Datos Generales

Di↵erent prices in di↵erent areas is a result of insufficient transmission capacity in the Nordic transmission grid. With increased market coupling, the cost efficient production and con- sumption is allocated geographically apart. If the market efficient power flow exceeds the capacity of the transmission system, congestion occurs. Congestion can be defined as the inability of the transmission system to accommodate the energy flows arising from an uncon- strained market settlement [7]. There are many ways to handle the congestion that occurs in the system. The Nordic TSO have chosen to use market splitting to manage the bot- tlenecks. This method consists of splitting the power exchange into geographical bid areas with limited exchange capacity. First the market price is found by the supply and demand in the whole area. Then the TSO calculates the necessary power flow and identifies the bottlenecks. Geographical bid areas are now defined according to the identified bottlenecks and a new pool price is found. Areas downstream of a congestion will have a higher price and areas upstream will have a lower price [2]. In this way the market will give incentives to balance the production and consumption. In a surplus area the price will be low, so the consumer in the area will have an incentive to consume more electricity. In the deficit areas the prices will be high, which will give incentives to power producers in the area to increase their production. An example of two areas with insufficient transmission capacity is shown in Fig. 2.5.

Figure 2.5: Market splitting [20]

In area B, with a deficit of power, the trade will be beneficial for the consumers as the increased supply decreases the price. The producers in the area will now receive a lower price for their production. In the surplus area the demand curve are shifted to the right and the price increases. This is beneficial for the producers in the area whilst the consumers have to pay a higher price for their consumed elektricity. We see from Fig. 2.5 that the social welfare will be maximized if there is sufficient transfer capacity. In this case both the consumer- and producers surplus is maximized.

surplus area (area A) and selling it in the deficit area (area B). The revenue is equal to the price di↵erence in the two areas times the actual flow of the interconnector. In a congested

situation the actual flow is equal to FM ax:

P rof it = (PA PB)⇤ FM ax (2.3)

The TSO in Norway, Statnett, has stated that such profit will benefit the people through a corresponding reduction of transmission tari↵s. There are currently a total of 15 price areas

in the Nord Pool area6_{. This includes 5 in Norway, 4 in Sweden, 2 in Denmark and 1 in}

Finland, Estonia and Lithuania. There is also one price area that is difficult to geographical determine. The ELE area is a result of co-operation between the Estonian TSO, Elering and Nord Pool Spot to make power trades across the Estonian - Latvian border more efficient [37]. The price areas in the Nordic power system and the capacity of the interconnectors are shown in Fig. 2.6.

Figure 2.6: Nordic pricing areas after November 1st, 2011 [34].

In the nordic region cross country trading of electricity will be beneficial for all regions. The countries with a large share of hydro power production can ensure the supply of power in years with low rainfall and ensure higher prices in years with high rainfall. Hydro based power

plants can regulate their output very quick compared to the thermal production units, and by such, comply with changes in the consumption at a lower cost. If the regulatory commitment is left to the hydro power producers, the thermal units can run their power plats with a higher efficiency throughout the year, and the hydro power producers can produce when the prices are favorable. For the Norwegian system this means that electricity will be imported when the prices are low, typically during the night, and exported when the prices are high. The net imports of the Norwegian system is shown in Fig. 2.7.

Figure 2.7: Net exchange in Norway, June 2009 - June 2011 [35].

Months with net import are shown as red positive columns and exports shown as negative columns. About two thirds of the exchange capacity is connected to Sweden. In 2009 the Swedish nuclear power was reduced due to troubles, and Norwegian hydro power contributed to ensure the power of supply in Sweden. In other situations, the Swedes have covered a deficit, for example in the middle of Norway. From Fig. 3.2 we see that net imports vary from year to year. There have now been two years in a row with challenging energy situations. There have also been many periods of weather that can be characterized as extreme compared to the statistics used for forecasting. The Norwegian TSO states that the electricity market worked well in this period by high utilization of import capacity to Norway. However, more extreme weather situations can lead to additional challenges in handling the balances. Furthermore continental Europe and Great Britain are currently focusing on renewable en- ergy sources. With higher penetration of intermittent resources the need for balancing power will be increased. This is elaborated in Chapter 3. Increased capacity between the hydro

power based Nordic system and the European system will facilitate an exchange of power, where excessive power can be stored in Norwegian reservoirs, so that it can be used when needed, either in Norway or Europe. This solution will promote more renewable power gen- eration, while it facilitates the creation of wealth in both ends of the cables and increased the security of supply [35]. It is at a later stage pointed out that cross-border integration of balancing markets are on the horizon and that the intraday market is given all available trans- mission capacity after the day-ahead market is closed. Therefore, the transmission capacity to foreign countries will have a large say. For this reason, current operation of cross-border capacity and the development of the Norwegian interconnectors are included.