Nordic Power Market Should Consider New Design, Norway Says

The Nordic region should consider having smaller price zones, in a reform of the operating set-up of the world’s largest power exchange, Norway’s energy and water directorate NVE said.

The Nordic power market should consider changing to a nodal pricing system, potentially with separate electricity values for each power plant or each river system, the directorate said today in an e-mailed report.

Today, prices fail to reflect “how much the electricity is actually worth” where it is produced or consumed, which can result in “inefficiency and systemic economic losses,” according to the report. That indicates a less-than-optimal use of existing grid and power plant resources, it said.

Implementing the proposal would have unknown ramifications for buying and selling of power derivatives, NVE said. Derivatives are settled against prices from daily auctions on Nord Pool Spot, where 370 buyers and sellers from 20 countries match supply and demand and price electricity for the following 24 hours in Norway, Sweden, Finland and Denmark, as well as Estonia and Lithuania.

“From a general viewpoint, we don’t want nodal pricing, since it would further complicate market functioning,” Stina Johansen, a spokeswoman at the Nord Pool Spot AS exchange said today by phone from Oslo. The exchange has not yet seen NVE’s proposal, but has been highly critical of similar proposals in the past, she said.

Nord Pool Spot was the first liberalized power market to develop in Europe. It is the world’s largest multinational electricity exchange, and provides the settlement base for Nordic power derivatives bought and sold on the Nasdaq OMX Group Inc. (NDAQ)’s energy exchange in Oslo. The latter operates the world’s largest power derivatives market.

Today, Norway is divided into five price areas, Sweden into four, Denmark into two, and Finland, Estonia and Lithuania into one area each.

To contact the reporter on this story: Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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