An Econometric Analysis of the Regulation Power Market at the Nordic Power Exchange

Abstract

Increasing shares of variable renewable energy (VRE) causes challenges related to power system balancing. The regulating power market is part of the Nordic electricity market and has as purpose to maintain the balance between total generation and consumption of power in real time. Currently, the power balance settlement is being carried on a national level, by the separate transmission operator in each Nordic country. Recent developments, in the form of a common project initiated by the system operators in Norway, Sweden and Finland, attempt to change the routinized course of the balance settlement by introducing a model for common Nordic balance and reconciliation settlement (NBS). The regulatory change will make the rules for balance settlement equal to all Nordic participants, ease market participation and possibly increase the number of smaller market actors. For power market participants it is of interest to analyze how the regulatory change will affect balancing market prices. This paper analyzes how the regulating price in different price areas in the Nord Pool region is affected by the level of the spot price and the volumes of regulating bids using historical market data. According to the estimated econometric models, the down-regulation price is more sensitive to the regulating volumes than the up-regulation price. At maximum the up-regulation price decreases by 0.14% as a result of a 1% increase in the bids’ volume, while for the down-regulation price a greater than 0.2% increase is observed. Also, the results show relatively large differences in the sensitivity of spot prices and bid volumes across different areas and seasons.