Photographer: Angel Navarrete/Bloomberg

How to Save the World's Oldest Power Market

Updated on
  • Trading activity headed for lowest volume since 1999
  • More demand and market volatility could spur revival

The world’s oldest electricity market is on a road to nowhere, hobbled by a sweeping regulatory shake-up, moribund prices and shrinking demand.

Trading in Nordic power, once one of the most active electricity markets in Europe, is poised to hit the lowest levels since 1999 after last year’s rare increase on Nasdaq OMX Group Inc.’s commodities exchange in Oslo. One megawatt-hour now gets traded less than three times on average before it’s delivered, down from about eight times more than a decade ago.

All is not lost. Traders from Swedish utility Vattenfall AB to EON SE and Fortum Oyj say the 21-year-old market can still revive some former glory. New demand for power is expected to emerge from the push for electric vehicles, while plans for more cables to link countries will encourage trading to smooth price variations. Clarity on Europe’s impending MiFID II financial rules will also ease traders’ concerns over how the regulation will affect costs.

“Recovery is definitely possible but there are a number of headwinds that need
to be properly addressed,” said Laurent Cheval, the head of Nordic trading at Vattenfall, the region’s largest power company.


Cheval’s main concern is Mifid II, the new rules designed to improve transparency in financial markets due to start in January. He’s still uncertain about the treatment of firms that trade for themselves when it’s additional to their main business, like selling electricity or gas. 

It would be “very positive” for Nordic power trading if transactions for market making aren’t subject to limits on the size of positions, he said. “If that’s not the case, it’s a large problem.”


The utility would like to see more companies committing to compulsory buying and selling through the exchange’s market maker program. That would boost volumes and reduce the gap between bid and offer prices, according to Emma Mazhari, the head of forward markets at EON SE in Malmo, Sweden. A lack of liquidity encourages bilateral deals conducted privately between providers and consumers, where large trades won’t move market prices, she said. 

Still, the future of the Nordic market is probably assured as there is always a need for transparent reference rates, even for bilateral transactions, Mazhari said. “There surely will be market liquidity in five years -- because it’s needed.”

“As a market participant you have a responsibility to support liquidity, as
the entire market benefits from it,” she said.


Reducing the Nordic region’s patchwork of 15 power price zones will also help revive trading, according to Simon-Erik Ollus, head of trading at Finland’s biggest utility Fortum. That requires investment in more power-line capacity to ease the congestion between areas, which needs a longer-term strategy from grid mangers and policy makers, he said.

“As producers, traders and consumers, we should be much stronger in demanding a much more forward-looking vision.”


Another obstacle to higher volume is the cost of trading, Arne Bergvik, the chief analyst at Swedish utility Jamtkraft AB. For small participants, the fees for direct exchange access are typically higher than the costs of trading with a broker, he said. Jamtkraft is doing more trading with brokers and through bilateral deals and conducting less on Nasdaq.

Nasdaq Commodities

Nasdaq’s fees for trading Nordic power are small compared with the cost of reduced liquidity stemming from bilateral transactions, said Sara Aadnesen, a spokeswoman for the exchange. Nasdaq charges 0.0045 euros ($0.005) per megawatt-hour traded, while costs of private trades vary according to factors such as the size and duration of the deal.

As more volume goes through the bilateral market, the transparency and competition dimensions are lost. That is likely to hit the smaller players harder because costs wouldn’t disappear and they would have to continually evaluate their counterparty risk exposure, Aadnesen said.

“The biggest losers from a bilateral development of the market will be the small and medium-size companies, while the big companies will be the winners,” she said.

(An earlier version of this story was corrected to specify bilateral development and that companies will be affected in last paragraph.)

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