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– Talking about two-digit number of cents – E24

– Talking about two-digit number of cents – E24
– Talking about two-digit number of cents – E24

Companies can get lower fixed prices by committing for several years, but still fear that the prices will be too high. – For us, a fixed price agreement above the krona is not good, says the director of Norwegian Industry.

Illustrative image of power line. Kjetil Malkenes Hovland, E24
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Right now

Last week, the government put forward a proposal for electricity support for business, but it will only last until the end of the year.

From the new year, instead, a tax measure will lead to the power producers being able to offer cheaper fixed price agreements to the business community, according to the government.

But with today’s market prices, the industry fears that the fixed price agreements in southern Norway will be too expensive.

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On the commodity exchange Nasdaq Commodities, electricity for sale in 2023 is stated at around NOK 1.75 per kilowatt hour. But customers in southern Norway have to pay a surcharge on top of this, according to analyst Olav Johan Botnen in Volue Insight.

– If you look at the future prices for southern Norway now, they are around NOK 2.50 for 2023 and NOK 1.15 for 2024, and for 2025 it is 90 øre per kilowatt hour. But there is hardly any trading in the market, and therefore it is difficult to enter into such agreements, says Botnen to E24.

Thus, the average price for the next three years is around NOK 1.50 per kilowatt hour. But that does not necessarily mean that companies will be able to enter into fixed-price contracts at these prices.

– Have such fixed price agreements traditionally been in line with future prices?

– It is at best. There are big differences between these agreements, and you often have to pay extra if, for example, you use more electricity during the day than at night. And then the sellers must have a certain margin. So these prices are in a way a kind of lower floor, says Botnen.

Industry Minister Jan Christian Vestre (Ap) visited the solar cell company Rec Solar in Kristiansand in August. The company has no fixed price agreement and has shut down due to high electricity prices. Tor Erik Schrøder / NTB

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– Not over the krone

Norwegian companies will struggle to commit to fixed prices of more than one kroner per kilowatt hour, according to director Knut Sunde in Norsk Industri.

He is concerned that the electricity subsidy for businesses expires at New Year, while it is uncertain whether there are good enough fixed price agreements available.

– The government says that from 1 January it will be possible to obtain good fixed price agreements. For us, a fixed price agreement above the krone is not good. So the government has a little work to do there, says Sunde to E24.

The average price of electricity in southern Norway last year was 76 øre per kilowatt hour, which is by far the highest price so far this century. This year, the average price in the south of Norway so far is around two kroner per kilowatt hour.

Director Knut Sunde in Norwegian Industry. Tone Buene

Are open to long agreements

Sunde receives feedback from the member companies that they are open to tying their prices to fixed price agreements lasting between three and five years. But that depends on the price not being too high.

– Then we are talking about a two-digit number of øre, not a three-digit number. If this is possible, and if this becomes a mass market, we are excited about that, says Sunde.

– If there is something that can be done in that regard, we expect the government to do everything it can to make it happen. This is the entire premise on which their policy rests, he adds.

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Sunde does not believe that any companies are interested in entering into a fixed price agreement if they have to pay upwards of NOK 2.50 per kilowatt hour. There is also a limit to how many years the companies want to bind their prices.

– The business world understands that you have to enter into agreements with a slightly longer time perspective in order to bring the price down. But I don’t think there is any interest in entering into ten-year agreements, says Sunde.

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– Extremely unpredictable market

Director Toini Løvseth in Energi Norge. Caroline Roka / Energy Norway

Oil and Energy Minister Terje Aasland gave an account of the power situation in the Storting on Monday. There he pointed out that the government is facilitating lower fixed prices through a tax measure that will give the industry more predictable tax. Now the power industry must do its part, was Aasland’s message.

– I only have one message for the power producers – you will get what you asked for – now you must deliver on fixed price agreements to ensure greater predictability for business, said Aasland.

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Director Toini Løvseth in the industry organization Energi Norge believes that there may be a wider offer of fixed price agreements after the government’s tax measures.

The way it looks now, the companies will probably have to commit to very long fixed price agreements in order to achieve what the industry itself considers a reasonable electricity price.

– We know the future prices in the market, and we know that it is an extremely unpredictable market with extremely high risks and large outlays for the electricity companies. It is demanding to offer long-term fixed price agreements in such a market, says Løvseth to E24.

She believes that the government’s action removes some of the risk for the producers, and that it will probably give the power producers opportunities to offer better fixed price agreements than today.

– But we are still talking about fixed price agreements in the market that we see now, with high prices, she says.

– If we come to a situation in January where prices are very high, but future prices look better, then the companies will have an opportunity to be able to equalize these prices going forward. It is difficult to enter into such agreements now, but the government’s move can provide better opportunities, she says.

Want a higher maximum markup

Løvseth will not speculate on the level of fixed prices. The price level in a fixed price agreement depends on how long the companies will bind the price, and how prices in the market develop in the future.

– The important thing will be how the price looks in January, and how long agreements you are willing to enter into. The government has proposed agreements of three, five or seven years, says Løvseth.

– It is not a given that the government’s measures work as hoped?

– We don’t know that. It will depend on the prices in January and future prices, and how the proposal is implemented in practice, whether one succeeds in reducing the risk of offering such agreements, says Løvseth.

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The government’s proposal is under consultation, and assumes that companies offering a fixed price can charge a maximum of 0.5 øre per kilowatt-hour. Energi Norge believes that no players want to offer fixed price agreements if this ceiling is not increased.

– Ideally, there would not be a regulated mark-up, but competition for this, so that it was as low as possible. And ideally, we used this opportunity to set up a marketplace for this type of fixed price agreement, so that both agreements and prices become better known and accessible to more people, says Løvseth.

– A little more level

Managing director Knut Lockert of the industry organization Distriktsenergi says that the industry wants to offer good fixed price agreements. Nor was it long ago that it was possible to enter into fixed price agreements at relatively low levels.

But the market is demanding, and it will probably continue as long as the war in Ukraine continues, he believes.

– In a normal situation, opportunities to enter into fixed price agreements abound. But in the current situation, neither the power companies nor the electricity companies are willing to take that risk. Now almost all offers have been withdrawn from the market, at least at prices customers are willing to accept, says Lockert to E24.

– This could turn around quickly if the war in Ukraine ends, but until further notice the market is very uncertain. The industry would like to deliver reasonable fixed price agreements, but then the world needs to be a little more balanced, he says.

Managing director Knut Lockert in the industry organization District Energy. District Energy

The article is in Norwegian

Tags: Talking twodigit number cents E24

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