The Impact of dividing Sweden into four Bidding Areas

Abstract

In February 2010 extreme power prices occurred in the Nordic power market. The main reason was low availability at Swedish nuclear power plants, high loads due to low temperatures and large reductions in available transmission capacity. The Nordic power system is extremely dynamic in the sense that a minor grid structural change might affect prices in another part of the grid. Sweden is to be divided into four bidding areas on November 1st 2011. It is a result of an EU decision based on a complaint from Danish Energy who claimed that Svenska Kraftnät was abusing their dominant market position. The purpose of this Master s thesis has been to analyze how the division of Sweden will affect the Nordic power prices. Simulations have been performed by use of Nord Pool Spot s pricing algorithm SESAM. The supply curves in the new Swedish bidding areas have been modeled. They are based on the largest producer s supply curves in the current bidding area Sweden. The days of analysis is February 22nd representing an extreme situation, and February 26th representing a normal high load situation. Simulations with all factors equal to historical situation, except the division of Sweden have been carried out. In addition several scenarios have been analyzed. The scenarios are based on planned investments in the Nordic grid from 2010 until 2020. In a normal high load situation prices will decrease in short-term. NO3 will be a high-price area where prices will decrease at a slower pace than in the other areas. In an extreme situation prices will also decrease in the short-term. NO1 will be the high-price area with prices decreasing at a slower pace than in the other areas. Frequently large reductions in available transmission capacity in Hasle occur due to high loads in the Oslo-region and congestions in the West-Coast Corridor. This prevents NO1 from having equal prices with SE3. In the longer-term prices will decrease and level out for both extreme and normal high load situations. It is mainly the construction of the transmission lines Hasle and Ørskog-Fardal that contribute to more even prices in most of Norway and in all of Sweden. Denmark and NO2 will continue to be surplus areas with lower prices than other areas. The division of Sweden is solely positive provided that close to maximum transmission capacity in Cut 2, in the middle of Sweden will be maintained. As long as the planned investments are carried out and the demand remains on today s level, there will be a considerable decrease in Nordic power prices in the future towards 2020. The more disaggregated representation of Sweden will improve the price signals to Swedish producers and consumers. The use of buy-back will be reduced and this may lead to increased competition in the Elspot market as the activity in the balancing market is reduced. In turn, the Nordic power prices will more correctly represent the markets physical limitations and improve the resource allocation.