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Dutch and Norwegian regulators explore options for hedging on the NorNed electricity cable

02-05-2013

ACM and the Norwegian energy regulator NVE have conducted a study to assess options for long term cross-border hedging via NorNed, the electricity interconnector between Norway and the Netherlands.

To date, different options for cross-border hedging have evolved in different European markets.  For example, market participants in Nord Pool, the Nordic electricity market, purchase Contracts for Difference (CfD) to hedge against basis risk between different regions, whereas Physical Transmission Rights for interconnection capacity between traded hubs are available on some boundaries in North West Europe.

Ensuring access to cross-border hedging options, and the associated efficient use of interconnector capacity, are key tenets of the EU Target Model, which is designed to enable the transition to an internal energy market. Whilst the European Target Model is clear that liquid options must be available to market participants, and that the provision of Financial Transmission Rights (FTRs) by Transmission System Operators (TSOs) is a preferred option, it is not prescriptive, leaving key judgements with national regulators.

For this study Redpoint Energy was engaged by the Norwegian and Dutch regulators to capture a wide range of stakeholder views, and define and evaluate different regulatory options, including the possible introduction of FTRs for NorNed, or CfDs between the two markets. ACM and NVE will use this study to inform the decision making process on long term capacity allocation for electricity interconnectors.