Understanding Power Markets in Nordic Countries: Insights into Day-ahead and Intraday Markets

Delve into the intricate workings of power markets in Nordic countries, exploring key terms, market pricing strategies, vRES impact, and the significance of day-ahead and intraday markets. Discover how the merit order and bidding zones influence pricing and system operations, ensuring efficient electricity production and distribution.

• Nordic Countries
• Power Markets
• Day-ahead
• Intraday
• Renewable Energy

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1. ELEC-E8423 - Smart Grid Power markets in Nordic Countries: Day-ahead and Intraday Markets Lotta Aalto & Aino Tornivaara 12.3.2024

2. Introduction 1. Power markets in Nordic countries Key terms 2. Market pricing and merit order (v)RES = (variable) renewable energy sources TSO = transmission system operator (Fingrid) 3. Day-ahead markets SDAC = single day-ahead coupling 4. Intraday markets 5. Impact of increasing share of vRES 6. Conclusions Financial markets Balancing markets Imbalance settlement Day-ahead Intraday Auction for next day 10 years day- ahead Intrahour real time Intraday After delivery Time 12.4.2024 Page 2

3. Power markets in Nordic countries The Nord pool market is divided into several bidding zones. 12 bidding zones in the Nordic countries: Norway 5, Sweden 4, Denmark 3 and Finland 1 3 Baltic bidding zones The system price is determined by the sale and purchase orders The available transmission capacity between bidding areas is not taken into account. The bidding zones may have different prices due to bottlenecks in the transmission system. BZs also: Help in indicating constraints in the transmission systems Ensure that regional market conditions are reflected in the price Picture 1. Bidding zones of the Nordic countries and the Baltics Picture source: Nord Pool. (n.d). Day-ahead map. [Online]. Available: Nord Pool | Day-ahead map (nordpoolgroup.com). 12.4.2024 Page 3

4. Market pricing and merit order The market balances supply and demand The system price is determined by the most expensive supply-side bid required to meet demand. o However, the highest bid can be very low. o The merit order is based on the lowest marginal cost of electricity production Renewables and nuclear first o Oil and gas are used lastly o Renewable production "pushes" the supply line forward Merit order ensures that the electricity is produced as cost-effectively as possible at every hour Upper picture from J skel inen J. 2023 Energy markets lecture 1 Lower picture: Huisman, R., Michels, D., & Westgaard, S. (2015). Hydro reservoir levels and power price dynamics: empirical insight on the nonlinear influence of fuel and emission cost on Nord Pool day-ahead electricity prices. Available: https://api.semanticscholar.org/CorpusID:64323886 12.4.2024 Page 4

5. vRES and Merit order in action Picture source: Appunn, K. (2015). Setting the Power price: Merit order effect. [Online]. Available: Setting the power price: the merit order effect | Clean Energy Wire 12.4.2024 Page 5

6. Day-ahead and intraday markets 12.4.2024 Page 6

7. Day-ahead markets Daily process in Nord Pool's day-ahead market Market where participants sell or buy power for the next day in a closed auction o Each price for each hour in each bidding zone is specified daily At 10:00 CET available capacities published Until 12:00 CET buyers and sellers submit their bids Single Day-Ahead Coupling (SDAC) is carried out by Euphemia algorithm Currently one-hour market time unit, but day- ahead markets will change to 15-minute market time unit in 2025 SDAC At 12:45 CET or later prices are published 12.4.2024 Page 7

8. Intraday markets Trading during the day of supply o Continuous markets, trading is open around the clock until one hour before delivery TSOs provide for capacities in intraday system and capacities update automatically Currently one-hour market time unit, but intraday markets will change to 15-minute market time unit in 2024 Picture source: Nordic RCC. (2022). About Nordic RCC. [Online]. Available: About - Nordic Regional Coordination Centre (nordic-rcc.net) 12.4.2024 Page 8

9. Impact of increasing share of vRES Variable renewables: Low marginal cost Highly stochastic Price and the availability of power is increasingly weather-depended Impacts: Decreases the profitability of more conventional power plants The importance of closer-to-delivery market is increasing Markets will gradually change to 15 minute market time unit Market emphasis shifts from day-ahead market to intraday market Financial markets Balancing markets Imbalance settlement Day-ahead Intraday Time 12.4.2024 Page 9

10. Conclusions Merit order and market pricing ensures the most economical electricity production for every hour of the day and makes RES favorable Market emphasis shifts from day-ahead market to intraday market Significance of Smart Grid: with the irregular RES production, grid flexibility, storage etc. becomes more important 12.4.2024 Page 10

11. Source material used Brink, P. (10.11.2022) Finland switching to 15-minute imbalance settlement. Fingrid lehti.fi. [Online] Available: https://www.fingridlehti.fi/en/finland-switching-to-15-minute-imbalance-settlement/ [Accessed 9.3.2024] Fingrid. (n.d.) Developments in the intraday and day-ahead markets. [Online] Available: https://www.fingrid.fi/en/electricity- market/market-integration/electricity-market-development-projects/developments-in-the-intraday-and-day-ahead-markets/ [Accessed 5.3.2024] J skel inen J. (2023). Energy Markets. Lecture 5: Nordic Power Market. [Referred: 5.3.2024.] Miller, J. (2024). Electricity Distribution and Markets. Lecture 13: Electricity Markets the Nordic Way. [Referred: 8.3.2024] Nord Pool. (n.d.) Bidding areas. [Online]. Available: Bidding areas | Nord Pool (nordpoolgroup.com) [Accessed: 8.3.2024] Nord Pool. (n.d). Day-ahead market. [Online]. Available: Day-ahead market | Nord Pool (nordpoolgroup.com) [Accessed 5.3.2024] Nord Pool. (n.d.). Intraday market. [Online]. Available: Intraday market | Nord Pool (nordpoolgroup.com) [Accessed 5.3.2024] Nord Pool. (n.d.) The Power Market. [Online]. Available: The power market | Nord Pool (nordpoolgroup.com) [Accessed: 8.3.2024] Spodniak, P. Ollikka, K. Honkapuro, S. (2021). The impact of wind power and electricity demand on the relevance of different short term electricity markets: The Nordic case. Applied Energy. Volume 283. https://doi.org/10.1016/j.apenergy.2020.116063. 12.3.2024 Page 11