NORWAY Law and Practice Contributed by: Jøran Sandvik, Aksel Tannum and Ida Mattsson Sperre, Advokatfirmaet Haavind AS
Price Formation In the Norwegian wholesale electricity market, the price of electricity is determined by the interplay of supply and demand, with a strong emphasis on competitive offers from generators. The Norwegian market is liberalised, without heavy regulation or state intervention. Electric- ity producers submit their offers to the Nord Pool market, specifying how much electricity they are willing to supply and at what price. These offers are typically based on the producers’ operational costs and the availability of resources, such as water levels in reservoirs for hydroelectric plants, which dominate Norway’s energy mix. On the demand side, retailers, industries and other consumers submit bids indicating how much electricity they are willing to purchase at various price points. Nord Pool’s role is to match these offers and bids and calculate the spot price. The Norwegian wholesale market consists of five bid zones due to transmission constraints and bottlenecks. Nord Pool therefore calcu- lates zonal prices that reflect local supply and demand. Norway’s extensive interconnections with neighbouring countries help stabilise prices by allowing excess electricity to be exported and shortages to be mitigated through imports. Structure of the Wholesale Electricity Market The participants in the Norwegian wholesale electricity market include generators, suppliers, traders and brokers, high-load consumers, the TSO (Statnett) and distribution system opera- tors (DSOs). These participants participate at Nord Pool, NASDAQ Commodities and/or EEX. The market is divided into five bid zones and is also highly connected to neighbouring countries through several interconnectors.
Norway’s electricity market is integrated within a broader Nordic electricity market together with Sweden, Finland and Denmark. This integration extends beyond the Nordics, with Norway being connected to the European electricity market through several interconnectors. These connec- tions not only allow for the import and export of electricity but also contribute to the security of supply and the stabilisation of prices through increased market liquidity and competition. This Nordic integration is facilitated through Nord Pool, which serves as a central hub for electric- ity trading in the region. The wholesale market in the region consists of several markets where bids are submitted and prices are determined: • the day-ahead market, where electricity prices are determined for the next day; • the intraday market, where trading of electric- ity closer to the time of delivery is done; • the balancing markets, where participants in the reserve market trade the power system into balance; and • the financial market, where trading in electric- ity derivatives takes place. Nord Pool operates a day-ahead market and intraday market. Nord Pool provides a physi- cal trading platform for electricity, where spot prices are determined. NASDAQ Commodi- ties and EEX offer financial trading instruments that are often based on the prices set at Nord Pool, allowing participants to manage price risk. Almost all physical trading of electricity takes place through Nord Pool; however, bilateral power purchase agreements (PPAs), especially long-term contracts, are also common. These bilateral agreements often use reference prices set at the power exchanges.
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