Norway: Choosing affordability over energy security?

At the end of January 2025, half of Norway’s ruling coalition left the government over the implementation of three European energy directives. The episode is symptomatic of bigger political choices around energy affordability versus energy security. There may be trouble brewing in the neighbourhood. The EU should better communicate the security benefits of the Energy Union to its neighbours and implement necessary market improvements to prevent future friction.

What happened?

On 30 January 2025, the Centre Party which is varyingly labelled as protectionist, agrarian and eurosceptic, withdrew from the government over the adoption of the 4^th Clean Energy Package (2019). They objected in particular to the energy efficiency directive (EED II), the renewable energy directive (RED II) and the energy performance in buildings directive (EPBD). Its leader Trygve Vedum criticised greater interconnection with the European energy market and claimed Norway should take back control from the EU. Importantly, he made a link between greater market integration with the EU and higher energy costs for Norway.

Why does this matter?

The episode demonstrates the time-worn principle of the energy trilemma. In this formulation, a state must balance energy security, energy affordability and energy sustainability. In the case of Norway, extensive hydropower resources give it considerable strengths in affordability and sustainability. It is however a large country with insufficient grid infrastructure and vulnerable to variations in rainfall. In other words, it faces the problem of energy security. Greater interconnection, especially with Sweden, Denmark and the UK, helps solve this problem. Such interconnection is mutually beneficial with Norway profiting from exporting energy to its neighbours while also importing when it makes sense. The electricity market underwrites the whole system, providing price signals to guide flows of energy.

The catch is a familiar one across the EU and its neighbourhood. When countries are ever more closely interconnected, their own domestic energy markets become more harmonised with those in the rest of Europe. There is a collective efficiency gain in lower prices but areas with lower electricity prices can see their costs increase if connected to a more expensive bidding zone. Such is the case in northern Norway where abundant hydropower resources and low demand make electricity consistently cheap. Due in part to inconsistencies in market integration, including limiting of traded volumes and interconnection, variations often come in the form of dramatic price spikes. One such spike hit northern Norway on 22 January. Usually, prices hover between €3-10 per MWh but that day they hit over €100 on day-ahead markets (a 2506% increase). These spikes are rare but politically damaging, especially in Norway.

Something bigger brewing?

It might be easy to dismiss the episode as politicians in Europe’s neighbourhood blaming the EU for political gain. The (now minority) Labour government reaffirmed its commitments to the EU. The return of Jens Stoltenberg as the finance minister after 10 years at NATO bodes well for a focus on European security.

However, the episode represents a test for the EU and its Energy Union. As the Baltic states demonstrated by decoupling from Russia’s energy system on 8 February, connection to the European energy system comes with benefits but also costs. In all three countries, separating from the large Russian energy grid incurred a (small) cost, with every Estonian consumer estimated to pay an additional €15 a year in system costs alone.

The European Energy Union brings energy security - but security isn’t free.

For now, there is no broader pushback. The new national energy system operator (NESO) in the UK opted to continue expanding interconnection even as this comes with costs to consumers. Ukraine and the candidate countries of the Western Balkans also continue to privilege energy security over integration costs. As states add more and more cheap renewable energy into their systems these calculations may change. There is a cost to building new electricity generation and grid infrastructure – a cost that is harder to justify if it is for the benefit of others.

In the heavily regulated energy sector in the throes of transition, the issue of affordability is unlikely to fade. Rare price spikes seem well aligned with a low attention span in the media cycle where shock and outrage rise and fall almost as fast as the energy prices. Few notice when the energy market functions well, which is the vast majority of the time. The politics of energy therefore can be perfect fodder for more critical voices opposed to integration in the EU’s neighbourhood (sometimes acting as proxies for Moscow).

In the shorter term, EU Member States could act to reduce price spikes. The EU’s energy regulatory agency (ACER) routinely points to greater market integration and system flexibility as solutions to price fluctuations. In the longer term, the energy transition will come with costs that will disproportionately affect some countries more than others in the neighbourhood. The gains for energy security need to be more clearly communicated alongside the costs. It is in the interest of the EU, its Member States and its neighbours to have a strong, secure and resilient Energy Union.

Disclaimer: The views expressed herein are those of the author and do not constitute the official position of the EUISS, the EU institutions or The Brussels Effect.