emcc: The Nordic Market

The Nordic Market

Electricity Production in the Nordic Market

Electricity production differs considerably among the Nordic countries. In Norway, nearly all electricity is generated from hydropower. Sweden and Finland use a combination of hydropower, nuclear power and conventional thermal power. Hydropower stations are located mainly in northern areas, while thermal power prevails in the south. Denmark relies mainly on conventional thermal power, but wind power is providing an increasing part of the demand for energy.

The hydropower output in the Nordic region varies considerably due to the fact that the hydrological balance (the amount of water available for hydro production) shifts significantly from season to season. Therefore, the annual share of renewable and conventional power production varies from year to year. As an example, in the period 2003-2006 the annual total output from renewable sources varied between 192 TWh (2003) and 253 TWh (2005).

The Nordic Physical Market for Electricity Trading

The Nordic power exchange Nord Pool Spot organises the day-ahead market Elspot in the Nordic countries and the intraday market Elbas in Finland, Sweden, Denmark, Norway and Germany. Nord Pool Spot is owned by the Nordic TSOs Statnett SF and Svenska Kraftnät each hold 30% and Fingrid Oyj and Energinet.dk hold 20%.

As of January 2010 about 325 participants traded on Nord Pool Spot's physical markets with volumes amounting to over 285 TWh in Elspot and 2.4 TWh in Elbas in 2009. The Nordic Elspot volume represented about 72% of the total electricity consumption in the Nordic countries.

Elspot

On Elspot, hourly power contracts are traded daily for physical delivery the next day. The price calculation is based on the balance between bids and offers from all market participants – finding the intersection point between the market’s supply and demand curve. This trading method is referred to as equilibrium point trading, auction trading, or simultaneous price setting.

In order to handle grid congestions, the Nordic exchange area is geographically divided into bidding areas. Participants must make bids according to where their production or consumption is physically connected in the Nordic grid. The price mechanism in Elspot adjusts the flow of power across the interconnectors - and also on certain connections within the Norwegian grid - to the available trading capacity given by the Nordic transmission system operators. Thus, Elspot is a common power market for the Nordic countries with an implicit capacity auction on the interconnectors between the bidding areas.

In general the bidding areas are consistent with the geographical area of each of the Transmission System Operators. The grids in Jutland and Zealand are not physically connected, giving two bidding areas in Denmark (DK1 and DK2). The Norwegian grid is usually divided into three or four bidding areas (NO1, NO2 etc.).

Elbas

Since the time span between the day's Elspot price-fixing and the actual delivery hour of the concluded contracts is quite long (36 hours at the most) and consumption and production situation may change, a market player may find a need for trading during these 36 hours. The Elbas Market enables continuous trading with contracts that lead to physical delivery for the hours that were traded on the Elspot market and are more than one hour from delivery. The Elbas market is open 24 hours a day, 7 days a week, covering individual hours.