* Export capacity to double by 2020
* Nordic, European prices to converge
* New cables to help renewable energy
By Nerijus Adomaitis
OSLO, Oct 11 (Reuters) - Nordic power prices could rise asmuch as 10 percent by the end of the decade as a clutch of newpower lines will allow producers to sell their electricity intohigher priced markets in continental Europe and Britain.
Power transmission capacities linking the Nordic market withthe rest of Europe are expected to more than double from theexisting 4,625 megawatt (MW) to 15,725 MW by 2020, including twonew cables to Germany and Britain.
Consumers in the Nordic region, which generates more than 50percent of its electricity from hydro power plants, have beenenjoying lower prices than their European peers who are moredependent on fossil fuels, such as coal and gas, which often hasto be imported.
While the rest of Europe would benefit from more links withthe Nordic region as it would give them access to its vast hydroreserves, analysts say that it would result in Nordic pricesedging up as Nordic consumers begin to compete with the rest ofEurope for their own hydro capacity.
"In general, more cables will give higher (Nordic) prices,and that is the challenge for the economics and alsopolitically," Gavin Bell, head of power market analysis at Poyryconsultancy, told Reuters.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ CHART-Nordic vs German power: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Nordic power prices for delivery in 2013 currentlytrade around 37.60 euros per megawatt-hour (MWh), some 10 eurosbelow the equivalent German contract (47.45 euros).
"I think, in some areas, prices might rise as much as 10percent as a result of new interconnectors by 2020," ThereseGjerde, the head of spot power trading at Bergen Energi.
The daily average spread between Nordic and German spotprices for Friday is 10.6 euros per MWh, but widens at somehours to 28.6 euros, data from the European Market CouplingCompany shows.
"This gap will narrow, if more interconnectors are built,but the increase in export capacity is not the only pricedriving factor," Lars Stormo, an analyst at Thomson ReutersPoint Carbon, said.
MORE CABLES PLANNED
The Norwegian government wants its state-owned transmissionsystem operator Statnett to build a 1,400 MW cable to Germany by2018 and another 1,400 MW cable to Britain by 2020.
More than 700 km in length, the British cable is going to bethe longest in the world.
The government argues that interconnectors would help toreduce seasonal fluctuation in prices due to varying waterlevels. Norway generates 98 percent of electricity from hydropower plants.
"The Norwegian energy system is vulnerable to annualvariations in precipitation," said Jon Evang, a spokesman forthe Ministry of Petroleum and Energy said.
"Interconnectors to areas with different energy systems cancontribute to better utilization of available resources,increased electricity price stability and improved security ofsupply."
But officials also admit that interconnectors might lead tohigher prices in the Nordics.
"In the short-run, and with the interconnector being theonly change we look at, the consequences for Norwegian powerprices might be that the price structures over seasons and daysbecome more similar to European price structures," Evang said.
"We might see higher prices during day time and lower pricesduring night time."
NorthConnect, the developer of the UK cable, said it should"facilitate the development of renewable generation in bothregions, as the high penetration of wind generation in the UKand hydro-energy in Scandinavia complement each other."
Bell said that having two cables to Britain and Germanywould enable Nordic traders to exploit different price periodsin two markets by selling their own capacity into the higherpriced markets to the south.
"The Nordics can effectively take the advantage of sellingpower to Germany when there is a higher price, and maybe evenimporting some from the UK, when UK has a lot of wind," Bellsaid.
There are more cables planned for the Nordic countries.
Finland is expected to boost interconnection capacity withEstonia to 1,000 MW by adding a new 650 MW cable by 2014, whileSweden and Lithuania agreed to build a new 700 MW link by 2015.
(Reporting by Nerijus Adomaitis; editing by Henning Gloysteinand William Hardy)
((nerijus.adomaitis@thomsonreuters.com)(+47 9027 6699)(ReutersMessaging: nerijus.adomaitis.thomsonreuters@reuters.net))
Keywords: NORDIC POWER/INTERCONNECTORS