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Norwegian power hedging products insufficient – regulator

(Montel) Norway’s hedging products for power are insufficient, said regulator RME, adding that it has asked TSO Statnett to provide solutions.

RME has asked Statnett to find options that could improve hedging conditions for market participants, including Swedish-style auctions of price differential contracts (Epads) between Nordic bidding zones, according to a letter seen by Montel on Monday.

The measures should not include long-term transmission rights (LTRs), since that would only split the market and reduce liquidity, RME added.

The move comes after Norway implemented EU regulation on capacity allocation and congestion management (CACM) in 2021, which requires the country to offer all power market participants adequate hedging instruments.

Norway’s electricity spot market is divided into five bidding zones, although market participants hedge their futures exposures against the Nordic system price, supplemented by price differential contracts (Epads) for each bidding zone.

However, Epads suffered from low liquidity and a large spread between bid and offers, said RME, noting a study from 2023 showed that a majority of participants found the market failed to meet their hedging needs.

RME said Statnett should consider introducing TSO-run auctions of Epad contracts across bidding zone borders, like its Swedish counterpart Svenska Kraftnat has done on a trial basis since the start of last year with positive results.

The TSO should also consider auctions of specific zonal futures, said RME, with German exchange EEX due to launch such products next month.

Statnett extension request
Statnett has been asked to provide solutions within six months, but it has requested a 12-month extension from RME.

The TSO said the 2019-2023 period used for reference was problematic since it included a period of huge market uncertainty caused by Covid and the war in Ukraine – while preliminary figures showed improved liquidity at the start of 2024.