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ICF Consulting Sees Looming Electricity
Crisis Across Nordic Countries
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LONDON, UK, April 10, 2001 - ICF Consulting's comprehensive
study of 17 wholesale electricity markets in Europe, Wholesale
Power Market Outlook 2001/2002, concludes that several Nordic
countries will face a severe capacity shortage next winter if
hydro levels return to normal conditions. Using an integrated,
model-based approach that has enabled it to predict all major
turning points in the United States, including the California
energy crisis, ICF Consulting predicts that these shortages
will lead to extremely high spot prices on the Nord Pool, and
may even lead to black outs across the region.
"Hydro has saved the Nordic countries so far," says Neil Cornelius,
managing consultant at ICF Consulting in London. "A mild winter
combined with heavy rainfall led to abundant hydro conditions
throughout the region. Favorable hydro conditions enabled Sweden
and Norway to be net exporters of electricity in 1999 and 2000"
he says, "while normal hydro conditions may have led them to
face shortages and rolling black outs."
While the majority of electricity transactions have been in
the form of bilateral contracts, there has been an increasing
reliance on the Nord Pool spot market. Thus, while the spot
price for electricity has been at its lowest levels since the
inception of Nord Pool, Cornelius expects increased volatility
and higher prices in the spot market in the near future. He
explains, "The Nord Pool spot market will see significant price
spikes if a cold spell combined with normal or below average
hydro conditions occur. Incidental price spikes already occurred
earlier this year under favorable hydro conditions, as cold
weather drove up demand and a sub-marine cable linking Scandinavia
with continental Europe tripped. However, ICF Consulting expects
to see price spikes in the hundreds or thousands of Euro/MWh.
We've seen this in the United States and there is no reason
to believe that it can't happen here. My advice to consumers
in the Nordic countries is to lock up your retail electricity
rates now, before it's too late."
The underlying problem in the coming electricity crisis is that
excess capacity has eroded over the years; in addition, the
Nordic countries are relatively isolated from the rest of Europe.
Norway has not built any new large plants since the late 1980s
because there is strong public opposition to the use of natural
gas, while Sweden has retired existing nuclear and other plants.
"A system needs a planning reserve margin of 15 and 25 percent,
depending on factors," says Gerhard Mulder, ICF Consulting senior
consultant.
Regulators have allowed this situation to reach crisis proportions
because they, like many public regulatory authorities in the
United States and Europe, do not have access to sufficient information
on market conditions outside their political jurisdiction. "Thus,
regulators relying on the Nord Pool are implicitly assuming
or hoping that others will solve their problems," said Judah
Rose, ICF Consulting's director for the wholesale power practice.
The only Nordic country that is not in a capacity deficit situation
is Denmark. However, as Denmark is becoming increasingly integrated
with the broader Nordic electricity market, the spillover effect
of the coming electricity crisis will have a strong upward pressure
on electricity prices. In addition, Denmark has a strong commitment
to the environment and aims to reduce emissions from its fossil-fired
power plants. The pressure for Denmark to increase exports to
Norway and Sweden will be controversial.
While both Norway and Sweden have taken steps to sign up large
industrial customers who are willing to be interrupted in return
for a discount on regular electricity rates, there are limits
to this approach. "Interruptible contracts typically have a
maximum number of interruptions, and companies may not extend
their contracts next year," says Mulder.
The coming supply shortage creates opportunities for developers
in Nordic electricity markets. ICF Consulting predicts that
10,000 MW of new capacity is needed across Scandinavia by 2005.
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
United Kingdom Contact: Abyd
Karmali
Tel: 44 (0) 20.7092.3005
United States Contact: Douglas
Beck
Tel: 1.703.934.3820
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