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

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The Nordic Power MarketZonal PricingJan
Vidar ThoresenManaging Director Nord Pool
Consulting AS
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Content

• The development of a regional
• power market
• The spot market
• Zonal pricing
• Experiences

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

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Development of a regional power market (3)
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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.

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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 systems 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.
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Participants at Nord Pool and at the TSOs
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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.

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The Spot Market (2)- Bidding
Participant
Bid valid for
Week nr.
Mon
Tue
Wed
Thu
Fri
Sat
Sun
Week
Corrected
Elspot area

Date
Time
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
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Bidding by fax or electronically!
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The Spot Market (3)- Market Clearing Price
Price
0
50
100
101
150
151
200
201
51
900
Mem. A, MW
Mem. B, MW
Mem. C, MW
SUM, Purchase
SUM, Sale
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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.

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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
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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.

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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 lt PH
One price only MCP
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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

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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.
  

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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

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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

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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

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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

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Thank you very much for your attention