Nord Pool runs the leading electricity market in world, it functions in both Nordic and Baltic zones in Europe. After the deregulation in early 1990s, Nordic electricity mar-ket was established in 1993 and it developed from different national power marmar-kets to a multi-national power market [28]. In 1991 upon the introduction of competition and different electricity transmission from generation of electricity by the Norwegian Energy Act, Norway took the first action towards deregulation. Thus, in 1992 Norwegian market for electric power exchange was established [29].
In 1996, ratification of competition in electricity was made effective in Sweden and they became part of the Norwegian electric power market which stood as the first international electricity exchange Nord Pool. Finland became a full part of Nord Pool 1999 after the removal of border tariffs, Western Denmark also joined in the same year while Eastern Denmark stayed out until 2000. However, the Danish market was only fully integrated in Nord Pool after the removal of border tariff in 2002 [28]. The main aim of Nord Pool is to maintain an equilibrium between the production of electricity and the demand for electricity at an accurate and optimal price. Nordic power exchange consists of Elspot (day-ahead) and Elbas (intraday).
2.2.1 Nordic power grid
Nordic power grid can be divided into national main grids, regional transmission net-work and local distribution netnet-works. Power system of countries at close proximity are connected using transmission line between main grids [10]. The grid is owned by the Nordic transmission system operators (TSOs): Statnett SF, Svenska kraftn¨at, Fingrid Oy, Energinet.dk and the Baltic transmission system operators Elering, Litgrid and Augst-sprieguma tikls (AST) [7]. Transmission system operators (TSO) are non-commercial companies, neutral and independent of commercial players [2] that manage and ensure there is stability in the transmission grid.
The Nordic power market can be considered as a connection of water tanks, in which electrical power is depicted by water and the connecting pipes represent the transmission lines see Figure 3 . Electricity producers channel power into the tank and consumers tap power from it. For instance there is a possibility for a retailer at Northern part of Sweden to purchase electrical power from a producer at Southern part of Sweden, in this case all that would be needed is for the producer to channel into the grid the unit of electricity that matches the quantity demanded by the retailer [3]. As long as the water surface remains at a steady level, it implies that there is balance between quantity demanded and quantity supplied.
In other to deal with transmission congestion, the market uses the price areas as an eco-nomic tool with each individual area having sufficient transmission and distribution capac-ity. However, if there arises transmission bottlenecks between these pricing areas, Nord Pool raises the price of electricity in the area with lower electricity supply by an amount that will cause a drop in demand and match up with the available electricity supply [10].
Figure 3. Electrical power system represented by systems of water tanks (Source: [2]).
2.2.2 Consumption
Consumption of electricity in Nordic the countries is high due to the popularity of electri-cal heating as a result of winter and power intensive companies [30]. The biggest sources of consumption differ from one country to another, however it mostly follows variation in temperature and economic growth. In 2016, the total amount of electrical energy con-sumed in Sweden, Finland, Norway, Denmark was about 355 TWh [31] with industries having the main consumption. In Finland and Sweden, pulp and paper are the highest power consuming companies in contrast to Norway where petrochemical and metal com-panies are the largest consumers.
As depicted in Figure 4 and 5 from the Swedish data, the consumption shows a periodical
pattern. It can be seen from the figure that there exist seasonal trends due to large elec-trical heating usage which is dependent on changes in temperature, so as the temperature decreases, the rate of consumption of electricity also increases and vice versa. At working hours the consumption is lower than over the weekends because most companies are not active. The same pattern can be seen during public holidays. Also, there exists a strong intraday profile. The morning and evening peaks are seen due to the arrival of people at offices and a rise in household electricity consumption upon the arrival of people from the various offices [30].
Jan 2017 Feb 2017 March 2017 30 April 2017 Months
1500 2000 2500 3000 3500 4000
Consumption (GWH/week)
-30 -25 -20 -15 -10 -5 0 5
Temperature(Celcius)
Seasonal profile
Consumption Temperature
Figure 4.Seasonal profiles.
20.3.15 21.3.15 22.3.15 23.3.17 24.3.17 25.3.17 26.3.17 27.3.17 Days
900 1000 1100 1200 1300 1400
Consumption (GWH/week)
Weekly and Intra-day profiles from 20.02. - 27.03.2017
Figure 5. Weekly and intra-day profiles.
2.2.3 Elspot market
Elspot serves as the major market in Nord Pool. It is also know as the day-ahead market which connotes that each day the delivery of electricity of every hour of the succeeding day is being traded, each market player submits their bids stating the volume and price of electricity the are interested to purchase or sell in the succeeding day’s trading hours.
Players in the Elspot do not have any knowledge as regards bids submitted by other play-ers in the market since the market is a closed auction. There is possibility of submitting three types of bids in the day-ahead market [7]:
1. Hourly bids: Specifies the intention of a player to purchase or sell a quantity of electrical power from an agent in a particular area at various bid prices for specific hour of the day. Most of the trading conducted in the Elspot market are matched depending on the single hourly bids.
2. Block bids: Specifies the intention of a player to purchase or sell a quantity of elec-trical power at a specific amount for at least three consecutive hours. It is required
that the player submits the price and volume of electrical power proposed for the block and periods when the trading might occur. Block bid is also subdivided into four:
• Profiled
• Linked
• Regular
• Curtailable
3. Flexible hour bids: It avails the market player ample chances to make extra bids of sale (there is no chance to buy) of electricity at any hour of the day depending on the bid price and situation of the market at each hour [32].
2.2.4 Nord Pool price formation
TSOs divides the Nordic and Baltic area into different bidding regions so as to manage congestion in the transmission grid [4]. The bidding regions can either have an excess, shortage or balance supply of electrical power. Electrical power would flow from regions with lower prices to regions with higher prices due to a high demand.
The insufficiency of the transmission grid capacity in the Nordic region causes an hin-drance in the uniformity of prices. Taking into consideration the capacity of the transmis-sion grid between various bidding areas, area pricesare determined base on the demand and supply curves aggregated for the particular bidding regions as shown in Figure 6 and 7.
There is a surplus production in the area in Figure 6 and shortage of production in Figure 7 when the price of electrical power is equivalent to that of the system price. If the quantity of electrical power needed to be exported from a surplus area to a deficit area is greater than the transmission capacity, then there is no possibility of meeting the entire power demand in the deficit area. In this situation, the selling curve (Figure 7) is shifted to the right such that the new area price is read on the vertical line at the point of intersection of the buying and the new selling curve. Thus, the price in the deficit area would be greater than the system price. If a situation occurs in an area with surplus production, where the needed quantity of electrical power export is more than the transmission capacity, the area price of the surplus area would fall lower than the system price. The import and export of electricity between the deficit and surplus area are always equal.
Area prices are always identical whenever the flow of electricity between the bidding regions are within the transmission capacity boundary set by the TSOs.
Buy Sell
PL PCap = 0
Turnover including export Volume (MW) Price
Figure 6. Shows area with surplus production/Low price where PL denote area price with maxi-mum use trading capacity and Pcap = 0 is the area price when no transition capacity is available [3].
Price
Buy Sell
Turnover including Import PCap = 0
PH
Volume (MW) Figure 7. Shows area with deficit production/High price,where PH denote area price maximum use of trading capacity and Pcap = 0 is the area price when no transition capacity is available [3].
Upon the completion of each trading cycle in the Elspot market, system price is being calculated for each hour of succeeding day. The system price is an unrestricted reference price that does not take into consideration the transmission limitation that exist between bidding regions. If the transmission capacity that is available does not limit the delivery of electrical power, the system prices are equal to the real prices in every bidding region. To obtain the system price for each trading hour, a combination of bids submitted for buying and selling for every hour of the succeeding day is used to build the demand and supply curve [32].