March 26 (Bloomberg) -- Talks between Germany and Norway about how to boost the trading of electricity from renewable sources are being held up by concerns that the power cable running under the North Sea won’t ever make money.
Plans to build the 387-mile-long cable costing as much as 2 billion euros ($2.8 billion) are at risk because Norway’s state-owned Statnett SF is worried that the project won’t be profitable. Norway wants assurances from the German government that the works dubbed Nordlink will be part of a future capacity market that pays for backup power.
“We have been able to discuss this matter with German authorities on several occasions and we have made it clear that it is of great importance for the profitability of the cable project to be included in a future capacity market,” Christer Gilje, a spokesman for Statnett, said yesterday.
The cable would be the first direct power link between the nations, running from Tonstad in southern Norway to Wilster in northern Germany. It would have the capacity to transmit 1.4 gigawatts of power starting in 2018 and would allow Norway to export excess hydropower. Germany would use it to offset intermittent production from renewables, mainly wind farms in the north.
It’s one of the key links Germany needs to ensure its grid is flexible enough to handle increasing flows of renewable energy that will replace nuclear power by 2022. Reactors work around the clock while wind turbines and solar farms produce only when it’s breezy and sunny.
Norway’s Petroleum and Energy Minister Tord Lien will be at a conference in Berlin tomorrow to discuss the project.
Statnett will own a 50 percent stake in the transmission-line project. German state-owned bank KfW Group and the grid company TenneT each will hold 25 percent shares. Power-trading will help renewable energy production on both sides of the link, the companies involved say.
The German and Norwegian governments are holding “intense discussions” over whether to include the cable in the capacity market, Torsten Albig, premier of the northern Schleswig-Holstein state, where the line would make landfall, said in an interview last week.
Norway’s Ministry of Petroleum and Energy is reviewing the application to build Nordlink and its decision hinges on whether the project will be profitable, said Hakon Smith-Isaksen, a spokesman for the ministry.
“Possible income from capacity markets can contribute toward the economic profitability,” Smith-Isaksen said in an e-mail. The ongoing discussions of market interventions in Europe complicate the treatment of the application and are “creating a new type of uncertainty” about revenue that will flow from the interconnector, he said.
Germany’s Economy Ministry is in “close contact” with Norwegian authorities and the companies involved and it was told the project “is making good progress,” the ministry said today in an e-mail. The companies involved still seek to make a final investment decision this year, it said.
Germany has adequate generation capacity to the end of the decade and will consider “medium-term” the need for a capacity market, the ministry said in a separate e-mail. The government won’t focus on any one particular generation source and seeks cost-efficient and competitive market mechanisms that comply with EU law, it stated.
“We definitely won’t put off the matter,” the ministry said. “Yet over-capacity means that we can use the time needed” to develop a reliable capacity market.
The German companies involved don’t necessarily back the Norwegian demands.
Integrating the project into the capacity market isn’t one of TenneT TSO GmbH’s demands, said Ulrike Hoerchens, a spokeswoman for the grid company.
“TenneT remains committed to Nordlink and wants to build it as previously agreed,” Hoerchens said March 20 by phone. Nordlink is “an extremely important project” because it can send excess German wind-power to Norway. Hydroplants in Norway can store the power for delivery back to Germany when consumers need it most, she said.
Norway produces about 95 percent of its electricity with hydropower and is building a similar cable to the U.K. It’s already linked with the Netherlands via NorNed, a 700-megawatt subsea cable that began operating commercially in 2008. It also has connections with Denmark and Sweden.
German authorities told Statnett that the interconnectors will be taken into account “in a fair way” in a future capacity market, Gilje said in comments confirmed by the German Economy Ministry.
German and Norwegian authorities are meeting on a regular basis, Smith-Isaksen said. “We hope to know more on where Germany is going in the coming months.”
To contact the editors responsible for this story: Reed Landberg at email@example.com Randall Hackley