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The Nordic Power Market Zonal Pricing Jan Vidar Thoresen Managing Director Nord Pool Consulting AS

The Nordic Power Market Zonal Pricing Jan Vidar Thoresen Managing Director Nord Pool Consulting AS. Content. The development of a regional power market The spot market Zonal pricing Experiences. Development of a regional power market (1) - The Nordic power system. Gas turbine.

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The Nordic Power Market Zonal Pricing Jan Vidar Thoresen Managing Director Nord Pool Consulting AS

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  1. The Nordic Power MarketZonal PricingJan Vidar ThoresenManaging Director Nord Pool Consulting AS (C) 2005 - NordPool

  2. Content • The development of a regional • power market • The spot market • Zonal pricing • Experiences (C) 2005 - NordPool

  3. Development of a regional power market (1)- The Nordic power system Gas turbine Production cost Hydro Condensing, Oil Condensing, Coal Thermal Combine power andheat production Nuclear power Hydro power (mean) 100 200 300 400 TWh Consumption (C) 2005 - NordPool

  4. 1991 2000 Development of a regional power market (2) • Development 1991 - 2000: • Stepwise development in the period • Harmonisation of procedures limited to a minimum required to operate a common power market • The balancing mechanism a responsibility of the TSOs and stepwise harmonised. • No border transmission tariff. One PX - five national TSOs (C) 2005 - NordPool

  5. OTC Markets Large-scale industries Generators & Grid owners Trading & Clearing Representatives Retailers Large-scale industries Generators &Grid owners Trading & Clearing Representatives Retailers Bilateral Wholesale Market  Financial Contracts  Physical Contracts (tailor-made or standardised) Nord Pool  Spot Market  Financial Market: Futures, Forwards, Options (standardised)  Clearing services Retail Market Small-scale industry Commercial and service businesses Households Development of a regional power market (3) (C) 2005 - NordPool

  6. Development of a regional power market (4) • Generation planning should be a responsibility of each generator. (Portfolio bidding and no central dispatch) • A non-mandatory day-ahead spot market based on auction and self-dispatch. No curtailment of traded spot contracts. • A real time markets that include central dispatch based on bids from consumers and generators. • Harmonisation of procedures • The balancing mechanism a responsibility of the TSOs. • No border transmission tariff. (C) 2005 - NordPool

  7. Development of a regional power market (5) – Market concept Two-market Concepts: A Day-Ahead Spot Market where the price represents the electricity energy price. A Real Time Market Where the price represents the system’s capability to balance generation and consumption in real time. The Real Time Market is normally operated by the Transmission System Operators. Single-market Concepts: One price only that represents the margin of real time centralised dispatched contracts. (C) 2005 - NordPool

  8. Nord Pool Nordic TSOs Spot Market Derivatives Real Time Markets Retailers Grid owners Industry Industry Generators End-users Generators Generators Representatives Retailers Market Makers All Participants’ Imbalances Representatives Note: Demand side bidding in the real time market Clearing customers End-users Participants at Nord Pool and at the TSOs (C) 2005 - NordPool

  9. The Spot Market(1) • Each of the national TSO-areas define the bid areas. • Within each bid area participants can operate with one or more portfolios. • Participants themselves optimise the use of own resources within in each bid area. • The spot market is normally applied to balance resources to commitments to deliver. • Day ahead congestion management is carried out between bid areas. • The unconstrained MCP is the reference price for derivatives. (C) 2005 - NordPool

  10. The Spot Market(2)- Bidding Participant Bid valid for: Week nr. Mon Tue Wed Thu Fri Sat Sun Week Corrected Elspot area Time: Date: Hour\Price: 0 100 101 150 151 200 201 300 301 5000 1 2 example hour 9 9 300 300 150 150 0 0 -100 -100 -300 -300 24 Bidding by fax or electronically! (C) 2005 - NordPool

  11. 20 20 0 0 60 60 40 40 20 20 40 20 0 0 -40 -120 -120 120 100 80 80 60 60 40 40 20 20 0 0 -40 -120 -120 Price 300 Sale Purchase 200 100 MW 40 80 120 The Spot Market(3)- Market Clearing Price Price 0 50 51 100 101 150 151 200 201 900 Mem. A, MW Mem. B, MW Mem. C, MW SUM, Purchase SUM, Sale (C) 2005 - NordPool

  12. The Spot Market(4)- Present situation • Market share of spot market about 40 % of total generation/consumption • Continuously increase in number of participants • Demand side participation • Price signals into the retail market • Low imbalance costs and appropriate systems for consumption forecast decrease the need for an intra day market. (C) 2005 - NordPool

  13. Price Upward Spot price Downward MW The Spot Market(5)- Handling of imbalances in real time Bids in merit order for each hour TSO select the cheapest unit if generation has to be increased and the most expensive unit if generation has to be decreased. The unit last called upon in each hour defines the real time price for the specific hour By the end of each hour of operation a price is determined. This price is also the price of imbalances (C) 2005 - NordPool

  14. The Spot Market(6)- The Present balancing Mechanism • The TSOs cooperate in an “Inter-Nordic Transmission System Operator Agreement”. • The balancing mechanisms include in total about 3-5 % of total generation. • Demand side bidding in the real time markets and markets for power reserves. • Procedures for pricing of imbalances still different in the TSO areas • Structure of transmission tariff harmonised. Generation and consumption carries about 50 % each of total transmission costs in the respective TSO-areas. (C) 2005 - NordPool

  15. Zonal Pricing (1)- Day ahead congestion management Congestion between Norway and Sweden No congestion MCP Contractual flow MCP PL PH Three prices: MCP, PL and PH PL < PH One price only : MCP (C) 2005 - NordPool

  16. Zonal Pricing (2)- Counter trade in real time • The TSO compensate for transmission constraints by “re-dispatching” the market in real-time using the Balancing Market. • No change of the market cross/MCP on both sides of the bottleneck. • The TSO procures upward regulation in deficit area and downwards regulation in surplus area at Balancing Market prices. • Note that demand side can contribute by increasing/decreasing load! • Cost incurred by the TSO is passed on to the Grid owners and/or consumers as a Transmission Tariff (C) 2005 - NordPool

  17. Zonal Pricing(3)- Present situation • No congestion and therefore only one price in the total market in about 50 % of the time. In the remaining 50% of the time there are congestion between two or more TSO-areas. • Market concentration may not be appropriate in some situation with congestion. • Due to day ahead congestion management there is a net income in settlement of spot contracts in all situations with congestion. The net income is distributed to TSOs based on a formula agreed on. (C) 2005 - NordPool

  18. Experiences (1) – Market concept characteristica • Single-market concepts: • Central dispatch of traded contracts • Complex price determination • Trade close to time of operation • Price determination claimed to be ”Not understandable” • Low demand side participation • Not appropriate for participants to respond on prices (C) 2005 - NordPool

  19. Experiences (2) – Market concept characteristica • Two-market concepts: • De-centralised dispatch of spot contracts • Centralised dispatch in Real Time Market • Simple and understandable price determination both in spot market and real time market • Trade close to time of operation • Appropriate concept for participants to respond on price signals (C) 2005 - NordPool

  20. Experiences (3) – The Nordic Market • Two-market concept • High activity in bilateral trade • One spot exchange with high liquidity • Strong support to the spot exchange by regulator, political level and TSOs • The spot price have developed to be The Reference Price • The spot exchange is an important infrastructure company • Low imbalance costs • Full retail competition (C) 2005 - NordPool

  21. Experiences (4) – Zonal pricing • Generally high competition in the zones • Reliable reference prices – necessary for developing a derivative market • Easy to understand the price setting • Demand side participation • Netting of imbalances in each zone • The system operator defines the capacities • Simplified trading system (C) 2005 - NordPool

  22. Thank you very much for your attention (C) 2005 - NordPool

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