Risks in the Nordic power sector: Vulnerabilities in a changing system

The Nordic power sector faces increasing risks and challenges as the sector grows more complex due to a combination of technological, regulatory, market and geopolitical developments taking place in parallel. These range from technical failures to environmental shifts, cyberattacks as well as political and social backlash. This article outlines the key risks and challenges in the sector’s transition.

Climate and hydrological risk

Hydropower, especially in Norway and Sweden, provides both base load and flexibility. Climate change is altering weather patterns, affecting hydropower availability and introducing volatility into electricity supply and pricing. 

In addition to fluctuating reservoir levels, the Nordic region is already experiencing a rise in the frequency and intensity of extreme weather events. Extreme weather is no longer an outlier; it’s the new stress test for energy infrastructure. Storms, heavy rainfall, icing and heatwaves are placing a growing strain on overhead lines, substations and coastal infrastructure. 

Many grid assets across the Nordic region were built under historical climate assumptions and are increasingly exposed to risks such as flooding, storms and heat stress. National transmission system operators (TSOs) and recent climate risk assessments highlight the need for upgrades to ensure resilience under new climate realities. To ensure long-term reliability, system operators and asset owners must invest in climate adaptation, which includes: physical reinforcement, improved drainage, underground cabling, enhanced forecasting and emergency response capabilities.

Nature, biodiversity and land use

Nordea is exposed to biodiversity-related risks through our customers. In the power sector, where access to acreage is key for growth, we work with our corporate clients to better understand and mitigate these risks. Read more in our Thematic Guideline on Biodiversity.

As renewable energy expands, its interaction with landscapes, ecosystems and protected habitats is a growing source of risk. Wind and hydropower projects often overlap with ecologically sensitive areas, including wetlands, migratory corridors and coastal zones, where construction, road access or altered water flows can fragment habitats and threaten biodiversity.

Failure to account for biodiversity risk early in project development can cause higher costs, reputational damage and withdrawal of social licenses. To mitigate these consequences, developers are adopting tools such as environmental sensitivity mapping, seasonal construction windows and biodiversity net gain frameworks. However, the institutional capacity to monitor, enforce and negotiate trade-offs varies between countries and locations and conversely adds complexity to planning.

Permitting bottlenecks

Across the EU, prolonged permitting processes remain a major barrier to scaling renewable energy and grid infrastructure. Projects are frequently delayed due to complex regulatory requirements, environmental assessments, land-use conflicts, and limited administrative capacity at local and regional levels. These challenges are particularly acute for wind and solar developments, as well as grid-upgrades needed to support electrification.

To address these issues, the EU has introduced new legislation aimed at streamlining approval procedures. The revised Renewable Energy Directive (RED III) and the Net-Zero Industry Act include provisions to shorten permitting timelines, simplify procedures for priority projects, and improve coordination across authorities. However, the impact of these reforms has yet to materialise on the ground, and permitting delays continue to affect project pipelines.

Accelerating permitting will be critical to meeting climate and energy targets. This requires not only regulatory reform, but also increased administrative capacity, clearer guidance and stronger stakeholder engagement to resolve conflicts early in the process.

Geopolitical and cybersecurity threats

Recent acts of sabotage in the Baltic Sea and rising geopolitical tensions have made security of supply and cybersecurity top strategic concerns for the Nordic energy sector. According to DNV’s Energy Cyber Priority 2025 report, 65% of energy executives now view cyber threats as the greatest current risk to their business operations. The accelerating digitalisation of energy systems, particularly integration of operational technology (OT) with IT, has significantly increased vulnerability, and the OT defense appears to lag behind IT cybersecurity, potentially leaving critical infrastructure at risk for sophisticated attacks.

To address these challenges, Nordic energy actors must strengthen cyber defenses across the entire value chain. Integrating cyber resilience into all layers of the power system will be critical to ensuring operational continuity and public trust. The ongoing implementation of the EU’s NIS2 Directive, which expands cybersecurity requirements for essential entities including energy providers, will play a key role in harmonising standards and improving preparedness across member states.

Supply chain stress

Geopolitical tensions and market concentration are placing growing pressure on energy supply chains. The Nordic power sector depends on a wide range of imported components such as transformers, semiconductors, battery materials and rare earths, many of which are sourced from or processed in China. This strategic dependence creates vulnerabilities in times of trade disruption, export restrictions or diplomatic conflict.

Recent bottlenecks in global logistics, combined with rising demand for clean energy technologies, have led to delays and cost inflation across infrastructure projects. Grid expansion, renewable deployment and storage rollouts are all affected by constrained access to critical inputs. The EU has responded with initiatives to strengthen domestic production and diversify supply chains, but implementation remains uneven.

To mitigate these risks, Nordic energy producers must assess exposure across the value chain and develop strategies for resilience. This could be supplier diversification, stockpiling of key components, and closer alignment with EU industrial policy.

Market risk and price volatility

The increasing integration of variable renewable energy sources into the Nordic power grid introduces new challenges in market stability and price predictability.

The growing share of wind and solar in the Nordics and across Europe has led to a sharp increase in days with negative power prices during high generation and low demand hours. The Nordic Council of Ministers recently published data showing an explosive rise in number of hours with negative electricity prices in any Nordic country, reflecting a system with inflexible demand and limited grid capacity. 

While power generation surplus encourages storage and flexibility, it also reduces revenues for producers and increases investment risk. At the other end of the spectrum, dunkelflaute conditions, prolonged periods with little wind (or sun), highlight the need for dispatchable and storage-based backup. Navigating between surplus and scarcity is a key challenge for market design.

In October 2024, the Nordic region implemented Flow-Based Market Coupling (FBMC), which dynamically calculates cross-zonal capacity based on actual grid conditions. While this increases market efficiency and price convergence, it also makes local grid bottlenecks more visible in spot prices. Persistent congestion between northern and southern Sweden and Norway causes significant price spreads during peak periods, requiring accelerated grid investments to address these structural imbalances. 

Social license and Indigenous rights

Legitimate societal interests, such as climate action, nature protection and Indigenous People’s rights, increasingly come into conflict, and the tensions cannot simply be regulated away. With multiple interests to consider and a heavily regulated permitting framework, project timelines are often prolonged, posing a structural challenge to the pace of renewable energy deployment. Without early dialogue and co-design, projects may face delays, cancellation or reputational risk. 

The Fosen ruling in Norway in 2021, where the Supreme Court found that wind farms violated the cultural rights of the Sámi people under international law, highlighted the importance of Indigenous Peoples rights in renewable energy development and permitting processes. 

In Sweden, according to Svensk Vindenergi, over 63% of new onshore wind project applications were rejected by local municipalities in 2024 due to land use conflicts, nature concerns and visual intrusion.