The Elbas Market. How does it work? How could it work in Iceland?

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1 The Elbas Market How does it work? How could it work in Iceland? Facts and examples based on NPS current market in Fin, Swe, Den and Ger (& Nor 08)

2 Agenda General Trading on the Elbas market Settlement & Clearing of Elbas trades Crossborder trades and managing the capacity between the different trading areas Technology behind the Elbas trading system Summary

3 Elbas market at Nord Pool Spot today Adjustment market after Elspot Trading intra-day and after Elspot is closed (confirmed) also day-ahead Market areas:finland, Sweden, East and West Denmark and Germany (KONTEK) Continuous trading Open around the clock all days of a year Hourly contracts can be traded until one hour before delivery hour Trading is anonymous Trading currency is Euro Settlement and clearing is combined with the Elspot Market at NPS Common Rulebook with Elspot (separate details in appendices/agreements) Automated control of grid capacity Communication in public network with SSL-encryption Market makers 24 hours per day Number of customers: 55

4 Why do companies trade on the Elbas market? Many arguments can also be valid in Iceland An effective and economical way to manage electricity procurement and sales near the time of delivery To sell production or cover consumption or trade for single hours today and tomorrow Handling of unexpected changes in electricity production, procurement or consumption in your electricity balance React to unexpected changes in the market price and need for power -> You can hedge the price you have to pay for imbalances -> You can reduce the volume exposed for imbalances -> You can increase the efficiency of daily management of your electricity portfolio You are not dependent on one volume, price or counterpart Increases transparency of day-ahead and intraday trading prices Trading made easy and fast: Web based trading system The market is ALWAYS open Market making 24 hours per day Automated and simple functionalities Automatic clearing, and one settlement account for Elbas* Netting of Elbas collaterals* Note: *At NPS the Elbas settlement/collateralsit is combined with the day-ahead Elspot Market

5 Elbas trading system user friendly Simple to use No end user software installations needed No dedicated data connection needed Clear trading and back office functions Automatic reporting Automated Market Splitting Bid types Hourly bids of type fill Block bids of type all or none

6 The Elbas timeline Next days delivery hours opened at: 14:00 in SE, FI and DK2 Delivery hour C o n t i n u o u s t r a d i n g until 1 hour before delivery TSO:s real time market At 14:00 in SE, FI & DK2 the hour series for the next day are opened (the hours 01-24) At 08:00 in GER and at 17:00 in DK1

7 The participants on the Elbas market at NPS Finland 21 participants Fortum Espoo Oyj EGL Nordic AS Energiameklarit Oy Fingrid Oyj Fortum Power and Heat Oy Kainuun Energia Oy Helsingin Energia Kaakon Energia Oy Kuopion Energia Kymppivoima Hankinta Oy Lahti Energia M-real Oyj Outokumpu Oyj PVO-Pool Oy Statkraft Energi AS Stora Enso Oyj Tampereen Sähkölaitos Turku Energia Oy UPM Kymmene Oyj Vantaan Energia Oy Vattenfall Sähköntuotanto Oy Sweden 9 participants Fortum Generation AB Jämtkraft AB Mälarenergi AB Skellefteå Kraft AB Statkraft Energi AS E.ON Energihandel Nordic AB (MM) TelgeKraft Vattenfall AB (MM) Öresundskraft Energy Trading Eastern Denmark 3 participants Energi E2 A/S E.ON Energihandel Nordic AB Vattenfall Danmark AS Germany 10 participants ATEL Aare-Tessin für Elektrizität AG EGL Elektrizitäts-Gesellschaft Laufenburg AG Electrabel S.A. Merrill Lynch Commodities (Europe) Limited OstElektra GmbH RWE Trading GmbH Stadtwerke Flensburg GmbH Statkraft Markets GmbH Vattenfall Trading Services GmbH E.ON Sales and Trading GmbH

8 Trading on the Elbas market

9 Bid = Buy Ask =Sell

10 The menus of the trading system Back office

11 The bid A bid consists of - the delivery hour - the volume -the price PH(hh)(yy)(mm)(dd) :00-11:00 11:00 a.m. The priority of the bid: 1. The price 2. The time when the bid was registered in the trading system A bid is binding until: - a trade, change of the bid or an cancellation of the bid - in other words a bid may be annulled or changed until the bid has resulted in a trade Trading currency is Euro The minimum volume is 1 MWh The minimum price difference is 0,1 (=tick size)

12 Block bids, all or none bids It is free to define the block s start and stop hours A block bid can consist of all hours open for trading; hence a block bid can at the maximum be up to 32 hours. The shortest length of a block bid with the all or none condition is one hour. The block bids are of type all or nothing meaning that the following criteria must be filled for two opposite block bids to match: the length of the block the price and the volume

13 Order depth window for seeing all bids per hour in the market

14 Anonymity Common information: price volume order time of trade information on cancellation of trade Individual party information is not public information!

15 Tradings system: Trade History In the Trade History window you may search information about your trades, either according to delivery time or trade time. You may copy information for example to Excel with the copy-paste functions. By clicking on the right button on your mouse you may also save the information in xls format.

16 When two bids are matched.. 1. The participant whose bid has been matched hears a pling sound from the computer and the trade may be seen in the ticker window, with its timestamp, volume and price. 2. Immediatly after the matching the trade may also be seen in the Trading system (ex. Trade History). 3. If the participant has ordered the trade inforamtion service via FTP-protocol to their Energy Management Systems the message will be sent within minutes from the trade.

17 The consequences s of a trade All trades go automatically to clearing at Nord Pool Spot AS Buy 10 MWh PH12 21,2 Sell 6 MWh PH12 21,2 Delivery NPF informs the TSO once per hour (a few minutes after change of hour) the Elbas trades netposition for every hour open for trade Money transactions Trade 6 MWh PH12 21,2 Invoicing every bankday Collateral Call 7 days net bought (netted with the Elspot collateral call)

18 Scheduling report to the TSOs Hourly net trades per participant in the TSOs area The report is sent once an hour The report includes the hourly values for today and after noon also the values for tomorrow Participant must also send their hourly Elbas trade schedules to the TSO Notes: - Naturally the conditions that would be set by Landsnet may be different in Iceland likewise may apply for the economic settlement cycle (for ex. daily or weekly) and needs for collateral (security)

19 Settlement on Nord Pool Spot s physical markets Daily settlement The settlement system relies on electronic bank communications and funds transfers -> All participants are obliged to have a pledged account in one of Nord Pool Spot AS settlement banks Delivery of Elbas trades: - 1 day Delivery of Elspot trades: +1 day Settlement day (Invoice/Credit Note per ) Debiting: +1 banking day Crediting: +3 banking days

20 The trading system automatically updates crossborder capacities Direction Capacity to Elbas Capacity after Elbas trade 1 Capacity after Elbas trade 2 10 MWh FI-SE SE-FI SVK Participant C Sell (4 MW) FG Participant A Buy (10 MW) DK2-SE SE-DK MWh Participant D Buyl (4 MW) Participant B ELKRAFT Sell (10 MW) Capacities are updated automatically by the trading system Automated Market Splitting divides areas dynamically when bottlenecks occur

21 Technology behind the Elbas trading system

22 Technological goals No end user software installations needed No dedicated data connection needed Required response time < 1 sec Usability more than 99,5 % transactions per minute

23 System requirements for end user Minimum requirements for hardware, system software and data communications lines: - Web browser: Microsoft Internet Explorer 5.0 or later or Netscape 6.0 or later, Opera - Computer: Processor minimum Pentium II 128 MB RAM, recommended 256 MB - Data communications link to ISP service: -Operating system Recommended 2 Mbit/s Windows 2000/NT/XP or Unix

24 The Hardware and Software Hardware Sun Solaris 220R - Sun Clustering - Cisco Pix Firewall Software -Oracle 8i Database - BeaWebLogic 5.1 -Apache Web Server

25 Technological solutions: SECURITY High security level is a key element of the system design USER AUTHENTICATION: DIGIPASS Continuously changing passwords Easy to use: only enter pin code and receive a new password Very high protection: Impossible to break the password counting system DATA COMMUNICATION Encrypted source code by Key Partners SSL-128bit encryption protocol by F-Secure Verisign Website trust service SSH tunneling service Cisco Pix firewall

26 User Interface design System includes at least following features: Real-time updating in trade windows Market overview, transaction tracking and order entry on one screen Special interest in design for simple usability and outlook Simple outlook Save desktop Scaling Different pop-up menus on the windows Copy/Paste functionalities in needed windows Own trades and orders with different color Color of some cells follows the market direction User defined configuration of the graphic user interface

27 The web based trading system is also the tool for managing the Elbas market

28 Interfaces to other systems SENDING Trade plans to TSOs (EDI) Trade plans to some participants (EDI & FTP) XML schedules to Germany Monetary amounts of trades and fee amounts to Nord Pool Spot AS settlement system RECEIVING Capacities from TSOs (EDI)

29 ELBAS information via

30 Possible Questions for Iceland Examples: Opening hours for trading Closing time for contracts (i.e. X hours before delivery) Settlement cycle Clearing requirements Market place functions Currency Minimum trading lot and likewise price quotation Needed content in Rulebook Liquidity and use for market makers Other issues?