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A milestone was reached on climate change in 2016 when the international community agreed to a concerted effort in the fight against global warming by signing the Paris Climate Accord. The treaty aims to ensure that the increase in global temperature will be kept well below 2 degrees.

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Europe has for years been prominent in the fight against global warming and the European Union has set itself the goal of reducing greenhouse gas emissions by 80-95% by the year 2050. European electricity companies will inevitably play a crucial role if these objectives are to be achieved. The world will need to eliminate nearly all conventional electricity generation methods (coal and gas) by 2050.

Tremendous progress has been made in this area by, for example, doubling the share of renewables in electricity generation in the EU between 2004 and 2014, from 15% to 30%. This growth was mostly driven by new wind and solar power projects, as well as the increased use of biomass.

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A changing market environment

This dramatic and rapid addition of environmentally friendly electricity has been facilitated by the intervention of authorities and public subsidies for electricity. Market prices have not been sufficient to cover such development. Authorities have offered significant subsidies with the aim of increasing renewable energy production and at the same time, demand for electricity has been falling.

State interventions of this kind have led to a serious imbalance on European electricity markets where the generating capacity of the system is now in excess of demand. This imbalance is one reason why prices on the European electricity markets have been rapidly declining. Traditional, polluting power plants that use coal and gas are now widely becoming uncompetitive but are nevertheless still kept in operation (using public grants) for energy safety reasons as electricity with wind and solar power is reliant on weather conditions.

The European electricity environment has changed dramatically as it increasingly relies on revenue streams in the form of government grants and operating concessions which are ultimately paid by consumers. This has, for instance, led to an increase in electricity bills for the German public which have risen steadily despite the fact that electricity market prices are decreasing. The prices on the German electricity markets decreased by € 37 / MWh, between 2008 and 2016, while the special electricity tax to fund the development of green electricity generation increased by € 52 / MWh. Parallels to this can be found on most other European markets.

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An emphasis on international connections

The demand for flexible reserve energy will increase within the European market due to the unpredictability of wind and solar power. This backup power will clearly still be provided by traditional coal and gas plants in the near future but green solutions are also likely to increase.

One of these solutions is an increase in international connections, which offer the opportunity to transfer electricity between regions from areas where temporary wind strength and cloudy weather might create a surplus of electricity, to areas where conditions are unfavourable and the supply is lacking. EU leaders have confirmed their commitment to increasing energy trading via international connectors by bringing the national generation capacity available to other EU nations up to 15 % by 2030.

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Iceland’s increased contribution to climate change action and increased efficiency in natural resource utilisation

Iceland, much like Norway, has the luxury of generating nearly all its electricity from renewable energy sources and also has an abundance of flexible energy due to the dominant position of hydropower power stations in the country. Laying a sub-sea cable between Iceland and other European countries is not a comparable process to that of laying sub-sea cables from the south of Norway to other European countries, but there are some similarities nonetheless.

There are indications that a sub-sea cable could significantly increase the profit margin for electricity in Iceland and related industries, improving the utilisation of the nation's resources, increasing Iceland’s contribution to combatting climate change and distributing risk within the Icelandic economy which is highly dependent on the energy security of the country. The current overhaul of the European electricity sector and the increased access to public funding in Europe has opened a window of opportunity for such a project. However, Iceland’s potential to be referred to as Europe’s ‘green battery’ will only become clear with time.

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Increased value of hydropower

Electricity generation in Norway relies heavily on flexible hydropower. The Norwegian authorities have identified tremendous business opportunities in supplying back-up power to southern Europe, who are becoming increasingly reliant on wind and solar energy. The Norwegian idea is to import cheap electricity whilst increasing the water reserve in their hydropower reservoirs e.g. when wind velocity is high in Germany and then exporting the energy back to Germany when the electricity supply is depleted by lower wind levels and prices rise.

This arrangement increases revenue to the Norwegian electricity market without altering the national supply. Transmission lines already exist between Norway and mainland Europe and Norway is currently preparing a number of further projects including interconnectors to Germany and Britain. Norway could therefore serve as Europe’s ‘green battery’ in the future. These opportunities in electricity generation have been compared to the opportunities provided by Norway’s oil industry.