ICF Consulting Sees Looming Electricity Crisis Across Nordic Countries

Apr 12, 2001, 01:00 ET from ICF Consulting

    LONDON, April 12 /PRNewswire/ -- ICF Consulting's comprehensive study of
 17 wholesale electricity markets in Europe, Wholesale Power Market Outlook
 2001/2002, concludes that several Nordic countries will face a severe capacity
 shortage next winter if hydro levels return to normal conditions.  Using an
 integrated, model-based approach that has enabled it to predict all major
 turning points in the United States, including the California energy crisis,
 ICF Consulting predicts that these shortages will lead to extremely high spot
 prices on the Nord Pool, and may even lead to blackouts across the region.
     "Hydro has saved the Nordic countries so far," says Neil Cornelius,
 managing consultant at ICF Consulting in London.  "A mild winter combined with
 heavy rainfall led to abundant hydro conditions throughout the region.
 Favorable hydro conditions enabled Sweden and Norway to be net exporters of
 electricity in 1999 and 2000," he says, "while normal hydro conditions may
 have led them to face shortages and rolling blackouts."
     While the majority of electricity transactions have been in the form of
 bilateral contracts, there has been an increasing reliance on the Nord Pool
 spot market.  Thus, while the spot price for electricity has been at its
 lowest levels since the inception of Nord Pool, Cornelius expects increased
 volatility and higher prices in the spot market in the near future.  He
 explains, "The Nord Pool spot market will see significant price spikes if a
 cold spell combined with normal or below average hydro conditions occur.
 Incidental price spikes already occurred earlier this year under favorable
 hydro conditions, as cold weather drove up demand and a sub-marine cable
 linking Scandinavia with continental Europe tripped.  However, ICF Consulting
 expects to see price spikes in the hundreds or thousands of Euro/MWh.  We've
 seen this in the United States and there is no reason to believe that it can't
 happen here.  My advice to consumers in the Nordic countries is to lock up
 your retail electricity rates now, before it's too late."
     The underlying problem in the coming electricity crisis is that excess
 capacity has eroded over the years; in addition, the Nordic countries are
 relatively isolated from the rest of Europe.  Norway has not built any new
 large plants since the late 1980s because there is strong public opposition to
 the use of natural gas, while Sweden has retired existing nuclear and other
 plants.  "A system needs a planning reserve margin of 15 and 25 percent,
 depending on factors," says Gerhard Mulder, ICF Consulting senior consultant.
     Regulators have allowed this situation to reach crisis proportions because
 they, like many public regulatory authorities in the United States and Europe,
 do not have access to sufficient information on market conditions outside
 their political jurisdiction.  "Thus, regulators relying on the Nord Pool are
 implicitly assuming or hoping that others will solve their problems," said
 Judah Rose, ICF Consulting's director for the wholesale power practice.
     The only Nordic country that is not in a capacity deficit situation is
 Denmark.  However, as Denmark is becoming increasingly integrated with the
 broader Nordic electricity market, the spillover effect of the coming
 electricity crisis will have a strong upward pressure on electricity prices.
 In addition, Denmark has a strong commitment to the environment and aims to
 reduce emissions from its fossil-fired power plants.  The pressure for Denmark
 to increase exports to Norway and Sweden will be controversial.
     While both Norway and Sweden have taken steps to sign up large industrial
 customers who are willing to be interrupted in return for a discount on
 regular electricity rates, there are limits to this approach.  "Interruptible
 contracts typically have a maximum number of interruptions, and companies may
 not extend their contracts next year," says Mulder.
     The coming supply shortage creates opportunities for developers in Nordic
 electricity markets.  ICF Consulting predicts that 10,000 MW of new capacity
 is needed across Scandinavia by 2005.
 
     For more information on this topic, contact Gerhard Mulder at ICF
 Consulting, Fairfax, Virginia +1-703-218-2679 or Ben Tucker, Director, ICF
 Consulting, London, UK at +44-0-20-7554-8733.
 
     ICF Consulting, with more than 30 years of experience, is one of the
 world's leading professional services firms advising clients on managing
 global resources in a sustainable way.  ICF Consulting helps clients optimize
 energy resources, meet environmental challenges, foster economic and community
 development, enhance transportation projects and policies, and manage
 information technology resources.  ICF Consulting's 800 employees are based in
 16 offices around the globe, including offices in Bangkok, Fairfax, London,
 Los Angeles, Melbourne, Moscow, New York, San Francisco, Toronto, and
 Washington, D.C.  The firm reported gross revenue of $109 million in 2000.
 For additional information, please visit the Web site at
 http://www.icfconsulting.com .
 
 

SOURCE ICF Consulting
    LONDON, April 12 /PRNewswire/ -- ICF Consulting's comprehensive study of
 17 wholesale electricity markets in Europe, Wholesale Power Market Outlook
 2001/2002, concludes that several Nordic countries will face a severe capacity
 shortage next winter if hydro levels return to normal conditions.  Using an
 integrated, model-based approach that has enabled it to predict all major
 turning points in the United States, including the California energy crisis,
 ICF Consulting predicts that these shortages will lead to extremely high spot
 prices on the Nord Pool, and may even lead to blackouts across the region.
     "Hydro has saved the Nordic countries so far," says Neil Cornelius,
 managing consultant at ICF Consulting in London.  "A mild winter combined with
 heavy rainfall led to abundant hydro conditions throughout the region.
 Favorable hydro conditions enabled Sweden and Norway to be net exporters of
 electricity in 1999 and 2000," he says, "while normal hydro conditions may
 have led them to face shortages and rolling blackouts."
     While the majority of electricity transactions have been in the form of
 bilateral contracts, there has been an increasing reliance on the Nord Pool
 spot market.  Thus, while the spot price for electricity has been at its
 lowest levels since the inception of Nord Pool, Cornelius expects increased
 volatility and higher prices in the spot market in the near future.  He
 explains, "The Nord Pool spot market will see significant price spikes if a
 cold spell combined with normal or below average hydro conditions occur.
 Incidental price spikes already occurred earlier this year under favorable
 hydro conditions, as cold weather drove up demand and a sub-marine cable
 linking Scandinavia with continental Europe tripped.  However, ICF Consulting
 expects to see price spikes in the hundreds or thousands of Euro/MWh.  We've
 seen this in the United States and there is no reason to believe that it can't
 happen here.  My advice to consumers in the Nordic countries is to lock up
 your retail electricity rates now, before it's too late."
     The underlying problem in the coming electricity crisis is that excess
 capacity has eroded over the years; in addition, the Nordic countries are
 relatively isolated from the rest of Europe.  Norway has not built any new
 large plants since the late 1980s because there is strong public opposition to
 the use of natural gas, while Sweden has retired existing nuclear and other
 plants.  "A system needs a planning reserve margin of 15 and 25 percent,
 depending on factors," says Gerhard Mulder, ICF Consulting senior consultant.
     Regulators have allowed this situation to reach crisis proportions because
 they, like many public regulatory authorities in the United States and Europe,
 do not have access to sufficient information on market conditions outside
 their political jurisdiction.  "Thus, regulators relying on the Nord Pool are
 implicitly assuming or hoping that others will solve their problems," said
 Judah Rose, ICF Consulting's director for the wholesale power practice.
     The only Nordic country that is not in a capacity deficit situation is
 Denmark.  However, as Denmark is becoming increasingly integrated with the
 broader Nordic electricity market, the spillover effect of the coming
 electricity crisis will have a strong upward pressure on electricity prices.
 In addition, Denmark has a strong commitment to the environment and aims to
 reduce emissions from its fossil-fired power plants.  The pressure for Denmark
 to increase exports to Norway and Sweden will be controversial.
     While both Norway and Sweden have taken steps to sign up large industrial
 customers who are willing to be interrupted in return for a discount on
 regular electricity rates, there are limits to this approach.  "Interruptible
 contracts typically have a maximum number of interruptions, and companies may
 not extend their contracts next year," says Mulder.
     The coming supply shortage creates opportunities for developers in Nordic
 electricity markets.  ICF Consulting predicts that 10,000 MW of new capacity
 is needed across Scandinavia by 2005.
 
     For more information on this topic, contact Gerhard Mulder at ICF
 Consulting, Fairfax, Virginia +1-703-218-2679 or Ben Tucker, Director, ICF
 Consulting, London, UK at +44-0-20-7554-8733.
 
     ICF Consulting, with more than 30 years of experience, is one of the
 world's leading professional services firms advising clients on managing
 global resources in a sustainable way.  ICF Consulting helps clients optimize
 energy resources, meet environmental challenges, foster economic and community
 development, enhance transportation projects and policies, and manage
 information technology resources.  ICF Consulting's 800 employees are based in
 16 offices around the globe, including offices in Bangkok, Fairfax, London,
 Los Angeles, Melbourne, Moscow, New York, San Francisco, Toronto, and
 Washington, D.C.  The firm reported gross revenue of $109 million in 2000.
 For additional information, please visit the Web site at
 http://www.icfconsulting.com .
 
 SOURCE  ICF Consulting