Climate change and the future Nordic electricity market

The aim of this study has been to analyze the effects of climate changes on the Nordic electricity market. Concentration of greenhouse gases in the atmosphere influences the climate, which then alter the amount of primary energy for countries or regions where hydropower and wind power constitutes important parts of the energy supply. Besides, the demand effect of increased temperature may be large in economies where heating makes a large share of total energy demand. In this report we apply climate change calculations from natural science and detailed inflow data from the authorities to estimate the change in primary energy supply for the hydropower dominated Nordic electricity market. The estimated inflow model shows an increase in primary inflow in the following 40 years of 6-15 per cent in the Nordic countries. An estimated temperature model shows a 2-4 per cent initial drop in demand in the same time period, due to increasing temperature. Within the context of a perfect competition electricity market model, we simulate the total market outcome. As primary supply increases, the production cost decreases, prices drops and the total demand increases as the price effect dominates the temperature effect. Since the hydropower plants are located differently from large consumer groups, the stress on the transmission networks is dramatic for some regions, which in the next face may trigger new investments in transmission network capacities