Area price hedging and the Nordic market model

December 19, 2018

 

Kaj Forsberg is a Senior Analyst & Advisor as well as a member of ACER's Market Integrity and Transparency Working Group. We are readily excited for Kaj’s discussion on algorithmic trading, the potential REMIT review and recent cases at ETRC, March 2019.

 

Kaj recently presented a document on area price hedging and the Nordic market model. Kaj goes into depth about ‘network codes. In the context of European electricity markets the ‘the network codes are intended to create uniform functioning in the markets and facilitate further integration’. An existing issue Kaj discusses is the handling and capacity of the transmission of energy between different countries and binding zones. Kaj explains that in today’s modern age infrastructure remain relatively imbalanced and the development of network codes could be part of the solution.

 

In order for the network nodes to be implemented the following proposals have been made to achieve acceptance:

Network nodes for cross border electricity trade: Must be evaluated by ACER and thereafter legally binding following a decision from the European Union.

 

Network nodes for the regulation of forward markets: recommended that the European system operators be obligated to auction off transmission rights.

 

Kaj explains how auctioning off transmission rights deviates from the model that has been used in the Nordic regions for example trade between different binding zones vs energy trading bits within a common area. The current Nordic model has also been explained, refer to page 49.

 

There is a dispute between partiers that wish to continue with CFDs and parties that believe that transmission rights would be a great benefit complimentary to CFDs.

 

Some of the Benefits outlined

  • Introduction of FTR’s could increase liquidity in CFD’s.

  • For companies ‘with production in one zone and a destination market in another zone, transmission rights would create additional options for how the company conducts its business’.

  • Electricity suppliers that don’t produce their own energy have the option of purchasing cheaper energy and ‘transmit’ this to more expensive areas in order to sell.

  • When TSOs (transmission system operators) auctions off future bottleneck revenues, this provides a guaranteed income in the 32 form of the premium

Some of the Risks outlined

  • Transmission rights can decrease the number of active parties in the trade on the Nordic end-user market.

  • bilateral trade also runs the risk of decreasing liquidity on the open marketplaces and of decreasing transparency

  • Little empirical evidence makes it difficult to deduce weather there will be consumer benefit when introducing transmission rights

This is a well thought through and in-depth report. For further details please ensure you use the link here as Kaj goes in much finer detail. We look forward to seeing Kaj speak at ETRC, March 2019.

 

Please reload

Recent Posts
Please reload

Archive
Please reload

Follow Us
  • LinkedIn Social Icon
  • Twitter Basic Square
  • Google+ Basic Square
  • YouTube Social  Icon

Follow Us

Commodities People
Level 39
One Canada Square
Canary Wharf
London E14 5AB

+44 20 7111 1615

  • Internet noir
  • LinkedIn - Black Circle
  • Twitter - Black Circle

© 2019 Commodities People