The world is undergoing a transition away from fossil fuels towards renewable energy. However, the speed and depth of this transition is uncertain and controversial. This will have significant implications for Norway, one of the world’s largest exporters of both energy and capital. Norway has one of the most decarbonized power sectors in Europe. Its renewable resources – primarily hydropower – are an important part of the Nordic power market, helping to balance supply and demand for domestic industry and across the region. The construction of additional power lines to Germany and the UK is likely to expand Norway’s role as a key supplier of low-carbon electricity in Europe. Norway has the capacity to increase the system flexibility of the internal European electricity market, which is vital for strengthening renewable energy in the power sector.

Power system flexibility may also come from an increase in the use of EVs, which will lead to lower battery production costs and the possibility of vehicle-to-grid balancing. These two innovations alone may devalue investments in interconnectors. The fall in electricity costs from renewable sources may negate the economic advantage of establishing heavy industry in certain areas and cause companies to relocate.

The country also has a crucial role to play as an exporter of capital. With the largest sovereign wealth fund in the world, Norway’s policies and investment decisions can have real impact at home and abroad, helping to support an orderly transition through its effective management of climate-related financial risk and investment in low-carbon sectors.

Chatham House recently released a report, Expert Perspectives on Norway’s Energy Transition, which takes a deeper look into the country’s changing energy landscape.