Regional Spot Markets and Inter-Regional Market Coupling

Transcription

1 APEx conference in Boston October 2009 Session 1 part 2: European Market Situations Regional Spot Markets and Inter-Regional Market Coupling 1. Intro to Nord Pool Spot and the Nordic PX & Market Design concept 2. Influences, opportunities and challenges when moving from Regional to Inter-Regional and pan-european deliveries and concepts Rickard Nilsson, Manager, Power Data Services, Nord Pool Spot rn@npspot.com Tel: +46 (0) Mob: +46 (0)

2 Nordic production per production type and week Period is and volumes are shown in MWh Nuclear Other Thermal Power Wind Power Hydro

3 Nordic PX and Market Design Concept Financial market (Nord Pool ASA & bilateral) Hedging and trading Also clearing services (NP by NASDAQ OMX) Day-ahead market (NPS Elspot) Hourly prices per Bid Area. Mechanisms in place to handle congestions (Implicit Auction/Market Splitting) Intra-day market (NPS Elbas) Time Continuous Implicit hourly market for balance adjustment after Elspot until 1 hour before delivery 6 Years Reference price 24 Hours 0 Financial market Elspot-market Elbas-market Balance Services Real-Time Regulating Power Market Single buyer market (TSO, and TSO to TSO). Ref. price Balance Services Cash settled Physical delivery Some main principles in the Nordic physical power chain Buying from Elspot is (normally) cheaper than from Elbas Buying from Elbas is (normally) cheaper then from balance power Base (ref.) price for Balancing (Imbalance) Prices is Elspot Area Price Common Nordic (TSO) Balancing Market since late 2002 and during 2009 also common pricing model for imbalances for consumption ( 1-price ) and production ( 2-price )

4 NPS is the largest spot power exchange in Europe Volume record was set in 2008 OMIP OMEL APX Belpex Powernext NORD POOL SPOT (Nord Pool ASA/Clearing) EEX GME OTE EXAA Gielda Energi PXE Borzen Opcom Nord Pool Spot (Fin. NP ASA/Cl.) 2008 (2007) Spot Markets 298 (291) EEX 146 (123) APX 25 (21) Powernext 52 (44) 2008 (2007) Financial incl. bil./otc clearing 2557 (2369) 1165 (1158) - (-) 91 (84) Note: Names of PX s reflect the facts in 2008

5 Nord Pool ASA Stattnett SF Svenska Kraftnät Fingrid Oyj Energinet.dk Basic Development of Nordic PX - focus on physical markets Nord Pool ASA was established in 1993 with the objective of quoting physical and financial power prices for the Norwegian Market 1996 Norwegian-Swedish PX Nord Pool commenced; Swedish Elspot Bid Area 1998 Nord Pool Bid Area Finland Finnish-Swedish Intra-day market Elbas -Western Denmark Bid Area 2000 Eastern Denmark Bid Area In 2002 the financial and physical markets were separated, and Nord Pool Spot (NPS) was established to run the physical markets 2004 Elbas (ID) market to Eastern Denmark 2005 NPS Elspot Bid Area KONTEK (Ger) 2007 Elbas (ID) market to Germany 2007 Elbas (ID) market to Western Denmark Market Coupling NPS-EEX via EMCC 2009 Elbas (ID) market to Norway To open N2EX (in UK) in J/V w. NASDAQ OMX 2010 EstLink (Estonia) as Bid Area in Elspot Involved in several DA Market Coupling projects/studies, ID developments, etc. Nord Pool Spot AS

6 How it was possible Long history of Nordic co-operation (Nordel, etc.) helped to set common rules TSOs are unbundled, no vertical challenges, neutrality TSOs are owner of Nord Pool Spot Political commitment to create a common Nordic Market, and large parts of the market has supported that idea Advantages? No priority capacity rights, thus 100% DA Implicit allocation within Nordic Thus model is neutral and fair for all players; energy & cap traded combined Larger market area via correct scheduled transmission flows (not many loops in the system, thus strong correlation between Elspot and physical flow) ATC on every bottleneck will be utilised every hour of operation with power flowing towards the high price, while also respecting given capacity constraints Challenges? Level of transparency - good since same info for small players and large incumbents via Disclosure/UMM and open fundamental power system data Bottleneck incomes (income or investment, and what and how?) Result Implicit auction (DA) in the Nordic Market Efficient products and markets, and reasonably low risk for traders help all to join PX and trade in free market

7 Elspot (NPS) Price Area Model Market Splitting Players place bids in different geographical areas to achieve a balanced physical portfolio per area in the planning stage Allocates transmission capacity based on the energy bids, thus Elspot is a simultaneous energy and capacity auction Results in energy flows according to the price signals Opens up national and international trading for all types of companies Reduces market power because the model links areas and countries and it is done in a non-discriminatory fashion Price risks System and Area are possible to handle via agreements between parties and existing financial instruments (Forwards, Futures, Options, CfD s)

8 What is Elspot? Nordic Market place for purchases/sales of electric power* - gives overall planned balance day-ahead Short-term physical contracts Duration of one hour hours ahead (next day s 24 hrs.) Trading 365 days a year Three bid types: hourly, blocks, and flexible hourly bids Bidding with portfolios in purchase/sales curves per bidding area Auction trading (once per day) Price set at equilibrium point (buy=sell) each hour Demand Supply Handling of bottlenecks between Elspot Areas using the so called Price Area Model (Market Splitting) Reporting of results per area to the TSOs Note: *Since Oct 05 also KONTEK, which repr. VE-T grid area in Ger

9 Elspot Price calculation(s) with bottlenecks Elspot Areas 1. System price calculation 2. Checking transmission limits NO2 Purchase Sell Flow at System Price above capacity, thus different prices E NO1 SE FI Ps DK1 DK2 Physical power flow 3. Calculation of different Elspot area prices

10 Common Nordic Price in Elspot status early Oct Number of hours with common price Year Incl. DK1 Excl. DK % 60% 50% 40% 30% 20% 10% 0% Common price incl DK Common price excl DK

11 Main contracts in Nord Pool s Financial Market (2008) Futures Short-term contracts (days, weeks) for financial delivery of power at a fixed price. System Price in Elspot is underlying reference. Forwards Medium/long-term contracts (months, quarters, years) for financial delivery of power at a fixed price. System Price in Elspot is underlying reference. Options Give the right to buy or sell a forward contract (European options listed). Forwards contracts underlying. CfDs Contracts for Differences help hedge area power prices. Difference between an Area Price and the System Price in Elspot is underlying reference for CfDs. CO2 Allowances EUA (plus also CERs) Financial forwards with physical delivery traded at NP since early February 05

12 Elspot volumes (TWh) per country from year 2000 Elspot s share of consumption 2008 Norway 61 % Sweden 90 % Finland 50 % Den-Wes 79 % Den-East 78 % Total 70 %

13 NPS Elspot volumes & Nordic Consumption GWh GWh/week 2007: 291 TWh ; 69% share 2008: 298 TWh; 70% share 2009 through Sep: 208 TWh; 72,5 % Elspot 2007 Elspot 2008 Elspot 2009 Nordic Consumption 2007 Nordic Consumption 2008 Nordic Consumption 2009

14 Elspot prices Oslo, Stockholm and System price (1 year back) EUR/MWh 100 Oslo Stockholm System Price

15 Nord Pool Spot Cornerstones of the success LIQUIDITY In The Hedging Markets And Physical Markets LARGER MARKET AREA Implicit Auction Between Bidding Areas FOR THE CUSTOMERS! Good Product Mix And Settlement Procedure RELIABLE PRICES (reference price)

16 Examples of key current Influences on Inter-Regional ad pan-european concepts for Market Coupling Third energy package recently passed by EC i.e. renewed Regulation EC/1228/2003 and Directive 2003/54/EC 3 models for unbundling of TSOs accepted New IEM level powers & tasks for TSOs (ENTSO_E) and regulators (ERGEG/Agency) Challenges to agree about roles, mandates, and level of central vs. local decisions PCG/MIDP process linked to Florence Forum that involves all key stakeholders and is led by ERGEG Shall in Dec. deliver a proposal of Target Model and Roadmap towards year 2015 for market design linked to Congestion Management in Bal, ID, DA, LT time frames plus on capacity calculation and governance issues linked to market integration, etc. On-going, mostly non co-ordinated, Market Coupling projects (Implicit DA Auctions linking PX spot markets) in and between ERI-regions

17 Current Implicit Auction Market Regions REGIONAL IMPLICIT AUCTIONS Nordic and DK East to Ger on Kontek & CBO DK West - Ger TLC Iberian Peninsular Czech Rep - Slovakia Market splitting/ntc Price coupling/atc Market splitting/ntc Price coupling/atc OTHER IMPLICIT MARKET REGIONS Italy Market splitting (internal market boundaries)/ntc No congestion (common price areas): Austria Germany Rep Ireland N. Ireland Cross Border Optimization mechanism between DK West (Jutland) and Germany

18 Prospective 2010 Implicit Auction Market Regions REGIONAL IMPLICIT AUCTIONS Nordic+Estonia CWE EMCC Iberian Peninsular Czech Rep - Slovakia Market splitting/atc Price coupling/fb Tight Volume coupling/atc Market splitting/atc Price coupling/atc OTHER IMPLICIT MARKET REGIONS Italy Market splitting (internal market boundaries)/atc No congestion (joint bidding areas): Austria Germany Rep Ireland N. Ireland

19 Implicit DA Capacity Allocation Initiatives Central West Europe Nordic - CWE Nordic - Baltic MIBEL - France BritNed France-UK* *Could be possible through IFA cable

20 Implicit DA Capacity Allocation Initiatives, continued Italy - Slovenia Romania - Hungary Conclusion: A tremendous amount of separate DA Implicit (Auction) Capacity Allocation Initiatives are, albeit at different development phases, on-going

21 Examples of impact on whole value chain that Spot and Forwards (derivatives) PX prices have in Nordic region Significant portion of end consumers (especially in Norway and Sweden) buy electricity directly based on spot prices Most end consumer (private & businesses) contracts for 1-5 year duration are priced and hedged by suppliers/retailers according to prevailing Forwards curve listed/traded on PX Base price for imbalances for BRCs towards TSO is the relevant Bid Area Price in Elspot The examples above are not the norm in many other regions, thus a European challenge is how to also create more compatible, and efficient, retail markets across IEM, thus linking via MC DA is good but does not complete vision of a common market, or does it? Hint: PX spot markets are not merely CB mechanisms but energy markets that often have much more domestic buy/sell per Bid Area then total physical flows and available capacites between Areas

22 Additional facts and statistics about the fundamentals of the Nordic power system and the Nord Pool Group

23 Nord Pool Group owners and regulatory regimes Status early Ownership of German, Dutch and Carbon products 50% 50% 100% 30% Norwegian Ministry of Petroleum and Energy 100% Nord Pool Consulting AS 30% 100% Nord Pool Consulting Nord Pool AS Clearing ASA 20% 20% Norwegian Water Resources and Energy Directorate Clearing house for all Nord Pool exchange traded products, incl. OTC 20% Kredittilsynet - The Norwegian Supervisory Authority The exchange for Nordic, German, Dutch and Carbon products 100% 50% Nord Pool Finland Oy Nord Pool Gas AS European Market Coupling Company

24 Summary of primary roles and objectives of a physical and financial power exchange as exemplified in Nordic region Spot Market - Financial Market - Clearing An impartial, solid and secure counter party to participants Offer organised markets for standardised contracts Provide transparent reference prices for the market An alternative to bilateral trade Nord Pool Group High liquidity in all of its markets, which reduces risks Access for all parties to relevant market information Elspot Market is an instrument to plan overall physical balance close to delivery also a tool for TSO operations Optimising cross-border trade and handling of bottlenecks through Elspot with a little help from our friends (TSOs)

25 NPS View on the European integration processes NPS is of the opinion that the European integration processes requires more harmonization of rulebooks, further cooperation on market surveillance and easier access to the markets and the products offered Competition among exchanges are important for the market players and improves the services and products offered by the exchanges NPS believes in regional exchanges quoting area/regional spot prices which secures the correct price signals according to the region s generation mix and supply and demand situation

26 NPS - active in future market development The business environment for power exchanges in Europe is changing and there is a large number of development opportunities present NPS is the leading European spot power exchange and has been a central force behind earlier market expansions - NPS is well positioned to play an active part also in future market development Common regulatory framework and liberalisation of the national power markets according to the visions of the European Commision are important steps ahead

27 Share of total cleared volume by Nord Pool Clearing that was traded directly on Nord Pool ASA (Exchange) 100% 90% 80% 70% 60% 50% 40% Market Share Nord Pool Financial Market 30% 55.8% 20% 10% 30.9% 32.8% 37.4% 34.5% 44.7% 0% Nord Pool Exchange Nord Pool OTC

28 NPS Elbas ID implicit continuous market Started March 1999 for Sweden and Finland From Aug 2004 until Mar 2009 extended to in order: East Denmark, Germany, West Denmark and finally Norway Since Sep 2001 trading in EUR and 24/7, while originally open 8-18 and trading in SEK and FIM Settlement (economic), collaterals, customer agreements, and yearly fees are combined with NPS DA Elspot Market Hourly trading until 1 hour before delivery and in Nordic region contracts for next day open 2 p.m. CET, i.e. right after DA spot is set Automatic update of ATC capacities upon trade execution NPS handles CB scheduling, i.e. parties only have to report buy/sell to TSOs in Area where their executed bid/offer was placed Automatically only executable bids/offers are visible to participants in the various Areas based on the at any given time available capacities

29 Elbas Continuous Implicit Intra day market - cross border trading and capacity management in practise Direction Capacity to Elbas Capacity after Elbas trade 1 Capacity after Elbas trade 2 10 MWh FI-SE SE-FI SvK Participant C Sell (4 MW) FG Participant A DK2-SE SE-DK Buy (10 MW) 6 MWh Participant D Buy (4 MW) Participant B Energinet.dk

30 Elspot price areas status early Oct Number of hours where one area is isolated from the rest of the nordic areas % 70.0 % 60.0 % 50.0 % 40.0 % 30.0 % 20.0 % 10.0 % 0.0 % Oslo Tromsø SE FI DK1 DK % 34.3 % 0.1 % 5.1 % 28.7 % 14.2 % % 34.8 % 0.1 % 2.1 % 50.9 % 17.6 % % 16.5 % 0.0 % 4.9 % 41.4 % 24.9 % % 17.8 % 0.1 % 6.9 % 42.7 % 17.0 % % 19.5 % 0.5 % 9.3 % 50.0 % 16.6 % % 26.8 % 0.1 % 23.9 % 30.5 % 6.0 %

31 EUR/MWh EEX and Nord Pool Spot Auction Markets Daily Average Prices (EURO/MWh) EEX Phelix price NPS - System Price 160,00 150,00 140,00 130,00 120,00 110,00 100,00 90,00 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 0,00 Prices through 31 Dec 2008 (Yr. 2007) EEX Phelix average: (37.99) NPS System average: (27.93) Daily averages high/low: EEX high: Oct 6 ( Dec 19) EEX low: Jan 1 (5.80 Jan 1) NPS high: Sep 24 (53.03 Nov 27) NPS low: 9.99 May 11 (8.80 Aug 19) Turnover through 31 Dec 2008 (Yr. '07) Elspot Auction NPS: TWh (290.6) Spot Auction EEX: TWh (117.3)

32 EUR/MWh EEX* and Nord Pool Spot Auction Markets Status early Oct Daily Average Prices EEX Phelix price NPS - System Price Prices: EEX Phelix average: NPS System average: Daily averages: EEX high: EEX low: NPS high: NPS low: Turnover: Spot Auction EEX: TWh TWh Elspot Auction NPS: TWh TWh Note: *EEX refers to EPEX Spot GER-Aut Spot Market

33 Reservoir level Norway, Sweden & Finland

34 Inflow Norway, Sweden & Finland GWh Total Inflow