The market setup in the Baltics explanation with examples

The market setup in the Baltics explanation with examples

Table of Contents The market setup in the Nordic-... 3 Baltic exchange area... 3 Daily routines at Nord Pool... 4 Price calculation principles... 4 Import area... 5 Export area... 5 Settlement... 6 Curtailment... 6 Day-ahead Congestion Management Implicit Auction... 7 Examples with hourly resolution... 10 Questions and answers... 14

The market setup in the Nordic- Baltic exchange area ERI - Estonia-Russian import area LRI - Latvian-Russian import area LRE - Latvian-Russian export area LBI - Lithuanian-Belarussian import area LBE - Lithuanian-Belarussion export area LKAL - Kalninggrad (a dedicated portfolio area incl. in the Lithuanian area) Nordic - Denmark, Finland, Norway and Sweden (connected to the Baltic areas via Estlink)

Daily routines at Nord Pool Time (CET) Action 10:00 Transmission capacities published on NP web Daily at 9:30 CET the relevant TSOs submit the available transmission capacity (ATC) for the day ahead to Nord Pool. The ATCs are submitted for both the 1-way and 2-way connections. The ATCs are checked by Nord Pool and finally published on Nord Pool s website at 10:00 CET. 12:00 Gate closure Participants submit orders in the relevant Day-ahead bidding areas until gate closure at 12:00 CET. 12:02 Market Coupling - PCR PCR Market Coupling starts and the PCR tool PMB is used for calculating prices. Results are sent back to each single PX. 12:42 Publication of prices/schedules in Nordic When prices are ready,the market is given a 4 minutes notice before prices are published. Normally prices are published at 12:42 14:00 Settlement Invoices and credit notes are sent out to all participants. Price calculation principles In the day-ahead auction, prices are calculated simultaneously in all the Baltic bidding areas, including all export and import areas. The main principle for the price calculation is to match the corresponding supply and demand in each bidding area and simultaneously considering available transmission capacity.

Import area The set-up with an import area handles the import of power from a third country to one of the Baltic bidding areas. Only single hourly sales orders are allowed in the import area. The price in the import area is calculated based on the sales orders in the area and the available 1-way capacity on the connection from the import area to the Baltic bidding area. The price is used to determine the flow on the connection from the import area towards the Baltic bidding area. According to Nord Pool s Day-ahead market regulations, participants trading in the import area are not allowed to submit orders where the total bidding volume exceeds the available trading capacity on the 1-way connection from the import area towards the relevant Baltic bidding area. Export area The set-up with an export area handles the export of power from a Baltic bidding area to a third country. Only single hourly purchase orders are allowed in the export area. The price in the export area is calculated based on the purchase bids in the area and the available 1-way capacity on the connection from the Baltic bidding area to the export area. The price is used to determine the flow on the connection from the Baltic bidding area towards the export area.

According to Nord Pool s Day-ahead market regulations, participants trading in the export area are not allowed to submit bids where the total bidding volumes exceeds the available trading capacity on the 1-way connection from the relevant Baltic bidding area towards the export area. Settlement The area prices calculated in the Baltic bidding areas are used for settlement in the corresponding import area trades and export area trades. The trade result in the export and import area is determined by the market cross point in the export area, or in the import area. In case of a price dependent order in the export area, the trade result in the export area is determined by the market cross point in the export area, while settled towards the price in the Baltic bidding area. The same is true for the import area. In case of price independent orders, the same principles holds. If only price independent orders are submitted in the import area the supply curve will be vertical. Depending on the demand curve in the same bidding area, the two curves might not intersect. Hence, excess demand will lead to maximum price in the import area affecting the trade results in the import area. The participants will be settled towards the price in the Baltic bidding area. Curtailment If the supply and demand curves do not intersect within a bidding area, after the available transmission capacity is taken into account, curtailment will occur. Curtailment indicates situations with either excess demand or excess supply. To solve curtailment situations the relevant bids are prorata reduced. Pro-rata reductions means all participants bid volumes are equally reduced. Situations that may lead to curtailment: Import area excess supply If the sales curve does not intersect with the import volume curve Minimum price will occur and the participant s sales bids will be pro-rata reduced.

Export area excess demand If the purchase curve does not intersect with the export volume curve Maximum price will occur and the participant s purchase bids will be pro-rata reduced. Day-ahead Congestion Management Implicit Auction Apart from calculating day-ahead prices, the Day-ahead market is also used to carry out day-ahead congestion management in the Nord Pool exchange area through an implicit auction. In the price calculation supply and demand orders are aggregated. The intersection of the curves gives the market price and turnover. Depending on available transmission capacity in the transmission grid, the day-ahead markets in the different bidding areas are integrated to maximize the overall social welfare in both (or more) markets.

Some areas have surplus of power while others have deficit of power. The area in deficit is dependent on import from surplus areas. If there is insufficient transmission capacity between the two areas bottlenecks occur and price differences arise. The surplus area will have a lower price than the deficit area as more power is available compared to consumption. The export of power from surplus area to deficit area is reflected as an additional purchase in the surplus area, and additional sale in the deficit area. An example with Norway as surplus area and Sweden as deficit area is used to illustrate the principles. The demand supply curves are chosen randomly. If no transmission capacity were available between the two areas they would have different prices. Norway would have a price of 200 NOK/MWh, while Sweden would have a price of 300 NOK/MWh. Assume there is 50 MW available transmission capacities between Norway and Sweden. The price in Sweden would be lowered to 283.33 NOK/MWh due to additional available production. The price in Norway would increase to 233.33 NOK/MWh due to higher consumption. In the implicit auction, the available transmission capacity is used to level out price differences as much as possible. Nord Pool carries out the day-ahead congestion management on both external and internal transmission lines between and within Denmark, Norway, Sweden, Finland, Estonia, Latvia and Lithuania.

Examples with hourly resolution Lithuania LBI example 1 If the orders in the LBI-area are as follows: - Participant A: sales bid of 500 MW @ 20 /MWh - Participant B: sales bid of 500 MW @ 20 /MWh During the price calculation, it is found that the sum of the bidding volume is 1000 MW which is larger than the available trading capacity. This would lead to a pro-rata reduction of Participant A s and Participant B s bids. The trading results for the two participants would be: - Participant A trading results = sell 250 MW @ 20 /MWh - Participant B trading results = sell 250 MW @ 20 /MWh For the settlement, both participants would receive the LT-price. LBI example 2 If the orders in the LBI-area are as follows: - Participant A : sales bid of 500 MW @ 5 /MWh - Participant B: sales bid of 500 MW @ -200 /MWh The sum of the bidding volume is 1000 MW which is larger than the available trading capacity. This would lead to a pro-rata reduction of Participant A s and Participant B s orders. Since Participant B is selling at a lower price than Participant A, he will be favoured. The trading results for the two participants will be: - Participant A trading results = sell 0 MW Participant B trading results = sell 500 MW

For the settlement, both participants would receive the LT price. LKAL example 1 A participant places a sales order in LKAL of 300 MW: - According to Day-ahead market regulation, the participant is not allowed to place bids in LKAL which exceeds the available trading capacity, which in this case is 200 MW. - The participant s order will not be included in the price calculation and hence 0 MW will be sold. LKAL example 2 A participant places sales order in LKAL of 150 MW at price 0 /MWh: - The calculated LT-price turns out to be 10 /MWh - The participants trading results would be 150 MW and the trade is settled towards the LT-price. - The total value of the trade will be 150MW * 10EUR/MW = 1500 EUR Latvia LRI If a participant places a sales order of 100 MW in LRI: - According to Day-ahead market regulation, the participant is not allowed to place bids in the import area which exceeds the available transmission capacity. - The participant s order will not be included in the price calculation and hence the trading result 0 MW will be sold. LRE If a participant places a purchase order of 50 MW in LRE: - According to Day-ahead market regulation, the participant is not allowed to place bids in the export area which exceeds the available transmission capacity. - The participant s order will not be included in the price calculation and hence the trading result 0 MW will be sold.

Estonia ERI If a participant places a sales order of 200 MW in ERI: - According to Day-ahead market regulation, the participant is not allowed to place bids in the import area which exceeds the available transmission capacity. - The participant s order will not be included in the price calculation and hence the trading result 0 MW will be sold. Estonia, Latvia, Lithuania, Finland, Sweden, Denmark and Norway Single hourly orders If a participant places a price dependent sales order shown below in LV (or any of the bidding areas): Price steps ( /MWh) Hour -500 20 40 3000 00 01-20 -20-30 -30 01 02-20 -20-30 -30 02 03-20 -20-30 -30 -The price in LV is calculated to be 30 /MWh - Linear interpolation is used to calculate the participants trading result - The trading result in this case will be -25 MW settled at the LV-price of 30 /MWh

Estonia, Latvia, Lithuania, Finland, Sweden, Denmark and Norway Block orders If a participant places a following block sell order in LT: Price 50 /MWh Volume -20 MW Time 00:00 09:00 - The average price between 00:00 and 09:00 is 45 /MWh - The block bid is not accepted as the participant only wants to sell if the average price in these hours are higher than 50 /MWh If a participant places a following block buy order in EE: Price 30 /MWh Volume 15 MW Time 12:00 00:00 -The average price between 12:00 CET and 00:00 CET is 25 /MWh - The block bid is accepted as the participant wants to buy if the average price in these hours are lower than 30 /MWh Internal Baltic From 3 June, implicit auctions are implemented on all internal Baltic connections. Hence, it is no longer necessary to decide where to buy and where to sell the power. The orders should be placed in the bidding area where the physical production or consumption takes place. If a participant located in Latvia wants to sell/purchase power to Lithuania or Estonia: - The participant places a sales/purchase order in LV If a participant located in Estonia wants to sell/purchase power from Lithuania: - The participant places a sales/purchase order in EE. If a participant located in Lithuania wants to sell/ purchase power from Latvia: - The participant places a sales/purchase order in LT.

Questions and answers Please give some information why the Nordic system price is relevant for the Baltic countries also? The Nordic system price is a theoretical index price where infinite transmission capacity is assumed on all connections. The connection(s) towards the Baltic bidding areas are influencing the Nordic system price up to the available trading capacity on the different connection(s). The power balance in the Nordic countries and in the Baltic countries determines which way the power should flow on the connection(s) between the two regions. Why the Baltic countries have not own system price? Previously the Baltic countries have been connected via explicit auction. The Baltic countries have not introduced an index price yet, but with implicit auctions being implemented on all Baltic internal borders from 3 June it might be of more interest. This is a question Baltic TSO s needs to agree upon internally.