(C) 2005 - NordPool 1
The Nordic Power Market
Zonal Pricing
Jan 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
Combine power and heat production
Gas turbine
100 200 400 TWh
Condensing, Coal
Condensing, Oil
Hydro power (mean)Nuclear power
300
Consumption
Productioncost
Hydro
Thermal
(C) 2005 - NordPool 4
Development of a regional power market (2)
1991 2000
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
Nord Pool Spot Market Financial Market: Futures, Forwards, Options (standardised)
Clearing services
Retail Market
Small-scale industryCommercial and service businesses
Households
OTC Markets
Bilateral Wholesale Market Financial Contracts Physical Contracts (tailor-made or standardised)
Large-scale industries
Generators &Grid owners
Trading & Clearing
Representatives
Retailers
Large-scale industries
Generators &Grid owners
Trading & Clearing
Representatives
Retailers
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
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.
Two-market Concepts:
Single-market Concepts:
One price only that represents the margin of real time centralised dispatched contracts.
Development of a regional power market (5) – Market concept
(C) 2005 - NordPool 8
Participants at Nord Pool and at the TSOs
Nord Pool
Spot Market Real Time MarketsDerivatives
Retailers
Generators
IndustryGrid owners
Representatives
Clearing customersEnd-users
Market Makers
GeneratorsEnd-users
All Participants’Imbalances
Nordic TSOs
Representatives
Generators
Industry
Retailers
Note: Demand side bidding in the real time market
(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
Hour\Price: 0 100 101 150 151 200 201 300 301 500012
9 300 300 150 150 0 0 -100 -100 -300 -300
24
Bidding by fax or electronically!
Participant
Bid valid for:Week nr.
Elspot area Mon Tue Wed Thu Fri Sat Sun Week Corrected Date: Time:
exam
ple
hour
9
(C) 2005 - NordPool 11
The Spot Market (3)- Market Clearing Price
Mem. A, MW
Mem. B, MW
Mem. C, MW
SUM, Purchase
Price 0 900 50 100 101 150 151
20 020 0
200 20151
40 -400 -12020 0 -120
120 100 80 80 60 60 40 40 2020
SUM, Sale
6060 2040 40 20
SalePurchase
40 80 120
100
200
300
Price
MW
0 0 -40 -120 -120
(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
The Spot Market (5)- Handling of imbalances in real time
Bids in merit order for each hour
Downward
Upward
Spot price
Price
MW
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 specifichour
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 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.
The Spot Market (6)- The Present balancing Mechanism
(C) 2005 - NordPool 15
Zonal Pricing (1)- Day ahead congestion management
No congestionCongestion between Norway and Sweden
One price only : MCP Three prices: MCP, PL and PH
PL < PH
Contractual flow
PL PH
MCP
MCP
(C) 2005 - NordPool 16
• 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
Zonal Pricing (2)- Counter trade in real time
(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
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
Experiences (1) – Market concept characteristica
(C) 2005 - NordPool 19
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
Experiences (2) – Market concept characteristica
(C) 2005 - NordPool 20
Two-market conceptHigh activity in bilateral tradeOne spot exchange with high liquidityStrong support to the spot exchange by regulator, political level and TSOsThe spot price have developed to be The Reference PriceThe spot exchange is an important infrastructure companyLow imbalance costsFull retail competition
Experiences (3) – The Nordic Market
(C) 2005 - NordPool 21
Generally high competition in the zones• Reliable reference prices – necessary for developing
a derivative marketEasy to understand the price setting• Demand side participation
Netting of imbalances in each zoneThe system operator defines the capacitiesSimplified trading system
Experiences (4) – Zonal pricing