Norway has been divided into five market areas (pricing areas) for electricity. This means different electricity prices in different parts of the country, depending on supply and demand in each area.
The Norwegian power system has a long history, and the power system has been expanded gradually as consumption and production of power have increased.
Power stations are spread around the country, and a lot of industry has been established close to power production. The cable grid has been developed based on this. Because of this, there are still enough cables so that power can be produced anywhere and transported for consumption anywhere. It’s not even certain it would be a wise decision on the part of the Norwegian public to construct enough cables to meet every need.
Receiving permission for constructing cables isn’t an instantaneous process anyway. For this reason, we need tools for handling the fact that the market actually wants more cables than we have. Norwegian authorities have chosen a market-based system for buying and selling power, and a market-based system for handling the bottlenecks which arise in the cable grid as a result of the power market; elspot areas.
What is an elspot area?
An elspot area is a market area for buying and selling power. "Elspot" refers to the spot market for physical power turnover on the Nordic power exchange Nord Pool. It is important to be aware that this is wholesale turnover of electricity. Usually, the Nordic power market is divided into six so-called elspot areas.
Today’s energy legislation is based on power being sold on market conditions, and that the measures Statnett as system operator uses should as far as possible, be based on market principles.
Regulations regarding system operation
In the regulations of the Energy Act, it is stated that system operating grid companies, i.e. Statnett, are to divide Norway into several elspot areas in the case of an expected energy shortage in a geographically restricted area in order to handle large and prolonged bottlenecks in the regional and central grid (Section 5 of the Regulations relating to system operation).
Price formation in a market area
The elspot areas are market areas for notifications of purchasing and selling power on the exchange. This means that notifications of purchasing and selling power are to be registered separately for each elspot area each hour of the next day. The price is not regulated by authorities, but is a result of supply and demand within the specific market area which is reported to the power exchange.
The market determines the flow of power
As a consequence of this, the power and market situation of each area will determine which direction the power flows between the elspot areas. In areas with an energy shortage, power producers usually set their prices higher than producers in areas where the energy balance is better.
This will in turn mean a lower production of power in areas with energy shortages, while areas characterised by better energy balance will produce more than what is required within their own area. Then, power will flow from low-price areas to areas of higher prices.
Using transmission capacity
This will also mean transmission capacity in the grid will be fully utilised when there is a need to transport power from one area to another. In areas with a shortage of energy, higher prices will also help reduce consumption. In this way, division into elspot areas will contribute to reducing the danger of local or regional power shortages.
Elspot areas in Scandinavia
The Nordic power market has now been divided into these elspot areas: south-eastern Norway, south-western Norway, western Norway, central Norway, northern Norway, western Denmark, eastern Denmark, Sweden and Finland. Sweden plans to introduce four elspot areas during 2011.