Electricity market outcomes in the Nordic region are increasingly shaped by developments beyond Nordic borders. Interconnectors linking Norway, Sweden, Denmark, and Finland to Continental Europe and Great Britain transmit not only electrons but also price signals. When German wind generation surges, wholesale prices fall across Scandinavia; when Continental thermal capacity runs short, price spikes propagate northward.
This exposure to external market conditions creates a strategic challenge for Nordic policymakers and market participants. Decisions on capacity mechanisms in Germany, renewable support schemes in Great Britain, or trade policy between the EU and UK are made in capitals where Nordic interests carry limited weight. Yet the consequences of these decisions for Nordic generators, consumers, and Transmission System Operators (TSOs) can be substantial. As neighbouring countries navigate uncertain regulatory pathways over the coming decade, Nordic policymakers and market participants need to understand the range of potential impacts on their own markets.
2.1 Methodological approach
This study proceeds in two stages: regulatory mapping and quantitative impact assessment. In the first stage, we examine national policies across neighbouring markets and map them to broader regulatory trends that could affect the Nordic electricity system. This mapping provides a structured framework for analysis. In the second stage, we conduct a sensitivity analysis to quantify how alternative outcomes for these regulatory trends would affect Nordic prices, trade flows, and welfare—translating qualitative policy uncertainty into concrete market impacts.
Regulatory mapping: We first examine the political and regulatory landscape in Germany, Great Britain, the Netherlands, Poland, and the Baltics, identifying the key uncertainties and policy developments most relevant for Nordic electricity markets. Chapter 3 presents this analysis, summarising national policies in each country and relating them to broader regulatory trends that span multiple markets. We map country-specific developments to the following four overarching regulatory trends that could significantly affect Nordic markets: Capacity mechanisms and the build-out of firm capacity: A key uncertainty is how firm capacity will develop in continental Europe. Germany and Poland are both planning to establish or further develop capacity mechanisms, yet the outcomes remain uncertain. We assess what happens if these countries fall short of their planned gas capacity additions by modelling a range of scenarios from low capacity levels due to implementation delays, to accelerated expansion driven by security of supply concerns. Additional sensitivities examine whether Nordic countries could mitigate continental shortfalls by investing in domestic firm capacity.
Renewable generation and battery storage: Future build-out trajectories for renewables and batteries are highly uncertain. Despite ambitious government targets, it remains unclear what volumes the market will accommodate and how support schemes will evolve. We assess what would happen if Germany, Great Britain, and the Netherlands reach their ambitious renewable energy targets, and what role batteries could play in mitigating the associated market effects.
Interconnector availability and trade restrictions: Further market integration of the Nordic countries is under consideration through new or upgraded interconnections, including EstLink3, new links via Bornholm, and upgrades around Kriegers Flak. We assess the impact of delays to these planned transmission projects. Furthermore, internal grid constraints can limit the effective availability of interconnectors, so we examine what happens if grid bottlenecks in continental Europe reduce the available capacity of Nordic interconnectors to other markets. Future trade arrangements between the United Kingdom and the EU—and consequently with the Nordic region—also remain unclear. We examine the impact of applying CBAM to EU-GB electricity trade in a scenario where the UK and EU fail to link their emissions trading systems and assess the effects of introducing general trade fees between the Nordic region and other markets. It should be noted that such fees are not permitted under current EU internal market rules; however, we include this sensitivity to illustrate the potential impact should economic protectionism or regulatory changes alter this framework in the future.
Bidding-zone split: Internal bottlenecks in Germany have, in recent years, resulted in trade restrictions and high redispatch costs. Introducing multiple bidding zones is often mentioned as a remedy to these challenges. We therefore assess the potential impact of a German bidding zone split on Nordic electricity prices. However, we do not consider such a split very likely at present. Furthermore, the actual impact would depend strongly on the geographical delimitation and topology of the resulting bidding zones.
Quantitative impact assessment: To quantify the impact of these regulatory trends on Nordic markets, we conduct a sensitivity analysis. Specifically, we establish a baseline scenario (THEMA Base) that reflects credible 2035 market conditions. The key assumptions used in THEMA Base are outlined in section 4.1. Then, we systematically vary some key assumptions to assess how alternative regulatory developments or build-out trajectories affect Nordic prices, trade patterns, and welfare. A sensitivity analysis is particularly well-suited to this context because we can single out the effect of individual policies or assumptions. Furthermore, by testing alternative outcomes—from ambitious government targets being exceeded to plans falling significantly short—we can assess how the range of plausible regulatory developments would affect Nordic markets. We focus our analysis on the year 2035 because it is far enough in the future for a variety of relevant market design outcomes to materialise, yet near and tangible enough to support meaningful policy guidance and impact analysis. The quantification is done using TheMA, THEMA's fundamental electricity market model. TheMA determines hourly day-ahead electricity prices by matching supply and demand across European bidding zones, incorporating detailed representations of thermal plants, hydropower systems, and variable renewable generation and a detailed model of the European transmission interconnector grid.
Chapter 3 provides an overview of the regulatory initiatives and national policies most relevant to Nordic power markets. The analysis covers Germany, Great Britain, the Netherlands, Poland, and the Baltic countries, summarising national policies and relating them to the five regulatory trends listed above. Chapter 4 presents the quantitative sensitivity analysis. Section 4.1. describes our THEMA Base scenario and provides a detailed explanation of the methodological approach of the sensitivity analysis. Each of the following sections examines one of the four regulatory trends, describing the sensitivity definitions, presenting results on prices, trade flows, and welfare impacts, and drawing conclusions for the Nordic markets: Section 4.2 examines capacity mechanisms and the build-out of firm gas capacity in Germany and Poland Section 4.3 analyses policy support schemes for renewable generation and battery storage Section 4.4 assesses policies affecting interconnector availability and quantifies the impact of trade restrictions, including CBAM Section 4.5 evaluates the potential effects of a German bidding zone split