Transcript Conference 11 February in Reykjavik: Power exchange for electricity Opportunities or constraints? Is the Icelandic market ready for new challenges? Rickard Nilsson Project Manager Nord Pool Spot.

Conference 11 February in Reykjavik:
Power exchange for electricity
Opportunities or constraints?
Is the Icelandic market ready for
new challenges?
Rickard Nilsson
Project Manager
Nord Pool Spot AS
E-mail: [email protected]
Tel: +46 (0)8 555 166 06
Agenda
1. Reflections on market design, regulations, opportunities
and challenges with establishing spot trading
 In reality how different are Icelandic fundamentals
from elsewhere when spot market places were started?
2. Some trading and market design issues "open for debate”
that are important to get feed-back on from potential
market parties and also other stakeholders
3. Brief facts and features in Elbas, the system intended for
the "Isbas" Market for spot trading
Were framework conditions and rules perfect
elsewhere when spot markets were launched?

Norway-Sweden 1996? Examples:
1.
2.
3.
4.
5.

Limited cross-border capacity for market due to historical bilateral priority
contracts lasting until about 1999
Only hourly bids in spot although Swedish needs for blocks
Many retailers and end-consumers had pre-deregulation supply contracts
that lasted several years thereafter, thus free choice and competition was not
really there from start
Switch of supplier was costly in Sweden because until ”profile ontracts” were
introduced in 1999 customers has to buy metering device to switch supplier
No common adjustment (intra-day) market and only weak co-ordination of
RPM, i.e. real-time (TSO) balancing market
Nor-Swe-Finland 1998 plus Denmark 1999-2000? Examples:
1.
2.
3.
4.
Tariffs imposed Swe-Fin and Swe-Den in the first few years
Almost no market access to capacity Norway-Jutland since pre-deregulation
bilateral contracts not abandoned from start, also limited capacity Swe-Fin
and Swe-Den in the beginning and for similar reasons
No common intra-day trading and still weak co-ordination of RPM on Nordic
basis, which however came about very clearly in autumn of 2002
Only large scale consumers (ex. >10 GWh) in Denmark had access to market
and could shift supplier in first few years with the spot market in Denmark
Basically all the constraints above have since long been eliminated, but the point is that
the market could function and develop even with those imperfections!
In other words, even with imperfect conditions a promising development can be
achieved as long as most parties, including stakeholders with powers to set rules,
strive for improvements and seek opportunities with open and transparent trade!
Positives in Icelandic market
Some general ”early observations from a foreigner who has seen
and been part of a few spot market start-ups before”

Strong focus on power system fundamentals, combined with
recognition of economic realities and opportunities

Balance Responsible Agreement in place between TSO and
”suppliers” that enables trading, and can be developed further

Some inherent flexibility in production and consumption

Significant growth of (industrial) demand ”likely” and ample
opportunity to increase hydro and geothermal power production

Finally, a ”negative” that can be a positive – namely that it
seems like quicker and more transparent signals of surplus and
scarsity situations in the power system is needed, and that is
precisely what an organized spot market can facilitate!
Design questions for the ”Isbas” Market
Examples:











Opening hours for trading
Closing time for contracts
Settlement cycle
Clearing requirements
Market place functions – who and what
Currency for trading
Minimum trading lot (volume)
Minimum price step in bid/ask quotation
Needed content in Rulebook
Liquidity facilitation
Use of ”market makers”
 Other issues?
Outlook - immediate future

A Power exchange for spot trading can be




Ready for launch in September 2008
Operated by Landsnet or a contractor of their choice
Technically supported by Nord Pool Spot (trading system, etc.)
Based on continuous trading as in NPS’ Elbas Market

Trading Area of the Icelandic market
 The Icelandic market will be a separate/independent trading area

Reasons for proposal
 Market players in Iceland have little experience in exchange trading
 The Icelandic market is fairly small and a limited number of actors
exist, at least initially
 Continuous trading preferable in the beginning, because it is not as
vulnerable towards lack of liquidity as auctions
 Trading today in Iceland is based on bilateral contracts
 Further developments, i.e. day-ahead spot auction and long-term
(financial) contracts may be developed later, if it suits the market
Elbas market at Nord Pool Spot today
• Adjustment market after Elspot
• Trading intra-day and after Elspot is
closed (confirmed) also day-ahead
• Market areas:Finland, Sweden, East and
West Denmark and Germany (KONTEK)
• Continuous trading
• Open around the clock all days of a year
• Hourly contracts can be traded until one
hour before delivery hour
• Trading is anonymous
• Trading currency is Euro
• Settlement and clearing is combined
with the Elspot Market at NPS
• Common Rulebook with Elspot (separate
details in appendices/agreements)
• Automated control of grid capacity
• Communication in public network with
SSL-encryption
• Market makers 24 hours per day
• Number of customers: 55
Why do companies trade on the Elbas market?
Many arguments can also be valid in Iceland
 An effective and economical way to manage electricity
procurement and sales near the time of delivery
To sell production, cover consumption or trade single hours today & tomorrow
Handling of unexpected changes in electricity production, procurement or
consumption in your electricity balance
 React to unexpected changes in the market price and need for power
-> You can hedge the price you have to pay for imbalances
-> You can reduce the volume exposed for imbalances
-> You can increase the efficiency of daily management of your electricity portfolio


 Not dependent on one volume, price or counterpart
 Increases transparency of day-ahead and intraday prices
 Trading made easy and fast:





Web based trading system
The market is ALWAYS open
Market making 24 hours per day
Automated and simple functionalities
Automatic clearing, netting of collaterals, and one settlement account for Elbas*
Note: *At NPS the Elbas settlement/collaterals is combined with day-ahead Elspot Market
Nord Pool Group Markets
 Physical market – Elspot – Nord Pool Spot AS
 trading in energy – day ahead (hourly contracts)
 Swe, Fin, Den, Nor and VE-T area in Ger*
 Adjustment market – Elbas – Nord Pool Spot AS
 trading in energy – intra day (hourly contracts)
 Financial market – Nord Pool ASA
 financial power contracts** up to 5 calendar years ahead
 EUA (CO2-allowances ) and CER
 Clearing of financial contracts, incl. OTC
– Nord Pool Clearing ASA
Notes:
* Plan is to in June 2008 establish ”Market Coupling” with EEX spot between Den and Ger
**Until 2007 Nordic contracts based on Elspot (System) Prices as underlying, but from
early 2008 also contracts based on Dutch (APX) and German (EEX) spot prices
The Elbas timeline
Next days
delivery hours
opened at:
14:00
in SE, FI
and DK2
Delivery
hour
• At 14:00 in SE, FI & DK2 the hour series for the next day are
opened (the hours 01-24)
• At 08:00 in GER and at 17:00 in DK1
An idea for ”Isbas” timeline & structure
Note: The point is merely to illustrate how it could function
09:00
Opening hours
for trading
15:00
Delivery
hour
Hour 13 (time 12-13)
is nearest hour possible to
trade when market opens
• At 09:00 the market opens for trading hours 13-24 today plus hours 1-24
tomorrow. Thus for 36 separate hourly contracts.
•At 10:00 trade for hour 13 is closed and at 10:05 the Isbas system sends a
report with final net trade per Balance Responsible for hour 13 to Landsnet.
Every hour shift the procedure is repeated until 15:00 when a final net trade
report is sent for hour 18, and for hours 19-24 plus hours 1-12 tomorrow.
•Settlement for “today’s hours” then occurs tomorrow if daily settlement
cycle is applied or the 1st bank day the following week if weekly settlement.
Trading on the
Elbas market
Bid = Buy
Ask =Sell
The menus of the trading system
“Back office”
The bid – ex. single hourly bids
A bid consists of
- the delivery hour
- the volume
- the price
PH(hh)(yy)(mm)(dd)
7.6.2002 10:00-11:00 a.m.
The priority of the bid:
1. The price
2. The time when the bid was
registered in the trading
system
A bid is binding until:
- a trade, change of the bid
or an cancellation of the bid
- in other words a bid may be
annulled or changed until the
bid has resulted in a trade
• Trading currency is Euro
• The minimum volume is 1 MWh
• The minimum price difference is
0,1 € (=tick size)
Anonymity
Common information:
 price
 volume
 order
 time of trade
 information on cancellation of trade
Individual party information is not public
information!
The consequences of a trade
All trades go automatically to clearing
at Nord Pool Spot AS
Buy 10
MWh
PH12
21,2 €
Sell 6
MWh
PH12
21,2 €
Delivery
NPF informs the TSO once per hour (a few
minutes after change of hour) the Elbas
trades netposition for every hour open for
trade
Money transactions
Invoicing every bankday
Collateral Call
7 days net bought (netted with the
Elspot collateral call)
Trade 6 MWh
PH12
21,2 €
Scheduling report to the TSOs
 Hourly net trades per participant in the TSOs area
 The report is sent once an hour
 The report includes the hourly values for today and after
noon also the values for tomorrow
 Participant must also send their hourly Elbas trade
schedules to the TSO
Notes:
- Naturally the conditions that would be set by Landsnet may
be different in Iceland
– likewise may apply for the economic settlement cycle
(for ex. daily or weekly) and needs for collateral (security)
System requirements for end user
Minimum requirements for hardware, system software and
data communications lines:
- Web browser:
Microsoft Internet Explorer 5.0 or later
or Netscape 6.0 or later, Opera
- Computer:
Processor minimum Pentium II
128 MB RAM,
recommended 256 MB
- Data communications
link to ISP service:
Recommended 2 Mbit/s
- Operating system
Windows 2000/NT/XP or Unix
The trading system automatically
updates crossborder capacities
Direction
Capacity
to Elbas
Capacity
after
Elbas
trade 1
FI-SE
2300
2310
2310
SE-FI
1100
1090
1090
DK2-SE
2000
1990
1994
SE-DK2
0
10
6
10 MWh
Participant C
Sell (4 MW)
FG
SVK
Capacity
after
Elbas
trade 2
Participant A
Buy (10 MW)
Participant D
Buy (4 MW)
6 MWh
Participant B
Energinet.dk
• Capacities are updated
automatically by the trading system
 Automated Market Splitting divides
areas dynamically when bottlenecks occur
Daily average prices (EUR) Elbas and
Elspot Area price FIN (1 – 5/2006)
Extra slides
Settlement on Nord Pool
Spot’s physical markets
Daily settlement
The settlement system relies on electronic bank communications
and funds transfers
-> All participants are obliged to have a pledged account in one
of Nord Pool Spot AS settlement banks
Delivery of
Elspot
trades: +1
day
Delivery of
Elbas trades: 1 day
Settlement day
(Invoice/Credit
Note per email)
Debiting:
+1 banking
day
Crediting:
+3 banking
days
Source: www.nordpool.com
Nord Pool Group markets
turnover in TWh 2000-2007
2007
prel.
2006
2005
2004
2003
2002
2001
2000
292
251
176
167
119
124
112
97
Financial
1.060
765
786
590
545
1.019
910
359
Clearing (bil. fin.)
1.299
1.394
1.316
1.207
1.219
2.089
1,748
1.180
Total
2.369
2.410
2.278
1.964
1.883
3.232
2.770
1.636
68,9
61,4
45,2
42,2
30,9
31,9
28
25
Elspot*
Elspot %%-Share of
Nordic**
consumption
Note:
*Elspot incl. Elbas of between 0.5 –0.9 TWh/yr. 2000-2005, 1.1 TWh 2006 and 1.6 TWh 2007.
**Percentage of consumption in the Nordic part of the exchange area (not excl. exp).
Only considered DK-East (Zealand) consumption from Oct 2000 when that area was opened for Elspot.
As a comparison the Elspot volume of 40.6 TWh in 1996 ”only” represented 16% of the consumption in
the then Swedish/Norwegian market area and the same year the financial exchange trade was 43 TWh.
E L S P O T - W E E K L Y P R IC E S IN S W E D E N A ND S YS T E M P R IC E 1 9 9 6 - 2 0 0 7
SEK /MW h
E ls p o t p ric e s in S E K /M W h
900
Year
Sw eden
S ys te m
1996
1997
1998
1999
2000
2001
2 6 0 ,0 1
1 4 3 ,7 7
1 2 0 ,4 9
1 1 9 ,4 2
1 2 0 ,4 2
2 1 0 ,9 3
2 6 3 ,0 2
1 4 5 ,9 5
1 2 2 ,6 8
1 1 8 ,4 0
1 0 7 ,9 5
2 1 3 ,6 2
2002
2003
2006
2 5 2 ,3 5
3 3 2 ,9 9
2 5 6 ,2 9
2 7 6 ,4 5
4 4 5 ,3 8
2 4 5 ,9 0
3 3 4 ,8 6
2 6 3 ,9 4
2 7 2 ,4 8
4 4 9 ,7 9
2007
2 8 0 ,1 3
2 5 8 ,5 4
A ve ra g e 1 9 9 6 - 2 0 0 7
2 3 4 ,8 7
2 3 3 ,0 8
800
700
600
2004
500
2005
400
300
200
100
1996
1997
1998
1999
2000
0
1
16
31
46
9
24
39
2
17
32
47
9
24
39
2
17
32
47
2001
10
25
40
A re a S we d e n
2002
3
18
33
48
2003
11
26
41
2004
4
19
34
49
2005
11
26
41
2006
4
19
34
49
2007
12
27
42
S ys te m P ric e
Note: In 2007 there was a common Elspot price in the Nordic region 28.1% of the time
compared with 33.3% all year 2006 (Jan-Jun 2007 it was common above 45% of time)
Elspot monthly prices 2006-2007 in EUR/MWh
Elspot volumes in GWh/week 2005-2007
Share of consumption
(prel.)
8 0 00
7 0 00
6 0 00
Norway
Sweden
Dec-07
58,9 %
93,2 %
2007
57,0 %
89,7 %
Finland
44,1 %
45,8 %
DK-West
DK-East
Total
84,4 %
80,5 %
70,4 %
84,3 %
82,0 %
68,9 %
5 0 00
4 0 00
3 0 00
2 0 00
1 0 00
0
1
3
5
7
9
11 13 15 17 19 21 23 25
20 05
200 6
27 29 31 33 35 37 39 41 43 45 47 49 51
2 007
Roles of the Power Exchange,
Market Participants and System Operator
The Power Exchange
Management of:
The Spot Market
(The Financial Market)
Bids Spot Market
(Trades in Financial)
System Operator
Grid
Capacities
Spot Trading
Schedules
and Flows
Real Time Operation
Ancillary Services
The Real Time Market
Imbalance settlement
Trade
Results
Participants:
Generators
Distributors
Grid Owners
Traders
Brokers
Large scale Industry
Generation Schedules
Consumption forecasts
Trading Schedules (Spot+Bilateral)
Bids in Real Time Market
Regulated markets
Financial market at Nord Pool:
 Exchange Act / Securities Trading Act (Norway)
 Licences as commodity derivatives exhange and
clearing house
 Rulebooks for Nord Pool ASA and
Nord Pool Clearing ASA
Physical market at Nord Pool Spot:
 Energy Act (Norway)
 Licence as market place (Norway)
 Rulebook Nord Pool Spot AS
Power Exchanges in Europe
Shown current EuroPEX members
Nord Pool
ASA & Spot
Volume in TWh
2007 (2006)
Spot
auction
Financial on PX
and bil. clearing
Nord Pool
291
(250)
2369 (2220)
EEX (Ger)
117
(88)
1150
(1044)
APX (Ned)
21
(19)
- (-)
(30)
(83)
Powernext
Endex
APX
Belpex
Powernext
OMIP
OMEL
(Fra) (vol. 2006)
Gielda Energii
EEX
OTE
EXAA
Borzen
GME
OPCOM
E E X P helix pric e
E E X and N ord P ool S pot Auction Markets
E U R O /M W h
N P S - S y s tem P ric e
D aily Av erage P rices 2006-2007 (E U R O /MW h)
1 8 0 ,0 0
1 7 0 ,0 0
P r ic e s th r o u g h ye a r 2 0 0 7
(Y r. 2006)
€ 3 7 .9 9
(5 0 .7 9 )
1 6 0 ,0 0
NP S S yste m a ve ra g e : € 2 7 .9 3
(4 8 .5 9 )
1 5 0 ,0 0
D a ily a ve ra g e s h ig h /lo w:
1 4 0 ,0 0
1 3 0 ,0 0
1 2 0 ,0 0
E E X P h e lix a ve ra g e :
E E X h ig h : € 1 5 8 .9 7 D e c 1 9 (3 0 1 .5 4 Ju l 2 7 )
E E X lo w:
€
NP S h ig h : €
NP S lo w:
€
5 .8 0 Ja n 1
(1 3 .9 8 D e c 3 1 )
5 3 .0 3 No v 2 7 (8 0 .4 1 A u g 2 8 )
8 .8 0 A u g 1 9 (1 6 .8 7 M a y 7 )
1 1 0 ,0 0
Tu r n o v e r th r o u g h ye a r 2 0 0 7
1 0 0 ,0 0
E lsp o t A u ctio n NP S :
2 9 0 .6 T W h
(2 4 9 .9 )
S p o t A u ctio n E E X:
1 1 7 .3 T W h
(8 7 .6 )
9 0 ,0 0
( Y r . '0 6 )
8 0 ,0 0
7 0 ,0 0
6 0 ,0 0
5 0 ,0 0
4 0 ,0 0
3 0 ,0 0
2 0 ,0 0
1 0 ,0 0
2 0 0 6 -0 1 -0 1
2 0 0 6 -0 1 -1 6
2 0 0 6 -0 1 -3 1
2 0 0 6 -0 2 -1 5
2 0 0 6 -0 3 -0 2
2 0 0 6 -0 3 -1 7
2 0 0 6 -0 4 -0 1
2 0 0 6 -0 4 -1 6
2 0 0 6 -0 5 -0 1
2 0 0 6 -0 5 -1 6
2 0 0 6 -0 5 -3 1
2 0 0 6 -0 6 -1 5
2 0 0 6 -0 6 -3 0
2 0 0 6 -0 7 -1 5
2 0 0 6 -0 7 -3 0
2 0 0 6 -0 8 -1 4
2 0 0 6 -0 8 -2 9
2 0 0 6 -0 9 -1 3
2 0 0 6 -0 9 -2 8
2 0 0 6 -1 0 -1 3
2 0 0 6 -1 0 -2 8
2 0 0 6 -1 1 -1 2
2 0 0 6 -1 1 -2 7
2 0 0 6 -1 2 -1 2
2 0 0 6 -1 2 -2 7
2 0 0 7 -0 1 -1 1
2 0 0 7 -0 1 -2 6
2 0 0 7 -0 2 -1 0
2 0 0 7 -0 2 -2 5
2 0 0 7 -0 3 -1 2
2 0 0 7 -0 3 -2 7
2 0 0 7 -0 4 -1 1
2 0 0 7 -0 4 -2 6
2 0 0 7 -0 5 -1 1
2 0 0 7 -0 5 -2 6
2 0 0 7 -0 6 -1 0
2 0 0 7 -0 6 -2 5
2 0 0 7 -0 7 -1 0
2 0 0 7 -0 7 -2 5
2 0 0 7 -0 8 -0 9
2 0 0 7 -0 8 -2 4
2 0 0 7 -0 9 -0 8
2 0 0 7 -0 9 -2 3
2 0 0 7 -1 0 -0 8
2 0 0 7 -1 0 -2 3
2 0 0 7 -1 1 -0 7
2 0 0 7 -1 1 -2 2
2 0 0 7 -1 2 -0 7
2 0 0 7 -1 2 -2 2
0 ,0 0