The Nordic power markets
The Nordic countries deregulated their power markets in the early 1990s and brought their individual markets together into a common Nordic market. Deregulation was undertaken to create a more efficient market, with exchange of power between countries and increased security of supply. Available power capacity can be used more efficiently in a large region compared to a small one, and integrated markets enhance productivity and improve efficiency. The Nordic electricity exchange Nord Pool Spot covers Denmark, Finland, Sweden, Norway, Estonia and Lithuania. Nord Pool Spot is an exchange primarily servicing the players at the wholesale market for electricity.
The transmission system operator
The transmission system operator (TSO) is responsible for keeping the respective area electrically stable. Technically, this means that the frequency must be kept at 50 Hz. In other words, the TSO is responsible for the electricity arriving at the end users’ sites.
The regulating power market is managed by the TSO in order to obtain stable frequency in the transmission grid. It may happen that the consumption exceeds the generation. In this case, the frequency of the alternating current will fall to a value below 50 Hz. When this happens, the TSO must ensure that one or more producers deliver(s) more electricity to the grid. In this case, the TSO buys more electrical power from producer(s) who has proclaimed excess generation capacity. We say that the TSO is procuring “up regulation”.
The generation of electricity may also be too big – exceeding the consumption. In this case, the frequency will rise to a value above 50 Hz. Now, the TSO must ensure that one or more producers reduce(s) the generation of electricity. In this case, the TSO is selling electrical power to the producers – thereby causing the producers to reduce their generation. We say that the TSO is procuring “down regulation”.
The electricity, which the TSO in this way trades with selected market players, is called regulating power. Hence, the regulating power is traded by the TSO in order to regulate the frequency to keep it at 50 Hz.
Nord Pool Spot’s Day-ahead Auction Market
Elspot is Nord Pool Spot’s day-ahead auction market, where the electrical power is traded in Scandinavia. Players, who want to trade power on the Elspot market, must send their purchase orders to Nord Pool Spot at the latest at noon the day before the power is delivered to the grid. Correspondingly, participants who want to sell power to Elspot must send their sale offers to Nord Pool Spot at the latest at noon the day before the power is delivered to the grid.
At Nord Pool Spot, the purchase orders are aggregated to a demand curve. The sale offers are aggregated to a supply curve. The intersection of the two curves then gives the market price for one specific hour.
The System Price is the theoretical, common price we would have in the Nordic area if there were no grid bottlenecks. Due to the bottlenecks, the Nord Pool Spot exchange area is divided into a number of bidding areas. For example, when a producer in Eastern Denmark sends his orders to Nord Pool Spot, he must specify that these orders are submitted for delivery in the bidding area Eastern Denmark.
The TSOs decides the number of bidding areas and its boundaries. Eastern Denmark and Western Denmark are always treated as two different bidding areas. Sweden constitutes one bidding area until November 2011 when it is to be divided into four bidding areas. Also, Finland, Estonia and Lithuania constitutes one bidding area while Norway currently has five bidding areas
The el-certificate market is a state-created and managed market in trading certificates. As of January 1, 2012, the market is no longer limited to just Sweden, but encompasses both Norway and Sweden. The market’s sole goal is to increase renewable electricity production in both countries specifically by 26.4 terawatt hours (TWh) by the year 2020. Norway’s share of that responsibility will require an increase in production of 13.2 TWh by 2020.
This is how the electricity certificate system works
The power producers receive electricity certificates from the authorities. The electricity certificates can be sold to the electricity suppliers. The power customers finance the system, as the costs of purchasing certificates are added on the electricity bill.
The power suppliers are required to purchase electricity certificates for a certain proportion of the electricity they deliver or use.
The electricity certificate liable actors, i.e. the power suppliers and certain electricity users, may choose to purchase their electricity certificates in Norway or Sweden.
The price of electricity certificates is determined by supply and demand.
The demand is determined by how much power is used and the set electricity certificate quota for each year. The supply is dependent of how much electricity is being produced. Large scale investments in new energy production will result in many certificates in the market and the price of each certificate will drop. Few power plants under construction will cause rising certificate prices.