Nord Pool

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Nord Pool
Founded 1993
Headquarters Oslo, Norway
Key People Torger Lien, President and CEO
Employees Over 70
Website http://www.nordpool.com/

Nord Pool is a power exchange formed in 1993. It is the world's only multinational exchange for trading electric power. It grew from a small spot marketplace for surplus power in Norway to a pan-Nordic licensed exchange and clearinghouse called Nord Pool Clearing for financially settled power contracts, as well as a marketplace for physical delivery trade.[1]

Nord Pool was the first exchange in the world to start trading in European Union Allowances (EUAs) for carbon dioxide emissions. In addition, Nord Pool has been granted permission from the U.S. Commodity Futures Trading Commission (CFTC) to allow U.S companies to trade and clear Nordic, international and carbon products [2].

On Dec. 21, 2007, Stockholm-based exchange operator OMX said it had agreed to purchase Nord Pool's consulting and clearing units and international derivatives products for about 2.3 billion Norwegian kroner, or $412 million. In the aftermath of Nasdaq's acquisition of OMX, Nord Pool was also folded into the Nasdaq OMX group of exchanges, potentially giving the exchange a much larger distribution base through the Nasdaq OMX markets.


History

Norway was the first of the Nordic countries to deregulate its power markets. The Energy Act of 1990, formed the basis for deregulation in the other Nordic countries.

In 2002 Nord Pool was licensed as a regulated exchange and a clearinghouse. Nord Pool's spot market activities are organized in a separate company, Nord Pool Spot AS, owned by all of the transmission system operators in the Nordic power exchange area and by Nord Pool ASA.

On Feb. 11, 2005, Nord Pool became the first to trade European Union Allowances (EUAs) for carbon dioxide emissions. The accumulated volume traded in Nord Pool's financial market increased by 33% over the year. Mercuria Energy Group Ltd., Skandinaviska Enskilda Banken AB and Technor Energy Trading are among 15 new counterparties that have joined the Nord Pool markets in 2008.

On June 1, 2007 Nord Pool launched a standardized Certified Emission Reductions (CER) contract. This made Nord Pool the first regulated exchange to offer a global carbon product. The first trade was executed between Essent Energy Trading B.V. and Statoil ASA.

The listing of CER contracts represented an important contribution to the development of a secondary market for this product. The contract was designed in accordance with the requirements of the European Union Emission Trading Scheme (ETS) directives. The contract enables European companies to comply with the purposes under the EU ETS and governments to fulfill their obligations under the Kyoto Protocol.[3]

On Dec. 21, 2007, Stockholm-based exchange operator OMX said it had agreed to purchase the consulting and clearing units and international derivatives products of Nord Pool of Oslo for about 2.3 billion Norwegian kroner, or $412 million. The deal, which is expected to be completed by mid-2008, does not include Nord Pool Spot, which operates the Nordic physical market, or Nord Pool’s 17.4 percent share of Leipzig, Germany’s European Energy Exchange (EEX), a potential competitor of the new energy and commodity business unit that OMX plans to establish in Oslo.[4]

Nord Pool also is being folded into the Nasdaq OMX group of exchanges, a move that potentially will give the exchange a much larger distribution base through the Nasdaq OMX markets.

A member influx from 2007 and the start of 2008 contributed to a strong volume development in the first two months of 2008, where volumes in the carbon market more than tripled compared to the previous year.[5] Fifteen new counterparties can trade and clear Nordic, German or Dutch power derivatives, the carbon derivatives EUAs (EU’s carbon scheme) and Carbon Emission Reduction Credits (UN’s carbon scheme) or fish derivatives at Nord Pool. This brought the total number of unique legal counterparties up to 415, strengthening Nord Pool’s position as Europe’s leading power and carbon derivative exchange. In 2007, Nord Pool gained 55 net new exchange members and clearing members/clients.

This is also backed by the traded and cleared volume in Nord Pool’s markets. By the end of the first two months in 2008, the volume of traded and cleared power derivative contracts totaled 520 TWh compared with 355.6 TWh in the same period in 2007. This is an increase of more than 46%. In the carbon market, Nord Pool has more than tripled the volume compared to 2007, trading and clearing 33.7 million tonnes EUA and CER compared with 10.8 million tonnes the previous year.

Spot Market

  • On the Elspot market hourly power contracts are traded daily for physical delivery in the next day's 24-hour period. The price calculation is based on the balance between bids and offers from all market participants – finding the intersection point between the market’s supply curve and demand curve. This trading method is referred to as equilibrium point trading, auction trading, or simultaneous price setting. The price mechanism in Elspot adjusts the flow of power across the interconnectors - and also on certain connections within the Norwegian grid - to the available trading capacity given by the Nordic transmission system operators. Thus, Elspot is a common power market for the Nordic countries with an implicit capacity auction on the interconnectors between the bidding areas.[6]
  • On the Elbas market, power trading occurs 24 hours a day, seven days a week covering individual hours up to one hour prior to delivery. The traded products are one-hour long power contracts. The time span between the day's Elspot price-fixing and the actual delivery hour of the concluded contracts is quite long (36 hours at the most). As consumption and production situations change, a market player may find a need for trading during these 36 hours. The market enables continuous trading with contracts that lead to physical delivery for the hours that have been traded on the Elspot market and are more than one hour from delivery. The participants are power producers, distributors, industries and brokers. Today the Elbas market is open in Finland, Sweden, Denmark and Germany. Nord Pool Spot AS acts as counterpart in all contracts traded on the Elbas market and all trades are physically settled with respective TSOs.[7]

The Nordic Market Model

The Nordic electric power market features direct trading among players (bilateral trade) and trading via the power exchange, Nord Pool Spot.

References

  1. CEO's Report: A Robust And Impartial Marketplace. Nord Pool.
  2. Nord Pool Granted License For US Trading. Nord Pool.
  3. Press Release. Nord Pool.
  4. "OMX Purchases Parts of Nord Pool, Aims to Build Leading Carbon Market". securitiesindustry.com.
  5. Press Release. Nord Pool.
  6. The Elspot Market. Nord Pool.
  7. The Elbas Market. Nord Pool.