Report

The impact of renewable energy on the Nordic electricity market

Updated 2021-06-21 Published 2019-04-29

Wind power production in the Nordic region has increased on average at one percent monthly rate over the last 13 years. The Nordic renewable energy expansion path for the coming 5 to 10 years will further speed up the entry of the renewable capacity. The subsidized entry of technologies that operate with zero marginal costs lead to a potentially significant reduction in the final wholesale prices. This presents a serious challenge to the Nordic market design that is based on the idea of marginal cost pricing. The traditional technologies may face a situation where they can no longer cover their running costs in a market-based manner.

In this report, we first quantify the pressure on prices and operating revenues that follows from the current subsidized entry of wind generation. We find that about 20-30 percent of the price reduction in the Nordic market is attributable to the wind generation. We then quantify the impact of the Swedish nuclear power phase-down on the market. We find that the phase-down plan can more or less neutralize the impact of wind on the market prices, although the transition – increasing wind and declining nuclear – creates winning and losing technologies.

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About the report

Report number

2016:319

Author

Matti Liski and Iivo Vehviläinen