1. Executive summary

Nordic electricity markets are integrated with other European markets through interconnectors to Germany, the Netherlands, Great Britain, Poland, and the Baltics. Policy decisions made in these neighbouring markets—on capacity mechanisms, renewable support schemes, interconnector development, and trade regulations—can thereby directly affect Nordic electricity prices and trade flows. This can impact power producers, consumers, and Transmission System Operators (TSOs).

The regulatory trajectory in these countries remains highly uncertain. For example, Germany faces unresolved questions about firm capacity support and grid expansion, Great Britain is navigating post-Brexit market integration, and Poland is managing a complex coal phase-out. Understanding how these developments could impact Nordic electricity markets is therefore important for Nordic policymakers, regulators, and market participants.

1.1 Methodological approach

This study first examines the political and regulatory landscape in Germany, Great Britain, the Netherlands, Poland, and the Baltics, identifying the key uncertainties and political developments most relevant for the Nordics. We map these country-specific developments to broader regulatory trends with relevance across multiple markets. Using THEMA's fundamental market model, we then conduct a sensitivity analysis to quantify how alternative outcomes for these regulatory trends would affect Nordic electricity prices, trade patterns, and welfare. The analysis focuses on the year 2035—far enough in the future for relevant market design outcomes to materialise, yet near enough to support meaningful policy guidance.

1.2 Regulatory developments analysed

The study examines four regulatory trends:

Capacity mechanisms and firm capacity build-out: Germany and Poland are planning firm gas-fired capacity additions through capacity mechanisms, but outcomes remain uncertain. We assess scenarios ranging from implementation delays to accelerated expansion driven by security of supply concerns.
Renewable generation and battery storage: Continental countries have ambitious targets for offshore wind, solar, and batteries, though actual build-out trajectories are highly uncertain. We examine the price and market effects if these targets are reached—or fall short.
Interconnector availability and trade restrictions: New transmission projects (EstLink3, Bornholm, Kriegers Flak) are under consideration, and internal grid constraints may limit effective interconnector capacity. We assess the impact of project delays and reduced availability due to continental bottlenecks. In addition, future EU-UK trade arrangements remain unclear, and broader protectionist pressures cannot be ruled out. We examine the impact of CBAM on electricity trade between the UK and the EU, as well as the effects of general trade fees on Nordic-European interconnectors.
Bidding zone split: A German bidding zone split is discussed as a remedy to internal congestion and high redispatch costs. We assess the potential impact on Nordic prices, while noting that such a split currently appears unlikely.

1.3 Key findings

Our analysis and simulations show that developments in neighbouring markets can have a significant impact on prices in the Nordics, and hence on consumers, producers, and TSOs. Average price levels, price volatility and peak prices are all affected. Even though the Nordic market does not couple completely with neighbouring markets, developments in other markets matter.

The actual impact, however, varies significantly depending on which parameters vary by how much.

Some of the main observations are:

A lack of firm capacity in neighbouring markets would not only increase the number of price spikes in these markets, but also in Nordic bidding zones. For example, if Germany fails to meet its targets for firm gas-fired capacity (as currently reflected in the government's Kraftwerksstrategie), the frequency of day-ahead price spikes in Nordic zones could increase, in particular in Nordic zones directly connected to Continental Europe.

If European countries reach their ambitious offshore targets without corresponding demand growth, day-ahead prices in Europe and the Nordics could fall significantly. The effect is less pronounced for alternative developments in solar and battery capacities. Should Germany, Great Britain, and the Netherlands achieve their offshore wind build-out targets without corresponding additional demand growth, power prices in North-West Europe would fall significantly, and power prices in the Nordics could fall by more than 50% compared to the Base scenario. Ambitious solar and battery expansion plans have more modest effects on Nordic prices, although the impact can still be significant, in particular for large PV-build out scenarios.
Policies reducing interconnector availability could result in a net welfare loss for the Nordic region. If trade between the Nordic region and the rest of Europe is restricted, Nordic prices will drop. This would benefit consumers (who would need to pay less) and harm generators (who would earn less). But the Nordic area as a whole generates more than it consumes. Sweden, in particular, has significant excess generation. As a result, generators’ total simulated losses exceed consumers' gains, a result of the terms of trade. The consequence is a net welfare loss for the Nordic region.
Trade restrictions in the form of transmission tariffs or surcharges would reduce cross-border flows and congestion revenues. Fees or surcharges could significantly affect trade flows and congestion rents. While the impact on baseload prices is relatively limited, the effects on power flows and congestion rents can be substantial depending on the fee level and the countries to which such measures apply.
Bidding zones in Germany could lower prices in the Nordics. A bidding zone split in Germany could significantly reduce power prices in northern Germany. This would also result in a price decline in the Nordic countries, due to the links between the Nordic market and northern Germany. However, the price decline in the Nordics is less pronounced than that in northern Germany.

These findings underscore the interdependence of European electricity markets: The extent to which Germany reaches its firm capacity expansion plans has direct implications for Nordic peak price risk; rapid offshore wind expansion would fundamentally reshape Nordic price formation; restrictions in interconnector availability or cross-border trade would impact prices, trade flows and welfare. In short, developments in neighbouring markets matter, and policymakers and market participants in the Nordics should be aware of these interdependencies when making their own decisions.