A short rant about power cables in Norway

At the time of writing the Norwegian elections are in full swing. Based on my news feed on social medias I can vaguely deduce that the so called “formueskatt” is going to be the hot topic for the conservative leaning parties. This is a tax on your wealth alone, which in short is calculated as

   

that is, all your belonging subtracted all your debt. So if you have wealth over a certain threshold, you must pay some tax on it. If you have a lot of wealth you pay a lot of tax. If you are the co-founder of a business that has yet to make a profit, the market value of your stocks are used to calculate your wealth, which in practice means you have to sell parts of your company to pay for the tax. This tax has resulted in an exodus of rich entrepreneurs from Norway and was quickly followed by the so called “exit tax” which was a new tax supposed to make it less financially interesting to leave the country. This whole tax gobbledigook made me feel better about my empty bank account. Anyway, we will not be talking about this tax in this post.

We will however talk about another less hot topic, but in my opinion much more interesting, namely the the topic of the construction of new power grids that further connects Norway to the European electrical market.

Norway has long had very cheap energy from hydroelectric power plants which covers over 90% of the electrical needs of the Norwegian consumption. This has historically given Norwegian businesses a small competitive advantage and households a lower electricity bill than the rest of Europe (take that Sweden!).

A few days ago I was made aware of a claim made by the prime minister which made my spider sense tingle. The claim was that the power grid which would allow for an increase in the export/import of energy between Norway and the rest of Europe, would not result in higher electricity prices in Norway.

I found this to be rather strange. Intuitively, if we export a commodity, I would expect the price if this commodity to rise in the country from which it is exported. Having some time to kill, I decided to look at the numbers myself. I’m not statistician, but at least I could make my educated guess as the the validity of the prime ministers statement.

Using numbers from SSB which date back to the 1960’s up to 2018 one can plot the graphs of the electricity prices in Norway together with the amount of electrical energy exported out of Norway:

The red line shows the price of electrical energy in the current year (measured in 100’s of øre/kwh) while the blue line shows the energy exported out of Norway (measured in GWh). The two graphs seem to be somewhat correlated, and indeed if we put the numbers into an excel sheet the correlation coefficient is at 0.75.

For the record, the correlation coefficient between imported energy and price is much weaker then the correlation between exported energy and price, and sits at around 0.5.

Though correlation is not causation there is imho reason to suspect the relation is causal. If I was a producer of hydroelectric energy I would certainly want to sell my energy to the highest bidder which usually is not Norway. Once I have sold all the energy I have and depleted my reserves of water, I would just import expensive energy from the rest of Europe and let the consumer pay for it. For a profit-focused company its a win win situation.

Now put into the equation that the state and municipalities ownership in the Norwegian energy production is around 80 percent these new power cables are starting to look more like pro forma tax on the Norwegian consumer. A tax that could affect the average Norwegian much more than the pesky “formueskatt” which at the end of the day primarily targets the wealthy.