New Report: Political Interventions Against Rising Electricity Prices Increase Volatility Risk in Denmark

Mind Energy Warns of Counterproductive Support Schemes That Weaken Consumer Incentives to Save Electricity and Drive Prices Up

A new report from Nordic energy trader Mind Energy paints an alarming picture of developments in the Nordic electricity market. While politicians in Norway, Sweden, Germany, and Denmark are introducing price caps and tax cuts to protect citizens from high electricity prices, these well-intentioned measures paradoxically risk worsening precisely the problems they are designed to solve. The result could be even higher prices and increased uncertainty, especially for Danish businesses.

"The data shows that the political initiatives introduced during 2025 risk exacerbating the problems they are meant to solve, especially the high electricity prices and high volatility," warns Lasse Kamp Simonsen, Head of Structured Desk at Mind Energy, in the "Nordic Energy Markets Insights Report" from January 2026.

For Danish businesses, the message is clear: They must prepare for a market with greater price fluctuations, higher uncertainty, and potentially significantly higher energy costs in the coming years, while private consumers are protected by political subsidy schemes.

A Growing Divide Between North and South

The report documents a dramatic development in the Nordic electricity markets over recent years. Where price differences between north and south were previously minimal, a fundamental split in the Nordic market has now emerged.

Historical perspective: In the period from 2015 to 2021, there was only an average price difference of 8 EUR/MWh between the cheapest and most expensive Nordic price area. This reflected a well-functioning, integrated market where electricity could flow freely between regions and smooth out price differences.

The new reality: In the period from 2023 to 2026, the price difference has exploded to 58 EUR/MWh between the cheapest area (NO4 in northern Norway) and the most expensive (DK1 in western Denmark). This represents more than a sevenfold increase in regional price differences and signals a fundamental fragmentation of the market.

Dramatic Price Changes Across Regions

Mind Energy's data shows how the Nordic countries have been divided into winners and losers:

Southern areas with sharp price increases:

• Denmark: Electricity prices have nearly tripled in the period 2023 to 2025 compared to 2015 to 2021. Danish consumers and businesses are experiencing some of Europe's highest electricity prices.
• Southern Norway (NO1, NO2, and NO5): Prices have nearly doubled, leading to massive public dissatisfaction and political pressure.
• Southern Sweden (SE4): Prices are approximately twice as high, with the Stockholm area particularly hard hit.

Northern areas with falling prices:

• Northern Norway (NO3 and NO4): Prices have actually fallen compared to the earlier period, thanks to abundant hydropower resources.
• Northern Sweden (SE1 and SE2): Also experienced falling prices due to surplus hydropower and wind power.

This development has created political explosiveness in the Nordic countries, where citizens in the south feel unfairly treated compared to their compatriots in the north, even though they live in the same country and pay into the same electricity system.

The Causes of the Growing Split

Germany as a Price Driver

A significant reason for the high prices in the southern Nordic areas is the close coupling with the German electricity market. Germany has undergone a massive transformation of its energy system in recent years:

• Nuclear phase-out: The last German nuclear power plants were shut down in 2023.
• Reduction of coal-fired power plants: As part of climate efforts, coal power is being gradually phased out.
• Massive expansion of renewable energy: Germany has added enormous amounts of solar and wind to the system.

This transformation, combined with the effects of the war in Ukraine and the resulting energy crisis, has led to significantly higher electricity prices in Germany. Through large transmission cables to Denmark, southern Sweden, and southern Norway, these high German prices have spread northward.

Mind Energy's report emphasizes that the southern bidding areas in the Nordics are now much more coupled with Germany in terms of prices than they are with their own northern regions. This represents a fundamental market change.

Increased Share of Renewable Energy Drives Volatility

The second main reason for the dramatic changes is the sharply increased share of renewable energy in the system. While this is positive for the climate, it creates new challenges for the electricity market.

The explosion of volatility: The report shows that the standard deviation for electricity prices, a measure of volatility and uncertainty, has increased dramatically:

• In the late 2010s, standard deviations were both significantly lower than in recent years and almost identical across the Nordics.
• In the period 2023 to 2025, volatility has exploded, especially in Denmark, southern Norway, and southern Sweden.
• Prices now fluctuate wildly depending on weather conditions.

The Dunkelflaute phenomenon: A central concept in the report is "Dunkelflaute," a German term describing periods with missing wind and sun. When the weather is calm and overcast, wind turbines and solar cells produce almost no electricity. During these periods, the system must fall back on conventional power plants, primarily gas and coal, which are significantly more expensive to operate.

Since the Nordic and German systems have now added massive amounts of renewable energy without corresponding buildup of storage facilities or flexible consumption solutions, these Dunkelflaute periods become extremely expensive. Conventional power plants run less frequently, which means their marginal costs increase, and when they must be activated, they drive prices up dramatically.

Infrastructure Challenges and Bottlenecks

A third factor is limitations in transmission capacity between north and south. Although there are significant transfer cables, they are not sufficient to fully smooth out price differences.

Positive development: Between northern Sweden and Finland, a new transmission connection, the Aurora Line, was put into operation in November 2025. This increases cross-border capacity by 800 to 900 MW and is expected to reduce price volatility and support price convergence by easing structural bottlenecks between Nordic bidding areas.

But while the Aurora Line helps in the north, transmission capacity between north and south remains a limiting factor, especially during periods of high demand in the south and high production in the north.

Norgespris: A Well-Intentioned but Problematic Intervention

The Norwegian government's response to exploding electricity prices in the country's southern parts has been to introduce "Norgespris," an ambitious subsidy program that on paper protects private consumers from high prices.

How Norgespris Works

The scheme, which came into force on October 1, 2025, entails:

• A fixed electricity price of 0.40 NOK/kWh plus taxes for private consumers in homes and holiday homes
• The Norwegian state pays the difference when the market price exceeds 0.40 NOK/kWh
• The scheme does not apply to businesses and industry
• The program runs through 2029, with the price of 0.40 NOK/kWh locked through 2026

Massive Uptake and Unexpected Consequences

More than 1.3 million Norwegian households have already signed up for Norgespris according to Elhub.no. This represents a significant portion of the country's private consumers and shows how politically popular the program is.

But the popularity hides a fundamental economic problem: When private consumers are shielded from real market prices, their incentive to reduce consumption during periods of high prices or shift consumption to periods of lower prices disappears.

Documented behavioral changes: Indications already show that consumption has increased in households that have signed up for Norgespris, compared to those that have not. This is precisely the behavior economists would predict: When the price for the consumer is artificially low and fixed, they do not respond to market signals.

Price Increases Spread to Neighboring Countries

Mind Energy's analysts have calculated how increased consumption in southern Norway as a result of Norgespris affects electricity prices throughout the Nordics. The results are striking:

Simulation of consumption effects: If consumption in southern Norway increases by, for example, 5 percent due to Norgespris, the effect would be:

• Highest impact in Norway itself: Prices rise most in Norwegian price areas, as this is where consumption increases.
• Spillover to Denmark: According to Mind Energy's estimates, prices in Denmark will likely be between 0.5 percent and 1.5 percent higher than they would have been without Norgespris.
• Impact on Sweden and Finland: Here too, price increases of 0.5 to 1.5 percent are expected.

Due to cable effects and limited import options from Norway during periods of high prices, Denmark and Sweden are therefore indirectly hit by Norwegian policy. Danish businesses are thus paying part of the price for Norwegian private consumers' price stability.

The Norwegian Industry's Dilemma

A particularly problematic aspect of Norgespris is that the scheme only applies to private consumers. Norwegian businesses and industry are not covered. This means that when private consumers' increased consumption drives market prices up, it is industry that bears the full cost.

The Norwegian government has tried to compensate for this through tax cuts for businesses, but it is still too early to say how much of the Norgespris-induced price increases this will offset. In the meantime, Norwegian industry faces potentially significantly higher energy costs, which weakens competitiveness.

Sweden and Germany Follow with Their Own Schemes

Sweden's "Högkostnadsskydd"

Sweden has not been a passive observer of developments. The government has introduced a "Högkostnadsskydd" (high-cost protection), which in some respects resembles Norgespris, but with important differences.

How it works:

• Activated if the average price level in a given price area in a month exceeds 1.5 SEK/kWh
• Paid out automatically if this happens
• Applies to all electricity customers from November 2025 until the end of 2026

Expected effect: Although the mechanism is different from Norgespris with its fixed price, the effect can be expected to be similar: Reduced incentive for consumers to lower their consumption during periods of price increases, resulting in higher overall consumption.

German Industrial Subsidy

Germany also proposed a subsidy program in November 2025, though with a different focus. Here it is not private consumers, but the struggling German industry that is to be helped.

The program entails:

• A price cap of around 0.05 EUR/kWh (50 EUR/MWh) for heavy industry
• Applies from January 1, 2026 through 2028
• Expected cost between 3 and 5 billion euros

Germany has struggled for several years with weakened competitiveness and low economic growth rates. High energy prices, partly as a result of the country's own energy transition, have been a significant factor. The industry price cap is designed to increase demand and help German industry get back on track.

But like with Norgespris, this scheme risks increasing overall electricity consumption in Germany, which through market couplings will drive prices up in neighboring countries, including Denmark.

Tax Cuts Across the Nordics

In addition to subsidy schemes, governments in Norway, Denmark, and Sweden have also proposed or implemented tax cuts on electricity:

Sweden:

• Energy tax on electricity is reduced by approximately 20 percent from January 1, 2026
• New tax rate: 41.1 öre/kWh
• This comes, however, after the government raised the tax on electricity in 2025

Denmark:

• Electricity tax will be lowered during 2026-2027 to the EU minimum level of 0.8 øre/kWh
• Current level: 72.7 øre/kWh
• This represents a dramatic reduction and will have significant effect on consumption

Norway:

• Tax cuts for both businesses and households
• Partly designed to compensate industry for the higher prices Norgespris creates

All these tax cuts are expected to lead to increased electricity consumption, as electricity becomes relatively cheaper compared to other energy forms and compared to previously.

Consequences for Danish Businesses

For Danish businesses, Mind Energy's report paints a challenging picture. While private consumers in Sweden and Norway are protected by subsidy schemes, and German industry receives direct support, Danish businesses stand relatively unprotected.

Rising Price Risk

Direct effects:

• Denmark's close coupling with the German market means that price increases in Germany are transmitted directly to Danish price areas
• The continued high share of renewable energy without corresponding storage facilities guarantees continued high volatility
• Dunkelflaute periods will continue to create extreme price increases

Indirect effects from neighboring countries:

• Norgespris' increased consumption in Norway drives Danish prices up by an estimated 0.5 to 1.5 percent
• Swedish Högkostnadsskydd may have a similar effect
• German industrial subsidy increases German demand, which pressures prices up in the entire interconnected northwestern European market

Competitiveness Challenges

The asymmetric protection across countries creates competitive problems:

• Norwegian industry receives tax cuts to compensate for Norgespris
• Swedish industry does not receive direct price protection, but their private sector gets help
• German industry receives a direct price cap at 50 EUR/MWh
• Danish industry stands relatively unprotected and must pay market prices that have risen partly due to other countries' policies

This creates a skewed competitive situation, where Danish businesses may be pressured on energy costs compared to competitors in neighboring countries.

Challenges with Pricing and Budgeting

The extreme volatility documented by the report makes long-term budgeting and planning more difficult:

• Uncertainty in cost forecasts: When prices can fluctuate wildly month to month, it becomes difficult to forecast energy costs precisely
• Risk with spot market exposure: Companies buying electricity at spot prices are exposed to significant cost risks
• Complexity in hedging strategies: The decision of how much and when to hedge energy costs becomes more critical but also more difficult

The Danish Tax Cut as Modest Relief

The dramatic reduction of the Danish electricity tax from 72.7 øre/kWh to 0.8 øre/kWh in 2026 to 2027 will provide some relief for Danish businesses. This will significantly reduce the total cost per kWh.