The regulating power market on the Nordic power exchange Nord Pool: an econometric analysis

• Published in: Energy economics Vol. 21; no. 4; pp. 295 - 308
• Main Author: Skytte, Klaus
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-08-1999; Elsevier Science; Elsevier; Guildford :IPC Science and Technology Press,1979; Elsevier Science Ltd
• Series: Energy Economics
• Subjects: Applied sciences; Bidding strategy; Bids; Cost analysis; Costs; Econometrics; Economic data; Electric energy; Electric power; Energy; Energy economics; Energy market; Exact sciences and technology; Fluctuating production; General, economic and professional studies; Norway; Norwegian regulating power market; Power generation; Premium of readiness; Price and cost of regulation; Production; Regulated industries; Regulation; Studies; Scandinavia; Europe; Norway; Norwegian regulating power market; Price and cost of regulation; Premium of readiness; L94; Fluctuating production; Bidding strategy; C50; Uncertainty; Regulation(control); Market structure; Renewable energy; Spot market; Price; Electric energy; Production capacity; Electric power production; Cost analysis
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/S0140-9883(99)00016-X

What differentiates the structure of Nord Pool from other power exchanges around the world is the way the balance from the spot market is maintained until the actual, physical delivery takes place, via the regulating power market in Norway. This paper reveals the pattern of the prices on the regulating power market, by analysing the cost of being unable to fulfil the commitments made on the spot market. Some power producers with unpredictable fluctuations (e.g. wind) will need to buy regulation services. The disclosed pattern implies that these producers must pay a limited premium of readiness in addition to the spot price; this premium is independent of the amount of regulation. The level of the premium of readiness for down-regulation is shown to be strongly influenced by the level of the spot price. On the other hand, it is demonstrated that the premium for up-regulation is less correlated to the spot price. Furthermore, it is found that the amount of regulation affects the price of regulating power for up-regulation more strongly than it does for down-regulation. The disclosed cost of using the regulating power market is a quadratic function of the amount of regulation. This asymmetric cost may encourage bidders with fluctuating production to be more strategic in their way of bidding on the spot market. By using such strategies the extra costs (for example wind power) needed to counter unpredictable fluctuations may be limited.