. However, if electricity becomes really cheap, they may help with its consumption. You can see this by the steps shown in the diagram below:

Then come the energy producers:

  • Many manufacturers for Wind, solar and river energy He says they will produce as much as they can Regardless of the price Become. For some, it is so difficult to stop production that they prefer to sell electricity at a huge loss. Therefore, the price of electricity could become negative, reaching €0.5 per kilowatt hour – or about NOK 6. It's happened in Europe several times this summer.
  • Some producers can adjust production, but they will continue to produce even if they have to Pay Little To supply energy. This is because they make money from support programs (such as green certificates) and long contracts. Therefore some electricity will be produced even if electricity prices are the same Little negative. This has happened a lot in the past year.
  • Then come all the other manufacturers. Thousands of small and large energy producers say how much electricity they can produce, and what price they want for different quantities. Hydropower plant owners calculate how much water they can let through, or whether they should wait until later, and backup power plants determine how high the price can be before they decide to turn on production.
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After all producers and consumers have informed what they need and what they can offer, Nordpool ends up at what is called a “price intersection”, where supply meets demand.

All producers who registered their production at a price below this price will be allowed to produce. The person who offered a higher price may not sell.

But: All producers who are allowed to produce receive the same price. It is not that those with lower production costs are paid less than those with high production costs.

Prices are set for each individual price range, but prices elsewhere influence supply and demand.

Production cost is still of great importance

This means that the production costs of 99% of power plants have nothing to do with what the price will be. The important thing is the price required to produce the last kilowatt-hour in any given hour.

This is called technical language Marginal pricingWho delivers the newest and most expensive? necessary Kilowatt hour sets the price for everyone.

If electricity is provided by 100 wind power plants that are willing to sell at a loss, while there is also a need for a final power plant that requires NOK 5 per kWh to provide enough electricity for all consumption, the price will be NOK 5 per kWh for everyone Power plants 101

All analysis environments describe a future where the price will be mostly determined by gas power plants in Europe. It actually applies today.

The reason is that a lot of weather-dependent power plants are being developed, which produce if the weather is favourable. Gas power plants must ensure that the rest of the demand is met, even when it is not windy and dark.

Prices will be low when there is a lot of wind and a lot of sun, but they will be high when gas power plants are forced to produce at full capacity. Gas power plants are expensive to operate.

Because Norwegian prices are largely determined by prices in our neighboring countries, the price in Norway is strongly influenced by a type of electricity production that we do not have in this country.

Welcome to the CO2 tax

The big question remains: Why is electricity generated from gas so expensive? According to NVE, no form of energy is cheaper BuildsReally high gas prices are history.

The reason is the European Union's climate goals.

The easiest way for Europe to meet its climate goals is to get rid of many of its cheapest power plants: old, low-cost coal-fired power plants.

Coal-fired power has been a cheap and stable way to produce electricity for many decades. The problem is large emissions.

  • Coal-fired power plants emit about 1,000 grams of carbon dioxide per kilowatt hour (varies depending on type of coal and power plant)
  • Gas power plants contain about 350-500 grams of carbon dioxide per kilowatt hour (varies depending on the type of power plant)
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Therefore, the European Union's goal is to gradually eliminate cheap coal-fired energy and replace it with gas. In this way, carbon dioxide emissions are reduced by half. Gas power plants also create other, lesser types of pollution.

But since coal-fired power plants pay off and are cheap to operate, this doesn't just happen. To force this shift, the European Union introduced CO2 quotas in the energy market.

This means that carbon dioxide emissions have a cost that they did not have before. Currently, the cost of permitting the emission of one ton of carbon dioxide in the European Union is about 80 euros.

  • A coal-fired power station that produces electricity at 1,000 grams of CO2 per kilowatt-hour must pay 8 euro cents for the share of CO2 per kilowatt-hour it produces (before subsidies). This means that The CO2 tax on electricity from coal-fired power plants alone is equivalent to more than one kroner combined with VAT. If the price of carbon dioxide rises, it will be more expensive. All other costs come first.
  • An inefficient gas power plant that produces half the emissions only has to pay about 4 euro cents per kilowatt hour (before subsidies). This amounts to more than €50 in CO2 tax.

This tax makes operating coal-fired power plants unattractive, and has been among the main drivers of CO2 emissions reductions in Europe. Germany was able to reduce its emissions by 2023, Among other things by importing electricity – rather than exporting coal power.

Denmark has been phasing out coal-based energy, achieving CO2 results that other countries can only dream of.

The problem is that the CO2 share price not only makes coal power expensive, it also makes electricity expensive in general: electricity offers disappear from the market, while the alternative becomes more expensive. Although the goal was to eliminate coal power, this also made gas power expensive.

– From 2030, with our assumptions on gas prices and shares, producing one megawatt of gas power will cost about 100 euros, NVE wrote in its long-term analysis.

Statnet Analytics also assumes that this will be the price level.

For Norwegian consumers, this means a cost price including VAT of NOK 1.40 per kWh.

The average price will be lower

At the same time that electricity becomes expensive when gas-fired power plants are forced to produce, there will also be periods when enough electricity is produced from renewable energy sources. As we saw this summer, this can create prices on the downside.

– Energy prices remain at around €100/MWh in the hours when gas power plants set the price. However, there are fewer hours in which coal and gas power determine the price of energy, and more hours in which renewable production or different types of flexibility determine the price. This reduces the average price of energy, Statenett wrote in its short-term market analysis from last year.

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They are very uncertain about prices in the future:

– In our analysis, the range of results for annual prices in 2028 is approximately. 50 to 100 EUR/MWh in Germany, on average during all weather years. Uncertainty in weather and other short-term factors provides more room to maneuver above that again.

“Energy prices in southern Norway average about 0.5%,” Statnett assumes. 65-70 euros/MWh in 2028.”

For Norwegian consumers, including VAT, the average price level is €91-98 per kWh. It is something completely different from the price of producing hydropower today, and the cost of building wind power.

In practical terms, this means that a rise in the price of carbon dioxide leads to a rise in the price of gas power, which leads to a rise in the price of electricity.

– Less in Norway than abroad

However, the effect is very difficult to calculate.

As Statnett points out, we will have greater price differences, but that is because we will have a greater component of unregulated energy production in the Nordic countries as well. However, we rarely get a jump between zero prices and the price of gas power production because water values ​​are what determine the price of energy in Norway, analyst and partner Marius Holm Rennesund at Thema Consulting tells Nettavisen.

Water value is simply the value that hydroelectric producers place on the water in lakes that can be used to generate power. If it overflows, the water is worthless. The higher the risk of running out, the higher the price they set for it.

– As for the continent, we will see that gas energy determines the price during the hours of scarce production from renewable energy sources. As more renewable and flexible production develops, fewer hours will likely be deducted from the cost of gas power in the long term. In Norway, we are also protected by the fact that we will have full export cables during the hours when gas power sets the price on the continent, so the price will be lower in Norway than abroad, says Rynesund.

It is also worth noting that we will not get an average energy price of €100/MWh on the continent either, even if the cost of producing energy with gas is €100/MWh, because a number of hours will be cleared on other technologies, he points out. .

Norwegian industry thus receives CO2 subsidies

All this forms the background for one of Norway's least understood schemes, the so-called CO2 offset that energy-intensive industries receive.

It is this arrangement under which Norwegian industrial companies are paid billions from the state each year, which has come under increasing criticism.

The goal of CO2 quotas is to get companies to reduce emissions. But in Norway, the industry using Norwegian clean hydropower still has to indirectly pay a CO2 tax on clean electricity because prices are affected by prices in neighboring countries.

“The CO2 offset system compensates electricity-intensive and competitive companies For the increase in electricity prices as a result of the EU climate quota system (European Union ETS)', The government writes.

Hanisi Anenih

Hanisi Anenih

"Web specialist. Lifelong zombie maven. Coffee ninja. Hipster-friendly analyst."

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