“So that is the starting point. This is a very interesting story,” says Tom Darell, CEO of Nord Pool.  

The energy transition – from “traditional” fossil fuels like coal, oil and gas towards more sustainable renewables such as wind and solar power – is a critical pathway to achieving the European Union’s ambitious climate targets. But that means Europe must navigate the challenges posed by increasingly high shares of renewable energy in the power trading mix. The necessary journey towards a sustainable energy future comes with both obstacles and opportunities. Tom Darell believes we need to understand the complexities of this transition to achieve the delicate balance required to realise a sustainable energy future. 

“The energy system has such a fine-tuned balance between consumption and production every second of the day. Stability is the aim and that is where the challenge with renewable energy comes; It is not stable,” he elaborates. 

Gas and power prices 

“The correlation between gas prices and electricity prices is very high,” he notes, highlighting the interconnectedness of the European energy market.  

Historically, coal and the European carbon tax have been the primary factors influencing European power prices. Burning coal, the most expensive energy source, often set the price by balancing supply and demand. However, the energy crisis of 2022 marked a significant shift. The reduction in Russian gas exports, which at the time constituted 40% of Europe’s gas consumption, caused a dramatic spike in gas prices. 

“On 26 August 2022, gas prices soared from a historical average of €10-20 per MW to €339 – a 20-fold increase. This surge had a profound impact on power prices across Europe, even in countries like France, which rely heavily on nuclear energy.”  

In the pursuit of a net zero future, Europe aims to balance production and demand through renewable energy – nuclear, hydro, storage and flexible demand. Significant strides have been made, with 100 TWh of new wind and solar production added in 2022 and an additional 200 TWh in 2023. The CEO points out that the price signals reflecting surplus or deficit balances serve as an investment incentive for more renewable energy.  

“It has never been more profitable to invest in new renewable production capacity. Policymakers need to create the legislative frameworks to reduce lead times for renewable energy projects,” he says. 

The impact of renewables 

The integration of high shares of renewable energy, particularly wind and solar, into the power trading mix has significantly reshaped power price trends across Europe.  

“If we use Greece or Germany as examples, we can easily see that for every year, the price curves tend to be deeper, or lower, during the middle of the day,” he explains. 

Germany, with its 85 GW of solar and 65 GW of wind capacity, exemplifies this trend. And the phenomenon is not limited to Germany.  

“In Spain, we see the same pattern,” Tom Darell notes. “From March to October, we can see the whole of Europe, 30 countries including Switzerland, the UK and Norway, running on renewable energy during the middle of the day. However, reliance on fossil fuels remains critical during nighttime and winter months, when renewable production is low.” 

Fossil fuels and flexibility 

Despite progress in renewable energy, fossil fuels still play a crucial role in balancing the energy system.  

“During the night, with no sun - and in the winter, we still need fossil fuels,” the Nord Pool CEO emphasizes.  

This reliance underscores the need for flexibility in both consumption and production, to manage the energy system effectively. Flexible consumption is particularly important as it allows for better management of demand, based on price signals.  

“We need to see a larger degree of flexible consumption from both industry and households,” he suggests.  

This flexibility could help mitigate the impact of price volatility and ensure a more stable energy supply. 

Incorporating offshore wind and hydrogen 

The future of Europe’s energy system also hinges on the successful integration of hydrogen and offshore wind. Countries like the UK, Norway, Denmark, Germany and the Netherlands are planning significant offshore wind capacity additions.  

“There are 70 gigawatts being auctioned for offshore wind by different governments in western Europe in 2024 alone,” Tom highlights. 

However, integrating this intermittent energy source poses challenges.  

“One of the problems we have now is how to incorporate greater wind production into the system without making it inoperable,” he explains.   

Hydrogen offers a promising solution by providing flexibility and utilizing surplus energy. 

“When you have large amounts of surplus energy, this is the type of flexibility you can utilize on the demand side,” the Nord Pool CEO adds. 

Government support  

Political commitments are crucial for the success of these initiatives in renewable power.  

“Government backing and commitment from Germany, Belgium, Norway, Sweden and other countries, is significant,” Tom notes.  

This support is essential for advancing technologies like hydrogen and ensuring the stability of the energy system. 

Industry initiatives also play a vital role. For instance, Norsk Hydro, Europe’s largest aluminium producer, plans to use offshore wind to power electrolysers.  

“Norway has a great competitive advantage if we do this right,” he asserts.  

Such initiatives demonstrate the potential for renewable energy to drive industrial innovation and economic growth. 

Challenges and opportunities 

The challenges posed by high shares of renewable energy in Europe’s power market are significant, but so are the opportunities. By leveraging flexible consumption, integrating offshore wind and hydrogen and securing government support, Europe can successfully navigate these challenges and continue its transition towards a sustainable energy future. 

As Tom Darell summarizes; “We have come quite a long way in the energy transition - but we really need to pick up speed if we are going to get anywhere near the 2030 targets. The path to a net-zero future is demanding, but with continued innovation and commitment, it is within our reach.”