NORD POOL Market Integration: Nordic Countries APEx 2003 Conference, Catagena de Indias –...

NORD POOL

Market Integration: Nordic Countries

APEx 2003 Conference, Catagena de Indias – Colombia, October 14 & 15 -2003

Torger Lien, President & CEO Nord Pool ASA

Copyright Nord Pool ASA 2002

Regional challenges

4 Countries 4 Governments with changing policy 4 Legislations 4 Regulators and FSA’s 5 TSO’s 5 Grid’s with reasonably good connections

AND ONE MARKET


1996Norway, Sweden

Nord Pool

1993Norway

StatnettMarked

Development of the Exchange Area for Elspot Development of the Exchange Area for Elspot

1 October 2000Norway, Sweden

Finland and Denmark

Nord Pool

1 July 1999Norway, Sweden

Finland, West Denmark

Nord Pool

Nord Pool

15 June 1998Norway, Sweden,

Finland

Now all the Nordic countries are part of Elspot and hourly border trade towards the continent works more efficient than before!

1. Brief info about the Nord Pool Group


Nord Pool’s Participants February 2003 (Legal Entities)

Total: 321

Norway 157

Finland39

Sweden80

UK10

Germany4

The Netherlands3

Denmark22

USA2

Switzerland1

France1

Italy1

Belgium1


Yearly volumes:

1998: 56,7 TWh

1999: 75,2 TWh

2000: 96,2 TWh

2001: 111,2 TWh

2002: 123,6 TWh

Jan-Sep 03: 85,8 TWh

(Jan-Sep 02: 85,4 TWh)

Elspot turnover per month 1998-2003

Note: In addition trading volumes in the Elbas Market has since the start in March 1999 been between 0,5 and 0,8 TWh/year.

Elspot System price 1993 - Sep 2003 in NOK/MWh per month (1 EUR currently approx. equal to 8,10 NOK)

0

50

100

150

200

250

300

350

400

450

500

550

jan-

93m

ar-9

3m

aj-9

3ju

l-93

sep-

93no

v-93

jan-

94m

ar-9

4m

aj-9

4ju

l-94

sep-

94no

v-94

jan-

95m

ar-9

5m

aj-9

5ju

l-95

sep-

95no

v-95

jan-

96m

ar-9

6m

aj-9

6ju

l-96

sep-

96no

v-96

jan-

97m

ar-9

7m

aj-9

7ju

l-97

sep-

97no

v-97

jan-

98m

ar-9

8m

aj-9

8ju

l-98

sep-

98no

v-98

jan-

99m

ar-9

9m

aj-9

9ju

l-99

sep-

99no

v-99

jan-

00m

ar-0

0m

aj-0

0ju

l-00

sep-

00no

v-00

jan-

01m

ar-0

1m

aj-0

1ju

l-01

sep-

01no

v-01

jan-

02m

ar-0

2m

aj-0

2ju

l-02

sep-

02no

v-02

jan-

03m

ar-0

3m

aj-0

3ju

l-03

sep-

03

Average System Price 93: 80,27 94: 182,67 95: 117,67 96: 253,6397: 135,00 98: 116,3599: 112,11 00: 103,3301: 186,49 02: 201,03Jan-Sep 03: 293,98


System Operators’ (TSOs) vs. the Nord Pool Group’s roles in the Nordic Power Market

Regulating service•Balancing between productionand consumption real-time•Balance settlement of BRCsafterwards on measured and reported values

The Spot MarketPhysical deliveryPlanned balanceHourly contractsElspot (and Elbas)Run by Nord Pool Spot AS

Clearing services run by Nord Pool Clearing ASA

The Financial MarketPrice hedging (for physical Spot)Risk ManagementFinancial contractsElspot prices underlying productsDaily--yearly contracts, OptionsRun by Nord Pool ASA

Within the hourWithin the hour The next dayThe next day Next day up to four years aheadNext day up to four years ahead

The Nordic Power Exchange - Nord PoolSystem Operator (TSO) Trading and Clearing – physical and financial


What is Elspot? Nordic Market place for purchases/sales of electric power -

gives overall planned balance day-ahead

Short-term physical contracts Duration of one hour 12-36 hours ahead (next day’s 24 hrs.) Trading 365 days a year Three bid types: hourly, blocks, and flexible hourly bids

Bidding with portfolios in purchase/sales curves

Auction trading (once per day)

Price set at equilibrium point (buy=sell) each hour

Handling of bottlenecks between Elspot Areas using the so

called Price Area Model (Market Splitting)

Demand

Supply

2. Main principles in Elspot

Balance requirement :

Participants must achieve balance between energy supply and energy demand within each bidding area (including contracts) towards TSO

Participants must be approved as Balance Responsible Company by the national TSO in the area(s) they intend to trade in. (In some countries this can be handled via a third-party agreement with a BRC).

Participants place bids in Areas where they are approved (”BRC”) and have production, consumption or contracts

Bidding Areas in the Elspot Market

SE

FIE

DK1DK2

NO1

NO2

Note: In Norway the number of Areas vary

over time and currently there are four areas

Price calculation - no bottlenecks

Elspot Areas

Area prices = System Price

2. Checkingtransmission limits

MW

Purchase Sale

Ps

Trade

1. Calculation of system pricePrice

One price

SE FIE

DK1

NO1

NO2

DK2

3. Handling of congestion in Elspot


3. Calculation of different Elspot area prices(iterative process)

Flow at System Price above capacity, thus different prices

Physical power flow

1. System price calculation

Purchase Sell

Ps

2. Checking transmission limitsElspot Areas

SE FIE

DK1

NO1

NO2

DK2

Price calculation - with bottlenecks


Calculation of area prices when bottlenecks occur

D S

Sweden price

D Swe +exp S Swe D Nor

S Nor +imp

Solution like above: Flow is ”geared down” to max. transmission capacity (C) by the price-mechanism. Export (Swe) and import (Nor) will be equal to available capacity (C).

Result: Norway price > System price > Sweden price

Participants are always credited/debited according to the Area Prices.

System Price

Example: System Price calculation results in a flow from Sweden to Norway above capacity (C).

Norway price

System Price Price Area Sweden Price Area Norway

C C


0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750Oslo

Stockholm

System

NOK/MWh

Elspot prices for Oslo, Stockholm and System 1996 - 2003


Elspot - share of time (in %) with common price in the whole Exchange Area(System Price = all Area Prices)

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

40,0%

45,0%

50,0%

55,0%

60,0%

65,0%

1997 1998 1999 2000 2001 2002

Year No. of hrs %

1997 5201 59,4

1998 3825 43,7

1999 3788 43,2

2000 1703 19,4

2001 4487 51,2

2002 3076 35,1


Elspot’s Price Area Model - ”Market Splitting”

Allocates transmission capacity based on the energy bids, thus Elspot is a simultaneous energy and capacity auction

Results in energy flows according to price signals (flow from low high price)

Opens up national and international trading for all types of companies

Bilateral contracts between parties in different countries can easily be agreed upon and then reflected in Elspot bids (buy/sell) per bidding area

Reduces market power because the model connects areas/countries and importantly it is done in a non-discriminatory fashion

4. Possibilities and limits for usage in other countries and regions


Isolated markets

Bilateral agreements

Long-term auctions

Daily auctions

Nord Pool Model (Market splitting)

Integrated market

Various ways of handling cross-border Power trading and congestion


Nord Pool

OMEL

UKPX,APX

APX

EEX

Gielda Energii

Powernext

Borzen

Electricity Exchanges in Europe

EX Alpen Adria

”GME”

Facts related to Nord Pool Group:

•NP is shareholder in EEX (>17%)•NP delivered spot auction system (SAPRI) to EEX and Powernext•EEX has established a financial market (Futures), which like NP uses their spot auction price as

underlying reference


EEX and Nord Pool Spot Markets Daily Average Prices in Years 2002-03 (EURO/MWh)

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

90,00

100,00

110,00

120,000

1.0

1.2

00

2

22

.01

.20

02

12

.02

.20

02

05

.03

.20

02

26

.03

.20

02

16

.04

.20

02

07

.05

.20

02

28

.05

.20

02

18

.06

.20

02

09

.07

.20

02

30

.07

.20

02

20

.08

.20

02

10

.09

.20

02

01

.10

.20

02

22

.10

.20

02

12

.11

.20

02

03

.12

.20

02

24

.12

.20

02

14

.01

.20

03

04

.02

.20

03

25

.02

.20

03

18

.03

.20

03

08

.04

.20

03

29

.04

.20

03

20

.05

.20

03

10

.06

.20

03

01

.07

.20

03

22

.07

.20

03

12

.08

.20

03

EURO/MWh

EEX Phelix price

NPS - System Price

Prices 1 Jan - 31 Aug 2003 (annual 2002)EEX Phelix average: € 28,89 (22,55) NPS System average: € 38,20 (26,91) Daily averages high/low: EEX high: € 163,46 Jan 7 (61,00 Jan 8)NPS high: € 114,61 Jan 6 (93,43 Dec 9)EEX low: € 3,12 May 1 (3,47 Dec 24)NPS low: € 15,76 June 8 (10,90 Jun 23)

Turnover 1 Jan - 31 Aug 2003 (ann. 2002)Elspot Auction NPS: 77,9 TWh (123,6)Spot Auction EEX: 30,0 TWh (25,0)


European integration ?

Market areas to be connected Real competition on supply and demand Harmonised legislation and regulatory framework Equal knowledge to price sensitive information Harmonisation between regulators and / or common

regulator Sincere political willingness to implement a common

market

www.nordpool.com

For further information, please visit:

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