The regulatory structure of the electricity market in the Nordic countries has evolved over about fifteen years. Initially, development was based primarily on a national perspective, although (for example) the rules for entry to the common Nordpool spot market exchange were harmonised at an early stage. Gradually, the focus shifted to shared Nordic market problems, such as the need for investments in the backbone grids, changed methods for dealing with bottlenecks and a harmonised end user (consumer) market. The major challenge in coming years will be to accommodate greater harmonisation of the regulations with those in the rest of Europe, without having to sacrifice too many points that we regard as important in the Nordic countries.
Some elements of the Nordic regulations can probably be advantageously introduced in other European countries, but it is important that discussions should consider the different conditions between countries. The Nordic countries, for example, have much higher proportions of hydro power than have other European countries, and this affects the overall format of the regulations. If we are to succeed in communication with power companies and public authorities in Europe, it will be important not only that we can successfully support our own solutions, but also that we can understand the details of the particular circumstances and problems facing others.
An important part of the work is to acquire a thorough understanding of electricity market conditions in neighbouring countries, and to work with researchers established in these areas.
Questions
1.1 What are the consequences of a geographically expanded market area for those involved in the electricity markets, and for the public economy?
The Nordic electricity market will be integrated, in terms of market functions, with electricity markets on the continent, in the Baltic countries and, in the longer term, also in Russia.
The purpose of this project is to investigate the consequences of various integration scenarios between the Nordic countries and neighbouring areas. Which functions are strategically important if market integration is to deliver public benefits?
1.2 What is needed for successful integration of the Baltic countries in the Nordic electricity market?
The three Baltic countries have a clear and expressed aim to become part of the Nordic electricity market and to have their own trading area on the Nordpool spot trading market. A cable between Finland and Estonia is already in operation, and another is planned. There are also well-advanced plans for a cable between Lithuania and Sweden. High-voltage links between the Baltic countries are relatively strong. At the same time, the three countries are closely integrated with the Russian electricity market, both physically and through having had, and still having, a considerable commercial exchange of power. Opportunities for trading with Poland will probably also increase in the future.
It is preferable if this task could be carried out jointly by researchers in the Nordic countries and in the Baltic countries.
1.3 How are developments in Russia affecting the Nordic electricity market?
For many years, the Nordic electricity market has imported about 10 TWh per year from Russia. What is happening now is that the present trading link between Russia and Finland may be modified so that power can also be exported. Via the Baltic countries, we are indirectly affected by developments on the Russian electricity market. There has also been discussion of a new connection between Russia and Finland, or directly between Russia and Sweden.
1.4 What is happening in Germany, and how does it affect the Nordic countries?
Germany is the country with which Sweden has the greatest trade in electricity. There are direct links between Sweden and Germany and – by no means least important – between Germany and west Denmark. Further links are planned.
Although there are many similarities between the electricity markets of the Nordic countries and Germany, there are also many differences, ranging from the structure of the exchanges, assignments of responsibilities for systems, pricing of unbalanced conditions, metering, reporting and crediting, to incentive structures for new electricity production and network investments.
Both Germany and the Nordic countries are key elements in constructing a common northern European electricity market, so this is an area for which there is a major need for joint development and learning from experience.
1.5 What are the conditions for closer cooperation with Holland?
There has been a direct link between the Nordic electricity systems and Holland since April 2008, and further links are planned.
Holland is well to the fore in the evolution of electricity markets, and is working very deliberately to create an effective electricity market. For example, the country has recently decided on very extensive and ambitious reform in order to develop systems and methods of metering, settlement and billing end users: this, in a market that has already successfully assimilated demand flexibility.
1.6 What new insights do we gain from an integrated view of network pricing, handling of system bottlenecks, investment grants and the organisation of physical trading?
There is often a tendency, when attempting to integrate or merge organisations, systems or activities, to discuss the different parts of the whole separately, which can result in the various rules and regulations not working well together. A clear example of this is presented by the problems of network charges, surmounting of system bottlenecks, organisation of physical trading and inter TSO compensation mechanisms. Projects in this area should investigate how regulations in adjacent areas can be adjusted in order to complement, or work with, each other, and also what benefits could then accrue.