Power & Nord Pool Tanja Ilic Senior Vice President Sales & Marketing Nord Pool

How to succeed in the new market environment? Nord Pool

The European Power Scene

The Nord Pool group Physical voluntary day- ahead market ”Elspot” Adjustment market ”Elbas” Published system price reference for the financial market Financial- delivery contracts based on Elspot price Futures, forwards, options and Cfd s with maturities of up to 3-4 years Direct exchange in competition with brokers First exchange to trade contracts for European Allowances EUA forward and spot market CER forward Clearing of exchange traded and bilateral derivative contracts Clearing for both electricity and green markets Specialist consulting firm providing strategic and management consulting services within the electricity business world wide.

EEX Nord Pool APX PWX Power exchanges in Europe Gielda ECX Mercado Borzen Gestore ITL Belpex Towarowa Opcom Sa Endex EXAA THRU Mercado

Present situation Nord Pool Largest exchange for power in Europe both physical and financial. Market coupling between the Nordic area working since 1996 Working to increase volume and members through market and sales activities and product/market development – Introduced CER contracts 1st June as the first exchange Growing more and more customer joining even after 10 years of business and experience

The model for an open and deregulated market Nordic Free Trade Area 400 TWh consumption Financial trade is 7 times the consumption Efficient wholesale market with adequate products and services for companies competing in the market >420 Members physical and financial market Emissions – 112 members The exchange Physically traded

Our reach – Some of our participants Norway Energipartner Statkraft Norsk Hydro Elkem Nordea DnB Nor Denmark Dong Energi Danmark Danske Commodities Nordjysk Elhandel ScaenEnergi Sweden Vattenfall EON Sheperd Alfa Kraft Öresundskraft UK UBS Ltd Barclays Bank Morgan Stanley Merill Lynch Shell Finland Fortum Sampo Bank Helsingfors Energi Other Fortis Tudor J Aron BHF Bank Cargill NUON RWE Essent, Eneco and many more More than 400 members from 21 countries

More then 80 active players..

Market share exchange July > 50% August > 50% September: 50%

What is important? Experience and knowledge  Liquidity  Product range and product development  Competitive terms  Netting and cross margining possibilities Development in an competitive environment

Liquidity is key to success  Comprehensive product range for hedging and trading needs.  Satisfied customers that choose to do their hedging and trading at Nord Pool - Fundamental customer base attract financial players.  Strong sales drive to recruit new customers into the market.  Market Makers  Distribution channels-easy access to Market Place

Product range emissions at Nord Pool  European Union Allowances (EUA)  Introducing CER as the first exchange from 1st June  Physical Forward contracts for , covering the whole Kyoto period  Spot contract EUA (Day-ahead)  Clearing services includes Over-The-Counter  Guarantees physical delivery and financial settlement  Netting between commodities

Netting and cross margining A future need …  Change in customer needs  Multi markets and multi commodities  Minimum capital requirement  Risk management  Customers require netting of positions and cross margining over products and markets

What are the general drivers?  Globalisation  Market coverage  Product range  Falling borders  Economy of scale  Cost pr. transaction  Harmonisation of regulatory framework  From national champions to global competitors  Financial strength  Completing acquisitions  Stand up in competition

Challanges Exchange and market place consolidation Tougher competition. Exchanges with net loss today will get it even harder tomorrow Trading energy Trading in larger markets with high liquidity tight spreads Environmental focus Nord Pool is ready and will take the next step to be part of a Global energy market. Trimming the organisation to be dynamic and fast mover. Infrastructure ready to include new markets and products. Nord Pool will seek strong strategic partners to stay on top of the business.

Merci !

Stock exchanges ten years ago

Stock exchanges today

A global market of emission instruments EUA/CER CDM Host JI HostCER CDM Host CER

Nord Pool

National Competiti on authoriti es in Finland, Sweden, Denmark and Norway National Supervisory Authorities Financial and Energy Nord Pool Market Surveillance Monitoring and legislation of Nord Pool. Monitoring the market place and the market participants

 Physical market:  Auction - supply and demand cross (system price). Mechanism for handling of constraints. Handled by Nord Pool Spot - Elspot  Adjustment market:  Continuous hourly market. Handled by Nord Pool Spot – Elbas  Balance Service:  Operated by Transmission System Operators (TSO)  Financial market:  Cash settled Futures, Forwards and Options. Handled by Nord Pool ASA  Clearing (financial):  Exchange trade  OTC Trade  Handled by Nord Pool Clearing ASA Financial market Physical market Adjustment market Balance Service Time 6 Years 24 Hours0 Physical delivery Reference price Cash settled The concept

Competitive terms  Liquidity  Price  Products  Market coverage  Service level  Reporting  Customer relation  Risk m. services  Solidity  Company risk profile

Group operational structure  A licensed and regulated clearinghouse  Clearing counterparty for derivative contracts  Exchange- traded  OTC-traded  Wholly-owned subsidiary of Nord Pool ASA  A regulated physical marketplace  Clearing counterparty for physical electricity contracts  Separate subsidiary, owned 20% each by Nord Pool ASA and the Nordic TSOs A regulated financial market place Providing trade in standardised derivative contracts Electricity futures/forwards /options EUA spot and forwards, CER forwards Wholly-owned by Nord Pool ASA