(Montel) EU energy regulatory agency Acer is seeking input from the market on how to resolve a dispute between Norway and the Netherlands over how to improve cross-border power hedging opportunities, it said on Friday.
Norwegian regulator RME and Dutch counterpart ACM are agreed that there are not enough day-ahead hedging opportunities between the Dutch and Norwegian bidding zones, which are linked by the 700 MW NorNed power cable, but not on what to do about it.
The ACM favoured introducing long-term transmission rights (LTRs), as it believed they would improve hedging conditions for market participants and was already a mechanism used on cross-border links with other countries like Denmark and Germany.
But Acer said in a public consultation document that it had doubts that LTRs on the NL-NO2 bidding zone would effectively resolve the issue.
Speculative trades?
This was for several reasons, including that market participants might buy such LTRs for speculation.
If speculative buyers traded their LTRs, that could support liquidity of the Norwegian and Dutch hedging products. But if they held on to them, there would be no positive effect.
Also, speculative buyers were likely to apply a negative risk premium, which could lead to the LTRs being undervalued, said Acer.
That would reduce grid operators’ congestion income, which could lead to higher grid tariffs for power end users in the two bidding zones.
Introducing LTRs would not be as positive as improving the availability of accessing the relevant proxy hedge in each zone, said Acer.
These are the electricity price area differentials (Epads) to the Nordic system price for Norway and Dutch LTRs to the German bidding zone for the Netherlands.
“Burdensome process”
Combining LTRs on the Dutch-Norwegian border with existing hedging options could be considered “a relatively burdensome process” and “especially challenging” for smaller players, it said.
Acer is therefore inviting views on whether introducing LTRs on the NL-NO2 border would improve hedging options and what other measures could help.
The public consultation runs until 22 November and Acer will decide by 17 February for the Dutch side.
The Efta Surveillance Authority will decide for the Norwegian side, based on a draft from Acer.
Norway’s RME has already said that LTRs were ill-suited to the Nordic power system, which had many small bidding zones and that they could weaken market liquidity.
EU power market rules require each member state to ensure market participants have enough hedging opportunities.