1. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller1 The KONTEK bidding area Anders Plejdrup Houmøller General Manager Nord Pool Spot

2. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller2 How to couple power markets together Producers End users 50 Hz Low price High price Good congestion management systems will ensure power flow towards the high price area!

3. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller3 Why implicit auctions? Implicit auctions is the system where the power exchange(s) control the cross-border power flow ðThe border between Germany and Western Denmark as an example: üAll the cross-border capacity is sold at explicit, co- ordinated auctions by the Danish TSO Energinet.dk and the German TSO E.ON Netz. üIn 2005, during 23% of the hours the power flowed in the wrong direction (towards the low price area) ! ðNaturally, this is a big economic loss for both countries üFor any commodity, it is always true that the commodity should move towards the high price To achieve this is an aim for EU’s internal market, for example –In line with EU’s “Lisbon Agenda” agreed in Lisbon in March 2000: To turn Europe into the world's most competitive economy by 2010.

4. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller4 Nord Pool Spot’s German bidding area KONTEK ðOctober 5 th, 2005 Nord Pool Spot started a price quotation in the Vattenfall Europe Transmission (VE-T) control area in Germany üKONTEK is the name of this new Nord Pool Spot bidding area. ðKONTEK was opened as a result of a co-operation with the German TSO VE-T, the Danish TSO Energinet.dk and Vattenfall AB. ðThe KONTEK price quotation makes it possible for the market players to trade with Nord Pool Spot in the VE-T control area. ðThe overall aim for KONTEK was to ensure the right power flow on the Kontek link between Germany and Eastern Denmark.

5. Copyright Nord Pool Spot AS © Nov. 18, 20055 Power flow on the Kontek link Example for one hour of operation Nord Pool Spot buys 200 MWh Capacity 550 MW Nord Pool Spot sells 750 MWh Nord Pool Spot buys 1,050 MWh Nord Pool Spot sells 500 MWh DK East 40 €/MWh Energy flow: 550 MWh Ignoring power exchange between Sweden and Eastern Denmark KONTEK 50 €/MWh Vattenfall Europe Transmission control area

6. Copyright Nord Pool Spot AS © May 13, 20066 Spot prices April 1 st – May 14 th, 2006 EUR/MWh Rolling 24-hours averages Sources: Nord Pool Spot and EEX 0 10 20 30 40 50 60 AprilMay Nord Pool Spot KONTEK bidding area EEX Phelix Base Correlation coefficient between the hourly prices during this period: Correlation(EEX, KONTEK) = 0.88

7. Copyright Nord Pool Spot AS © May 13, 20067 Spot turnover Oct. 11 th, 05 – May 14 th, 06 Nord Pool Spot turnover GWh/day The difference between the purchase curve and the sale curve is the average net power exchanged per day between Germany and Denmark via the Nord Pool Spot trading system. Rolling 7-days averages 0 2 4 6 8 10 12 14 16 Source: Nord Pool Spot OctNovDecJanFebMarApr Bought from Nord Pool Spot in the KONTEK area Sold to Nord Pool Spot in the KONTEK area

8. Copyright Nord Pool Spot AS © Anders Plejdrup Houmøller8 Transparency at the power market ðIn order for market economy to work properly, you need transparency üAll market players must have access to all relevant information. ðFor the power market, there is a connection between the establishment of good cross-border trading systems and full transparency üAs the combination in-transparent power markets and explicit auctions is an advantage for the big power producers üExample: Assume a big power plant has an unplanned outage early in the morning. üWith in-transparent power markets and explicit auctions: Now the owner of the power plant is the only one who knows, that you should buy capacity in direction towards his home country at the daily, explicit auctions! ðHence, the introduction of full transparency removes the big producers’ incentive to back explicit auctions at the expense of implicit auctions.

9. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller9 Intra-day markets – 1 And intra-day congestion management ðImplicit auctions is a “day-ahead congestion management system”. ðHow about “intra-day congestion management”? ðAnswer: You can establish an intra-day market, where the commercial players can utilize unused cross- border capacity. ðExample: üAssume the power exchanges close at noon. üAssume the power exchanges publish the spot prices and the planned cross-border power flows at 1 p.m. üThen – for example – at 2 p.m., the intra-day market opens: Now the players can utilise unused cross-border capacity on a “first-come-first-served” basis. ðActually, this is the system we have in Finland, Sweden and Eastern Denmark üThe Elbas intra-day market.

10. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller10 Intra-day markets – 2 And intra-day congestion management ðHence events happening after noon – unplanned outages, unexpected weather conditions, etc. – can be taken into account by players trading power in a direction, which at the outset was the “wrong” direction. ðHence also securing utilisation of the cross- border capacity according to “intra-day events”.

11. Copyright Nord Pool Spot AS © June 27, 2006Anders Plejdrup Houmøller11 Thank you for your attention!