Presentation on theme: "Is the Icelandic market ready for new challenges?"— Presentation transcript:
1 Is the Icelandic market ready for new challenges? Conference 11 February in Reykjavik: Power exchange for electricity Opportunities or constraints?Is the Icelandic market ready for new challenges?Rickard NilssonProject ManagerNord Pool Spot ASTel: +46 (0)
2 AgendaReflections on market design, regulations, opportunities and challenges with establishing spot tradingIn reality how different are Icelandic fundamentals from elsewhere when spot market places were started?Some trading and market design issues "open for debate” that are important to get feed-back on from potential market parties and also other stakeholdersBrief facts and features in Elbas, the system intended for the "Isbas" Market for spot trading
3 Were framework conditions and rules perfect elsewhere when spot markets were launched? Norway-Sweden 1996? Examples:Limited cross-border capacity for market due to historical bilateral priority contracts lasting until about 1999Only hourly bids in spot although Swedish needs for blocksMany retailers and end-consumers had pre-deregulation supply contracts that lasted several years thereafter, thus free choice and competition was not really there from startSwitch of supplier was costly in Sweden because until ”profile ontracts” were introduced in 1999 customers has to buy metering device to switch supplierNo common adjustment (intra-day) market and only weak co-ordination of RPM, i.e. real-time (TSO) balancing marketNor-Swe-Finland 1998 plus Denmark ? Examples:Tariffs imposed Swe-Fin and Swe-Den in the first few yearsAlmost no market access to capacity Norway-Jutland since pre-deregulation bilateral contracts not abandoned from start, also limited capacity Swe-Fin and Swe-Den in the beginning and for similar reasonsNo common intra-day trading and still weak co-ordination of RPM on Nordic basis, which however came about very clearly in autumn of 2002Only large scale consumers (ex. >10 GWh) in Denmark had access to market and could shift supplier in first few years with the spot market in DenmarkBasically all the constraints above have since long been eliminated, but the point is that the market could function and develop even with those imperfections!In other words, even with imperfect conditions a promising development can be achieved as long as most parties, including stakeholders with powers to set rules, strive for improvements and seek opportunities with open and transparent trade!
4 Positives in Icelandic market Some general ”early observations from a foreigner who has seen and been part of a few spot market start-ups before”Strong focus on power system fundamentals, combined with recognition of economic realities and opportunitiesBalance Responsible Agreement in place between TSO and ”suppliers” that enables trading, and can be developed furtherSome inherent flexibility in production and consumptionSignificant growth of (industrial) demand ”likely” and ample opportunity to increase hydro and geothermal power productionFinally, a ”negative” that can be a positive – namely that it seems like quicker and more transparent signals of surplus and scarsity situations in the power system is needed, and that is precisely what an organized spot market can facilitate!
5 Design questions for the ”Isbas” Market Examples: Opening hours for tradingClosing time for contractsSettlement cycleClearing requirementsMarket place functions – who and whatCurrency for tradingMinimum trading lot (volume)Minimum price step in bid/ask quotationNeeded content in RulebookLiquidity facilitationUse of ”market makers”Other issues?
6 Outlook - immediate future A Power exchange for spot trading can beReady for launch in September 2008Operated by Landsnet or a contractor of their choiceTechnically supported by Nord Pool Spot (trading system, etc.)Based on continuous trading as in NPS’ Elbas MarketTrading Area of the Icelandic marketThe Icelandic market will be a separate/independent trading areaReasons for proposalMarket players in Iceland have little experience in exchange tradingThe Icelandic market is fairly small and a limited number of actors exist, at least initiallyContinuous trading preferable in the beginning, because it is not as vulnerable towards lack of liquidity as auctionsTrading today in Iceland is based on bilateral contractsFurther developments, i.e. day-ahead spot auction and long-term (financial) contracts may be developed later, if it suits the market
7 Elbas market at Nord Pool Spot today Adjustment market after ElspotTrading intra-day and after Elspot is closed (confirmed) also day-aheadMarket areas:Finland, Sweden, East and West Denmark and Germany (KONTEK)Continuous tradingOpen around the clock all days of a yearHourly contracts can be traded until one hour before delivery hourTrading is anonymousTrading currency is EuroSettlement and clearing is combined with the Elspot Market at NPSCommon Rulebook with Elspot (separate details in appendices/agreements)Automated control of grid capacityCommunication in public network with SSL-encryptionMarket makers 24 hours per dayNumber of customers: 55
8 Not dependent on one volume, price or counterpart Why do companies trade on the Elbas market? Many arguments can also be valid in IcelandAn effective and economical way to manage electricity procurement and sales near the time of deliveryTo sell production, cover consumption or trade single hours today & tomorrowHandling of unexpected changes in electricity production, procurement or consumption in your electricity balanceReact to unexpected changes in the market price and need for power-> You can hedge the price you have to pay for imbalances-> You can reduce the volume exposed for imbalances-> You can increase the efficiency of daily management of your electricity portfolioNot dependent on one volume, price or counterpartIncreases transparency of day-ahead and intraday pricesTrading made easy and fast:Web based trading systemThe market is ALWAYS openMarket making 24 hours per dayAutomated and simple functionalitiesAutomatic clearing, netting of collaterals, and one settlement account for Elbas*Note: *At NPS the Elbas settlement/collaterals is combined with day-ahead Elspot Market
9 Nord Pool Group Markets Physical market – Elspot – Nord Pool Spot AStrading in energy – day ahead (hourly contracts)Swe, Fin, Den, Nor and VE-T area in Ger*Adjustment market – Elbas – Nord Pool Spot AStrading in energy – intra day (hourly contracts)Financial market – Nord Pool ASAfinancial power contracts** up to 5 calendar years aheadEUA (CO2-allowances ) and CERClearing of financial contracts, incl. OTC – Nord Pool Clearing ASANotes:* Plan is to in June 2008 establish ”Market Coupling” with EEX spot between Den and Ger**Until 2007 Nordic contracts based on Elspot (System) Prices as underlying, but from early 2008 also contracts based on Dutch (APX) and German (EEX) spot prices
10 until 1 hour before delivery The Elbas timeline14:00in SE, FI and DK2Next days delivery hours opened at:DeliveryhourELBASC o n t i n u o u s t r a d i n guntil 1 hour before deliveryELSPOTTSO:s real timemarketAt 14:00 in SE, FI & DK2 the hour series for the next day are opened (the hours 01-24)At 08:00 in GER and at 17:00 in DK1
11 "ISBAS" An idea for ”Isbas” timeline & structure Landsnet’s Note: The point is merely to illustrate how it could functionOpening hoursfor trading09:0015:00C o n t i n u o u s t r a d i n guntil 2 hours before deliveryDeliveryhour"ISBAS"Landsnet’sreal time marketHour 13 (time 12-13)is nearest hour possible to trade when market opensAt 09:00 the market opens for trading hours today plus hours 1-24 tomorrow. Thus for 36 separate hourly contracts.At 10:00 trade for hour 13 is closed and at 10:05 the Isbas system sends a report with final net trade per Balance Responsible for hour 13 to Landsnet. Every hour shift the procedure is repeated until 15:00 when a final net trade report is sent for hour 18, and for hours plus hours 1-12 tomorrow.Settlement for “today’s hours” then occurs tomorrow if daily settlement cycle is applied or the 1st bank day the following week if weekly settlement.
15 The bid – ex. single hourly bids A bid consists of - the delivery hour - the volume - the pricePH(hh)(yy)(mm)(dd):00-11:00 a.m.The priority of the bid: 1. The price 2. The time when the bid was registered in the trading systemA bid is binding until: - a trade, change of the bid or an cancellation of the bid - in other words a bid may be annulled or changed until the bid has resulted in a tradeTrading currency is EuroThe minimum volume is 1 MWhThe minimum price difference is 0,1 € (=tick size)
16 Anonymity Common information: price volume order time of trade information on cancellation of tradeIndividual party information is not public information!
17 The consequences of a trade Buy 10 MWhPH1221,2 €Sell 6 MWhPH1221,2 €All trades go automatically to clearing at Nord Pool Spot ASDeliveryNPF informs the TSO once per hour (a few minutes after change of hour) the Elbas trades netposition for every hour open for tradeMoney transactionsInvoicing every bankdayCollateral Call7 days net bought (netted with the Elspot collateral call)Trade 6 MWhPH1221,2 €
18 Scheduling report to the TSOs Hourly net trades per participant in the TSOs areaThe report is sent once an hourThe report includes the hourly values for today and after noon also the values for tomorrowParticipant must also send their hourly Elbas trade schedules to the TSONotes:- Naturally the conditions that would be set by Landsnet may be different in Iceland– likewise may apply for the economic settlement cycle (for ex. daily or weekly) and needs for collateral (security)
19 System requirements for end user Minimum requirements for hardware, system software anddata communications lines:- Web browser: Microsoft Internet Explorer 5.0 or lateror Netscape 6.0 or later, Opera- Computer: Processor minimum Pentium II128 MB RAM,recommended 256 MB- Data communicationslink to ISP service: Recommended 2 Mbit/s- Operating system Windows 2000/NT/XP or Unix
20 The trading system automatically updates crossborder capacities DirectionCapacity to ElbasCapacity after Elbas trade 1Capacity after Elbas trade 2FI-SE23002310SE-FI11001090DK2-SE200019901994SE-DK210610 MWhParticipant CSell (4 MW)FGSVKBuy (10 MW)Participant AParticipant DBuy (4 MW)Participant BSell (10 MW)6 MWhCapacities are updated automatically by the trading systemAutomated Market Splitting divides areas dynamically when bottlenecks occurEnerginet.dk
21 Daily average prices (EUR) Elbas and Elspot Area price FIN (1 – 5/2006)
23 (Invoice/Credit Note per email) Settlement on Nord Pool Spot’s physical marketsDaily settlementThe settlement system relies on electronic bank communications and funds transfers-> All participants are obliged to have a pledged account in one of Nord Pool Spot AS settlement banksDelivery of Elbas trades: -1 dayDelivery of Elspot trades: +1 daySettlement day(Invoice/Credit Note per )Debiting:+1 banking dayCrediting:+3 banking days
25 Nord Pool Group markets turnover in TWh68,92.3691.2991.0602922007prel.61,42.4101.394765251200631,93.2322.0891.0191242002282.7701,74891011220012000200320042005359545590786Financial2530,942,245,2Elspot%-Share ofNordic**consumption1.6361.8831.9642.278Total1.1801.2191.2071.316Clearing (bil. fin.)97119167176Elspot*Note:*Elspot incl. Elbas of between 0.5 –0.9 TWh/yr , 1.1 TWh 2006 and 1.6 TWh 2007.**Percentage of consumption in the Nordic part of the exchange area (not excl. exp).Only considered DK-East (Zealand) consumption from Oct 2000 when that area was opened for Elspot.As a comparison the Elspot volume of 40.6 TWh in 1996 ”only” represented 16% of the consumption in the then Swedish/Norwegian market area and the same year the financial exchange trade was 43 TWh.
26 Note: In 2007 there was a common Elspot price in the Nordic region 28 Note: In 2007 there was a common Elspot price in the Nordic region 28.1% of the timecompared with 33.3% all year 2006 (Jan-Jun 2007 it was common above 45% of time)
29 Roles of the Power Exchange, Market Participants and System Operator GridCapacitiesManagement of:The Spot Market(The Financial Market)Real Time OperationAncillary ServicesThe Real Time MarketImbalance settlementSpot TradingSchedulesand FlowsBids Spot Market(Trades in Financial)TradeResultsParticipants:Generation SchedulesConsumption forecastsTrading Schedules (Spot+Bilateral)Bids in Real Time MarketGeneratorsDistributorsGrid OwnersTradersBrokersLarge scale Industry
30 Regulated markets Financial market at Nord Pool: Exchange Act / Securities Trading Act (Norway)Licences as commodity derivatives exhange and clearing houseRulebooks for Nord Pool ASA andNord Pool Clearing ASAPhysical market at Nord Pool Spot:Energy Act (Norway)Licence as market place (Norway)Rulebook Nord Pool Spot AS
31 Power Exchanges in Europe Shown current EuroPEX members Volume in TWh 2007 (2006)SpotauctionFinancial on PX and bil. clearingNord Pool291 (250)2369 (2220)EEX (Ger)117(88)1150(1044)APX (Ned)21 (19)- (-)Powernext (Fra) (vol. 2006)(30)(83)Nord Pool ASA & SpotOMELAPXEEXGielda EnergiiPowernextBorzenEXAAGMEBelpexOMIPOPCOMOTEEndex