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Learning from Successful

Power Markets: The


Nordic Power Pool
A. R. Abhyankar S. A. Khaparde

Indian Institute of Technology Bombay


Mumbai
6th September 2005 IIT Bombay
Outline
Nordic Pool: Facts and Figures
Nordic Pool Market Structure and Various Markets
Model and Timeline
The Spot Market
The Balancing Market
Congestion Management
Transmission Pricing
Financial Markets
Conclusion

6th September 2005 IIT Bombay


Global Market Models
Centralized Dispatch Decentralized Dispatch
The system Operator The Market Participants
Controls the Entire Control Their Own
Market Schedules
Schedules based on Portfolio based bids
generator offers & and offers
demand bids

6th September 2005 IIT Bombay


Markets in Europe
Courtesy: Nord Pool Consultants
Spain (OMEL):
Spot, intra-day and balancing.
Amsterdam (APX):
Spot
UK (UKPX / IPE): Nordic
Spot and forwards markets.
Nordic area (Nord Pool):
Spot and financial forwards markets Nord Pool
Poland (PPX):
Spot market
Germany (EEX): Moscow
Spot, forwards UKPX Eastern Europe
France (PowerNext) Northern EEX PPX
Spot, forwards Europe Apx
Italy (GME) PowerNext
Spot EXAA
Slovenia (Borzen) Borzen
Spot OPCOM
Austria (EXAA) BSREC
Spot, intra-day OMEL GME
Russia (ATS) Ankara
Southern Europe
Spot planned forwards

Spot & Forwards

Only Spot and/or Balance


Planned or interest in a PX

6th September 2005 IIT Bombay


Characteristics of Nordic
Market
First international market of the world
Most liquid electricity market in the world
Third largest in Europe
Volume traded in financial markets is 5 times
that of physical market
1 market operator and 5 systems operators
Spot market, balancing market, financial
market

6th September 2005 IIT Bombay


The Competitive Market
Evolvement History

Norway

Sweden

Finland

Denmark
6th September 2005 IIT Bombay
Generation Mix in Various
Constituents

6th September 2005 IIT Bombay


Nordic Market Structure

1 Market Operator: Nord Pool

Spot Market Balancing Market Financial Market Clearing Service

5 System Operators

Svenska Kraftnat Fingrid Stattnet Eltra Elkraft


Sweden Finland Norway W. Denmark E. Denmark

6th September 2005 IIT Bombay


Various Markets in Nord Pool

Day Ahead Energy Market (Elspot)


Hour Ahead Energy Market (Elbas)
Real Time Balancing Market
Financial Derivatives Market
OTC Clearing

6th September 2005 IIT Bombay


Nord Pool Model
Nord Pool Model FinancialDerivatives
FinancialDerivatives
Market
Market Forwardprices

CfDMarket(ZonalPrice
CfDMarket(ZonalPrice
differences)
differences)

DayaheadEnergy
DayaheadEnergy
Market(ElSpot) DayAheadZonal
MCP

55%
55%
Bilateral
Bilateral
Contracts
Contracts HouraheadEnergy
HouraheadEnergy
Market(ElBas)
Market(ElBas) Averagedsingleprice
OTC
OTC
clearing
clearing

RealtimeBalancing
RealtimeBalancing ZonalBalancingMCP
Market
Market

6th September 2005 IIT Bombay


Various Issues

Timeline of Operation
How day ahead spot market works?
How hour ahead balancing Market works
Congestion Management
How balancing is done in real time?
Working of Financial Market

6th September 2005 IIT Bombay


The Roles of Various Entities
Power Exchange System Operator
Organization and Operation Grid Capacities Security
Elspot Ancillary Services
Elbas Regulating Power Market
Eltermin Settlement of Imbalances
Spot Schedules
Spot Market
Bids

Generators
Distributors
Generation Schedules, Bids in Regulating Market
Grid Owners
Traders
Brokers
Large Industries Ordering of Up / Down Regulations

Market Participants

6th September 2005 IIT Bombay


Timeline
4 24

R
Ye 1

ea
H Ho
ar ou

lT
s rs ur

im
e
Time before delivery
Financial Market Physical Market: Balancing Real Time
Spot Market Market Market
(TSO)

Hedging against Optimizing Physical Scheduling own Dispatch as per


the price risk part of Portfolio generation for commitments
real time

6th September 2005 IIT Bombay


The Spot Market: Elspot

Bidding in Spot Market

Price 0 30 40 50 1000 Total Normal Load: 50 MW

Base 30 30 30 30 30 Curtailable Load: 20 MW if Price > 50


Load
Bilateral Contract: 30 MW
Curtail 20 20 20 0 0
Load Generation Capacity 20 MW @ 40$/MWh
Own 0 0 20 20 20
Gen.
Contract 30 30 30 30 30

Spot Bid 20 20 0 -20 -20

6th September 2005 IIT Bombay


Market Clearing and System
Price
Price 0 50 51 100 101 150 151 200 201 900
A 20 20 20 20 20 20 0 0 0 0
B 60 60 60 60 40 40 40 40 20 20
C 40 20 0 0 -40 -40 -40 -120 -120 -120
Purchase 120 100 80 80 60 60 40 40 20 20
Sale 0 0 0 0 -40 -40 -40 -120 -120 -120

Price

300 Sale
MCP = 125 $/MW
Purchase

200
Balance: This is called System Price
125 $/MWh 100

MW Used as a reference for Financial Market


40 80 120
Turnover:
60 MW
6th September 2005 IIT Bombay
Relieving Congestion: Price
Area Congestion Management
No congestion Congestion

MCP MCP
P1 Phigh

P3
P2
Pmed Plow

One price only : MCP Four prices:


P1=P2=P3=MCP Plow<Pmed<Phigh MCP

6th September 2005 IIT Bombay


Congestion Management:
Algorithm
Step 1 Step 2
Are tie-line
Calculate Unconstrained Flows within Identify Transmission
No
Market Clearing Price limits? Bottlenecks

Yes

No No Congestion

Step 4
Step 3
Are tie-line
Increase Price in
Flows within
limits? Deficit Area Identify Surplus and
Decrease Price in Deficit Area(s)
Surplus Area
Yes

Define Area Prices

6th September 2005 IIT Bombay


Illustrative Example
Low Price Area System Price High Price Area
Price

D
D
Phigh
Psystem
Plow

S S S
D
MW MW MW

Capacity between price areas


Fmax

~ Fmax ~
6th September 2005 IIT Bombay
Price Areas
Norway: 2 to 6 Price Areas

Denmark: 2 Price Areas

Sweden: 1 Price Area

Finland: 1 Price Area

No Congestion Congestion
6th September 2005 IIT Bombay
Elbas: The Balancing Market

Finland and Sweden need exact estimate of


the balance between production and demand
Most of the plants in these countries are CHP
with high variable costs
Lengthy time span of up to 36 hours between
Elspot price fixing and actual delivery
Need for an aftermarket to the Elspot market
Elbas provides adjustment trading up to 1
hour before the delivery

6th September 2005 IIT Bombay


Real Time Congestion
Management: Counter Trade
Counter trade is applied to manage real-time congestion that
occurs within each price area
TSO procures upward regulation in deficit area and downward
regulation in surplus area, which are nothing but adjustment
bids
Demand side can contribute by increasing or decreasing load
No change of MCP on both sides of the bottleneck
The TSO compensates for transmission constraints by re-
dispatching the market in real-time using the Balancing Market
Cost incurred by the TSO is passed on to the Grid owners and/or
consumers as a Transmission Tariff

6th September 2005 IIT Bombay


Counter Trade

MCP
MCP MCP
Power flow
exceeding capacity Downward
Upward with 50MW Regulation
Regulation
50 MW
50 MW
Regulation cost
Regulation cost

6th September 2005 IIT Bombay


Real Time Balancing

Upward Regulation Bid

The price the participant requires


to increase generation or reduce
consumption for a specified
volume

Downward Regulation Bid


The price the participant offers to
pay to reduce generation or to
increase consumption for a
specified volume

6th September 2005 IIT Bombay


Pricing of Imbalances
Norway
Participants in Norway are credited for positive imbalances and charged for
negative imbalances, based on the same price for each hour. As a result,
participants can profit or suffer losses on imbalances, depending on whether
the Elspot price or real-time price is greater.

Sweden, Denmark and Finland


All imbalances that contribute to balance the total power system are charged
or credited based on Elspot prices

All imbalances that contribute to imbalance the total power system are charged
or credited based on Real time price

The financial incentive to keep system balanced is higher in Sweden, Denmark and Finland

6th September 2005 IIT Bombay


Transmission and
Distribution Tarif
Point-of-Connection Tariff :
Every connection point is calculated individually by
using formulae given by the TSO and the Regulator
NO Distance Fee!
Purpose: To enable competition!
Three Grid Levels :
The grid to which the customer is connected,
calculates the individual connection point tariff and
invoices this together with the passed on costs from
overlying grids

6th September 2005 IIT Bombay


Point of Connection Tarif

Tariffs refer to network connection-points and


are independent of power contracts
Tariffs in the different networks are
coordinated
The tariff paid at any connection point gives
access to the national interconnected system
and all sub-systems including low-voltage
Losses are bought by the network and costs
are included in the tariff
6th September 2005 IIT Bombay
Financial Markets:
Development
Earlier forward contracts were physical delivery
contracts
To promote trade activity and increase liquidity,
financial contracts were changed from physical
delivery contracts to financial contracts with cash
settlement at maturity
Started with Norway in 1993, Sweden joined in 1996
In 2000, Contract for Differences were introduced
Forward contracts are listed up to 4 years ahead

6th September 2005 IIT Bombay


The diferent contracts

Futures
Forwards
Options
Contract for Difference (CfD)
Elcertificates

6th September 2005 IIT Bombay


Settlement of Futures

6th September 2005 IIT Bombay


Settlement of Forwards

6th September 2005 IIT Bombay


Contract for Diference (CfD):
Need for the same
Forward contracts can not provide perfect
hedge when system is split into price areas
New forward contracts based on price areas
are rejected because that would split the total
liquidity among several products
The price difference between system price
and area price can be hedged through CfDs
CfDs, along with forward contracts provide a
perfect hedge
6th September 2005 IIT Bombay
Settlement of CfDs: Spot Price
< Area Price

6th September 2005 IIT Bombay


Settlement of CfDs: Spot Price
> Area Price

6th September 2005 IIT Bombay


Results: Average System
Price

2001 2002 2003

290.61 NOK/MWh 201.03 NOK/MWh 186.49 NOK/MWh


36.69 EUR/MWh 26.91 EUR/MWh 23.15 EUR/MWh

6th September 2005 IIT Bombay


Results: Turnover in Financial
and Physical Markets

6th September 2005 IIT Bombay


Conclusions

The Nord Pool Model is a decentralized or


self dispatch model.
First international power marekt
Characterized by Financial market
Amount traded in financial markets is 5 times
that in physical delivery market
Most liquid electricity market in the world

6th September 2005 IIT Bombay


Thank you!
abhijit@ee.iitb.ac.in
Questions?

6th September 2005 IIT Bombay