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Why are electricity prices increasing in Denmark?

A newly-installed electricity meter in Copenhagen. Denmark has not avoided the trend of rising energy costs currently seen in much of Europe.
A newly-installed electricity meter in Copenhagen. Denmark has not avoided the trend of rising energy costs currently seen in much of Europe. File photo: Kristian Djurhuus/Ritzau Scanpix
A combination of factors are causing energy prices to increase markedly across Europe. Denmark is no exception to the trend.

Electricity prices hit their lowest levels for years last spring, at the beginning of the coronavirus crisis, exacerbating the sense that prices are on the up now.

Dramatic hike in natural gas prices

According to Dansk Energi, an interest organisation for the energy sector in Denmark, the biggest cause of expensive electricity bills is a six-fold increase in natural fossil gas in the last six years.

Prices on the international energy market follow that of the most expensive energy producer – so if, for example, an expensive gas-powered energy plant is needed to ensure enough supply, that will set the market price.

European countries normally try to favour natural gas reserves global prices heat up and consumption peaks during winter. But stores are already low due to unusually demand during the summer.

Meanwhile, Russia has reduced some of its gas supply to Europe, impacting prices on the continent.

This means that people in Denmark who use gas heating systems are likely to be hit by price hikes more than those with electricity-powered pumps, because gas prices have risen twice as much as electricity prices. The electric pumps are also more efficient than the gas-powered heating systems.

Economic upswing after Covid-19 restrictions eased 

The coronavirus crisis is not yet over, but it can certainly seem that way in Denmark, which is enjoying a post-restrictions economic boom resulting in low unemployment, a labour shortage and strong currency.

Denmark is not alone in seeing an economic surge after the low ebb in 2020 caused by the pandemic. According to the EU Commission, global GDP is now expected to rise by 5.9 percent from 2020-2021, an increase on an earlier projection of 4.7 percent.

The economic booms in various countries mean an increase in energy use, and thereby higher demand and higher costs, because markets are behind on supply of coal, oil and gas.

Higher CO2 costs in the EU

The cost for businesses with high CO2 emissions has increased significantly since 2017, when the EU ratified its Market Stability Reserve. In short, this meant that the cost of quotas which must be purchased by companies to offset large CO2 emissions – including electricity producers – has shot up from 8 euros per tonne to 60 euros per ton, according to Dansk Energi.

Wind and rain 

Reservoirs in parts of Scandinavia which are used to produce electricity are lower than usual. For example, Norway’s reservoirs were 15 percent less full than usual in September, according to Energi Norge. As such, less energy is produced by hydroplants.

Meanwhile, the wind has been blowing a bit less than expected in northern Europe in the autumn. That means there is less cheap electricity available from wind turbine farms.

When energy is not available from green sources, it must be procured elsewhere – such as from fossil fuel plants, where costs are currently higher than normal as outlined above.

What can I do to limit the damage on my own bills? 

Website Elpris.dk enables consumers in Denmark to compare the price of electricity from different suppliers. Prices from the various suppliers can be searched on the website, as can information on, for example, whether the energy you buy comes from sustainable sources.

The resource website is aimed at consumers and companies with consumption of up to 100,000 kroner annually.

Consumers can also try to cut down on their use of electricity, of course, with techniques such as using timers on appliances, closing doors to unused rooms, and switching off appliances at sockets when not at home. It’s arguable that this could also apply when prices are low.

Is there any good news?

Forward markets – set prices paid for future delivery of electricity – are set to fall after the coming winter and continue to drop next year, Dansk Energi writes in its analysis of the situation.

The interest organisation for the energy sector also writes that an improvement in sustainable energy production in coming years could see electricity become both cheaper and greener.


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