We are used to having access to electricity whenever we need it, but for the power grid to function, there must always be a balance between consumption and production. Every hour, electricity producers must deliver exactly as much electricity as is used, and the electricity market ensures this balance by matching supply and demand at all times.
Producers calculate and report to the electricity market how much electricity they can deliver and at what price. Customers report how much they need, and the price is set where supply and demand meet. This is called the market equilibrium. The market equilibrium will vary based on the time of day, weather conditions, and the availability of different energy sources.
The price is influenced by the season and weather conditions. Electricity production will always follow demand, but the price is affected by solar conditions, wind levels, and, most importantly, the amount of precipitation. The need for electricity typically varies with temperature and time of year; the colder it is, the more electricity we need for heating.
In Norway, we get almost all our electricity from hydropower. This is cheap to produce, but we do not have an unlimited supply of water. Therefore, power producers must constantly decide whether to produce electricity today or save the water to meet future needs. This decision is crucial for the price hydropower producers set for their production when they bid into the market. In some periods, we have little water in our reservoirs, which increases the value of the water. If Europe can then produce cheaper electricity than us, we will import electricity to meet the demand.
Cheaper electricity production from wind, water, and solar energy varies greatly with the weather, and at times we will still depend on energy from gas and coal. These are more expensive production methods, which will again affect the electricity price.