Nordic power bills to jump on new export links

* 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 as much as 10 percent by the end of the decade as a clutch of new power lines will allow producers to sell their electricity into higher priced markets in continental Europe and Britain.

Power transmission capacities linking the Nordic market with the rest of Europe are expected to more than double from the existing 4,625 megawatt (MW) to 15,725 MW by 2020, including two new cables to Germany and Britain.

Consumers in the Nordic region, which generates more than 50 percent of its electricity from hydro power plants, have been enjoying lower prices than their European peers who are more dependent on fossil fuels, such as coal and gas, which often has to be imported.

While the rest of Europe would benefit from more links with the Nordic region as it would give them access to its vast hydro reserves, analysts say that it would result in Nordic prices edging up as Nordic consumers begin to compete with the rest of Europe for their own hydro capacity.

"In general, more cables will give higher (Nordic) prices, and that is the challenge for the economics and also politically," Gavin Bell, head of power market analysis at Poyry consultancy, told Reuters.

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Nordic power prices for delivery in 2013 currently trade around 37.60 euros per megawatt-hour (MWh), some 10 euros below the equivalent German contract (47.45 euros).

"I think, in some areas, prices might rise as much as 10 percent as a result of new interconnectors by 2020," Therese Gjerde, the head of spot power trading at Bergen Energi.

The daily average spread between Nordic and German spot prices for Friday is 10.6 euros per MWh, but widens at some hours to 28.6 euros, data from the European Market Coupling Company shows.

"This gap will narrow, if more interconnectors are built, but the increase in export capacity is not the only price driving factor," Lars Stormo, an analyst at Thomson Reuters Point Carbon, said.


The Norwegian government wants its state-owned transmission system operator Statnett to build a 1,400 MW cable to Germany by 2018 and another 1,400 MW cable to Britain by 2020.

More than 700 km in length, the British cable is going to be the longest in the world.

The government argues that interconnectors would help to reduce seasonal fluctuation in prices due to varying water levels. Norway generates 98 percent of electricity from hydro power plants.

"The Norwegian energy system is vulnerable to annual variations in precipitation," said Jon Evang, a spokesman for the Ministry of Petroleum and Energy said.

"Interconnectors to areas with different energy systems can contribute to better utilization of available resources, increased electricity price stability and improved security of supply."

But officials also admit that interconnectors might lead to higher prices in the Nordics.

"In the short-run, and with the interconnector being the only change we look at, the consequences for Norwegian power prices might be that the price structures over seasons and days become more similar to European price structures," Evang said.

"We might see higher prices during day time and lower prices during night time."

NorthConnect, the developer of the UK cable, said it should "facilitate the development of renewable generation in both regions, as the high penetration of wind generation in the UK and hydro-energy in Scandinavia complement each other."

Bell said that having two cables to Britain and Germany would enable Nordic traders to exploit different price periods in two markets by selling their own capacity into the higher priced markets to the south.

"The Nordics can effectively take the advantage of selling power to Germany when there is a higher price, and maybe even importing some from the UK, when UK has a lot of wind," Bell said.

There are more cables planned for the Nordic countries.

Finland is expected to boost interconnection capacity with Estonia to 1,000 MW by adding a new 650 MW cable by 2014, while Sweden and Lithuania agreed to build a new 700 MW link by 2015.

(Reporting by Nerijus Adomaitis; editing by Henning Gloystein and William Hardy)

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