Montel Magazine 4 2021 - Nordic power spat - Page 12

Exchange blunder

Nord Pool is scrambling to rebuild its credibility after miscalculating the Nordic region ’ s benchmark power system price for three weeks in November .
By Olav Vilnes
What happens when the reference price for all power futures contracts in the market is wrong , for three weeks ? Nord Pool , the Nordic region ’ s oldest and biggest spot power exchange , is now reflecting on this very question , as likely as its owners , Euronext and the Nordic and Baltic TSOs . The system price is a special feature of the Nordic power market , designed as a price index in the late 1990s to ensure the region – which comprises a dozen bidding zones for electricity – has a common reference price for financial futures . It has helped spur liquidity in the futures market . But it also has faced increased scrutiny in recent years as the different area prices widen apart , making the system price a less efficient tool for hedging between the different bidding zones .
Nord Pool discovered a mistake after the system price for 27 November hit a record high of EUR 228.02 / MWh , far above spot prices in all the region ’ s 12 bidding zones – where eastern Denmark was highest at EUR 175.62 / MWh . Generally , the system price settles somewhere between the lowest and highest area price . A subsequent investigation found that the price had been wrongly calculated since 10 November , when the exchange introduced a virtual NO2A bidding zone to align flows on the subsea cables linking Norway to the Netherlands ( NorNed ) and to Germany ( Nordlink ).
The calculation error meant that the flows on the cables were counted twice , resulting in an erroneous outcome in the system price , explains Nord Pool . But it points out that the different prices set for each bidding zone were all correct because they use a different calculation . As a result , the mistake did not affect the value of spot trades conducted during the period , but it could have manipulated the value of futures contracts by sending a false price signal , market participants tell Montel .
“[ Nord Pool ’ s mistake ] affects the price information and consequently market participants ’ assessments of contractual values . It is serious ,” says Georg Aasen , executive vice president at financial exchange Nasdaq Commodities . “ A mistake of this magnitude affects the
14 Montel Magazine 4 – 2021