Carbon Disclosure Project 2011 – Nordic 260 Report
Impacts on Nordic industry of the German nuclear phase-out Commentary by Martin Gavelius, Head of Energy, Utilities and Mining, PwC Sweden
The decision to phase out the entire nuclear power programme over a relatively short time period has consequences for the Nordic region and many other countries. Close to 130 TWh will be required to replace German nuclear power by 2020. Germany and also Denmark, which already has a large share of wind power in its energy mix, will play central roles in the pricing of electricity on the Nordic market.
The decision to close all German nuclear power plants by 2022 will have significant cross-border effects in Europe. The integrated Nordic electricity market is already influenced by Germany, both by coal prices and by import and export of electricity through the linked national grids. An increase in the use of fossil fuels for power production would lead to an increase in the price of emission allowances with increased costs for Nordic industry as a result. More positively, commercialisation and investment in renewable energy are likely to gain momentum.
Several factors affect Nordic industry The Nordic region is heavily dependent on electricity. A significant portion of finished goods’ costs are energy-related and residential housing is, to a great extent, directly or indirectly heated by electricity. In Germany, the opposite applies: energy costs represent a relatively small portion of finished goods’ costs and electricity is rarely used for the heating of residential housing. The Nordic electricity price is driven by the operating status of nuclear power stations, the water level in the Nordic reservoirs and the price of coal. Marginal pricing of electricity is determined by Nordpool and prices are likely to increase in response to the German decision to stop nuclear power production. Electricity supply is not a national issue and there is concern amongst Nordic industry as to whether Germany can manage the transition from nuclear power to renewable energy without the price of electricity soaring, not least considering the very tight time schedule.
Increased demand for regulatory capacity
As the use of renewable energy increases there will be growth in demand for regulatory capacity, i.e. power that is flexible and can quickly be put into production, for example hydro and gas power stations. The more flexible a country’s energy system, the higher the proportion of intermittent energy, like sun and wind, that can be included in the overall energy mix. Wind energy varies significantly over time and it is urgent to speed up technological progress in the development of energy storage. Investments and new technology in infrastructure, such as smart grids, also have an important role to play.
The Nordic region may need to use fossil-based regulatory capacity, for instance via imported electricity, with a resultant increase in carbon dioxide emissions. In turn, the demand, and price, for emission allowances may increase with resulting impact on electricity prices. From 2013, the total number of emission allowances will decrease and an auction procedure will be introduced which could push up the price of emission allowances. This would affect Nordic energy- intensive industries and power production.
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