Operational summary of the auction for August 17th:
- Bids and offers were submitted for calculation using the common European market coupling algorithm, Euphemia
- The primary calculation resulted in the maximum clearing price of 4000 Euros in a number of delivery periods in Estonia, Latvia & Lithuania
- In accordance with the market rules applicable for the Baltic countries, Nord Pool activated the Peak Load Reserves in Lithuania which entailed activating 50 MW’s per hour for the whole delivery day
- Nord Pool then informed the relevant TSO Litgrid of this activation
- Following the Peak Load Activation the auction calculation was re-run and the maximum clearing price was still reached in hour 18
- In accordance with the market rules applicable for the Baltic countries, these prices were then final and bids & offers were curtailed as necessary and informed to the market via an operational message
Nord Pool Assessment:
Nord Pool’s operations have carefully reviewed the auction results and can confirm that all procedures were followed in line with the applicable market coupling rules and the price calculation was correctly performed by the Euphemia Algorithm.
The Baltic region consists of three bidding zones with a relatively small amount of consumption and production. Thus, it is very sensitive to changes in fundamentals and interconnectors’ capacity and on delivery date August 17th there were reduced transmission capacities from FI>EE, SE4>LT and PL>LT, contributing to the situation.
Due to a relatively limited market size in the Baltics, throughout the latest weeks some large blocks (which have limited flexibility) were paradoxically rejected. This is not uncommon within the auction however in such tight market conditions its extremely important that members take extra consideration when submitting block bids to the auction as there are scenarios where blocks orders can be excluded as a result of being paradoxically rejected.
The primary measure to ensure market functioning and reduce the probability of paradoxically rejected blocks is to ensure that there is a sufficient volume offered in single-hourly orders (also called “curve”-orders). Those orders create the curves and ensure that there is a price intersection. Blocks, that has one price over several hours, cannot set the price in single hours. In the price formation, blocks simply “shifts” the existing curve orders. It is important to ensure a certain volume of curve-orders in every Baltic country.
What is a block and why it may be paradoxically rejected?
A block is a type of order that is available to market participants. It defines a set of hours, where a certain volume of power shall be dispatched (e.g., sell 500 MWh/h in hours from 05:00 to 12:00 if the price is above €200/MWh on average in those hours). A block is usually either fully accepted or rejected, making it less flexible than other order types. A block is a convenient type of order for thermal generation assets, because it allows minimizing start-ups and shut-downs of a power plant. The block is accepted if the average market price is above the price of the block. The block is rejected if the price of the block is above the average market price.
The block is paradoxically rejected if the acceptance of the block reduces the prices to an extent that the block is not profitable. For example, a block is offered to sell 500 MWh/h from 05:00 to 12:00 for €200/MWh. Without the block, the average price in those hours is €210/MWh, but with the block the average price in those hours is reduced to €190/MWh. The block is then paradoxically rejected, as including it would make the block not profitable. The market price becomes €210/MWh.
Our advice to market participants in tight market conditions is to minimise the use of blocks
To reduce a probability to be paradoxically rejected, market participants could also consider:
- offering (parts of) their volumes in curve orders instead of blocks,
- offering shorter exclusive groups and/or exclusive groups with lower volumes,
- specifying lower acceptance ratio in the blocks
- adding more flexibility on the demand side (e.g., offering a part of consumption at an opportunity cost of buying it in the intraday market instead of offering it price-independently).
Nord Pool will continue to work closely with market participants and National Regulatory Authorities on this matter.
About Nord Pool
Nord Pool, Europe’s leading power market, delivers efficient, simple and secure trading across Europe. The company, which is majority owned by Euronext, offers day-ahead and intraday trading, clearing and settlement, and additional services, to customers regardless of size or location. Today 360 companies from 20 countries trade on Nord Pool’s markets.
Nord Pool operates markets in the Nordic and Baltic regions, Germany, Poland, France, The Netherlands, Belgium, Austria, Luxembourg and the UK. Nord Pool is a Nominated Electricity Market Operator (NEMO) in 15 European countries, while also servicing power markets in Bulgaria, Croatia and Georgia. In 2021 Nord Pool had a total turnover of 963 TWh traded power.
Nord Pool has more than 25 years of power market experience built on offering flexibility, transparency, innovation, greater choice and participation to our customers.
Oslo, 18 August 2022
For further information, please contact:
Hans Randen, +47 6710 9170 - hans.randen@nordpoolgroup.com