Nord Pool’s pioneering efforts revolutionised the way electricity is traded across borders, fostering cooperation, a more integrated and sound energy landscape and a unified approach to the energy crisis. 

Having been a part of Nord Pool from the very beginning, EVP Hans Randen, with his unique expertise and experience has played a crucial role in the transition from nationalised control to a liberalised electricity market. 

The Pre-Liberalisation Era 

“Before the advent of a liberalised market in 1991, the energy sector was characterized by a rigid structure where prices were dictated by the national parliament and local municipalities”, he explains 

This vertical pricing structure meant that residents were bound to the rates set by their local authorities, leading to a lack of competition and innovation. 

However, even before the new Energy Act and the broader liberalisation movement of the late '80s and early '90s, there was a recognition in Norway of the need for a mechanism to distribute electricity more efficiently across different regions.  

“In the context of hydroelectric power, which is significant in regions with abundant water resources, there was a practical need to transfer electricity from areas where there was a surplus, due to factors like heavy rainfall, to areas where there was a deficit. This need was particularly acute when weather conditions were variable, such as when there was rain on the west coast of Norway but dry conditions elsewhere”, the Nord Pool veteran elaborates. 

The era was defined by what was termed a “spot market” – an exclusive market open solely to electricity producers and not to the public or other commercial entities. 

Opening the market 

The liberalisation aimed to introduce competition, reduce prices for consumers and drive efficiencies in what were seen as oversized and stagnant electricity supply industries dominated by national monopolies. It was a significant political process that redistributed cost savings among energy company owners, consumers, and taxpayers. 

“We played a pivotal role in disrupting the status quo. The Norwegian power market’s deregulation in 1991 laid the groundwork for the establishment of Statnett Marked in 1993 – our company’s name during the early stages of electricity market deregulation in Norway”, Hans explains. 

The name reflected the exchange’s origin with Statnett, the Norwegian transmission system operator (TSO).  

 “What we did was open the market to end-consumers, as retailers and the industrial sector – a stark contrast to the previously closed market”. 

This bold move was the first step on a transformative journey towards the integrated European electricity market we see today. The transitioning from government-fixed rates to a market-driven pricing system allowed consumers to move away from static tariffs to dynamic market prices that reflect real-time supply and demand. The last fixed price was “23 øre per megawatt-hour,” a figure that now serves as a historical benchmark against the fluidity of current market rates.   

Hans Randen further clarifies the practical implications of the shift.  

“This shift allowed consumers to track the market prices in real time. With the access to spot prices as a reference for electricity costs, consumers were encouraged to be more mindful of their consumption, especially during peak hours when prices were higher”.  

The liberalisation also empowered consumers to compare prices and switch suppliers easily, aiming to create a more efficient and competitive market with increased choice and improved service quality.  

Nord Pool - the first international power exchange 

The success of Norway’s initiative caught the attention of neighbouring Sweden, which faced its own challenges with market concentration. 

“Four production units were sitting on 84% of the production. It was of course really hard to get a competitive market with such a concentration,” he points out. 

“After extensive political deliberation, Sweden decided to join forces with us, leading to the integration of the Swedish market in 1996, marking the inception of the first international energy exchange”. 

The significant step towards international trading led to the adoption of the Nord Pool name, symbolising the expanded geographical reach and collaboration beyond Norway. 

Expansion across the Nordics 

 The integration process continued as Finland joined in 1998, followed by Denmark in 1999/2000, culminating in a fully integrated Nordic market.  

 “The focus was on Day-Ahead, although the cross border Intraday Market started between Finland and Sweden in 1999 and was followed by the other Nordic countries,” Hans notes.  

The UK and Baltic Integration 

 The model proved so successful that in 2010, the UK sought to replicate it, awarding the tender to operate its market to Nord Pool.  

“Today we have a UK market share of 74-75%, operated from Oslo”, he adds. 

At the same time there was a discussion on how the Baltics could have a closer cooperation with the Nordic area, enhancing energy security and competition and reducing their isolation as “energy islands.” 

In 2010, Latvia, Estonia, and Lithuania’s transmission system operators agreed to create a unified Baltic electricity market. Estonia joined the market in 2010, followed by Lithuania and Latvia in 2013. 

The Pan-European Vision 

The success of the Nordic model sparked a broader discussion across Europe, leading to a new regulation in 2015 that embraced the Northern Market model for the entire continent. 

“There was a legal framework that took place in 2015, allowing for exchanges to be established across Europe”, Hans elaborates. 

Nord Pool used this opportunity to expand and now have 400 customers and are operating in 16 countries in the EU, with the UK maintaining its ties post-Brexit.  

From January 2020, the pan-European exchange group, Euronext, acquired 66% of Nord Pool, opening for further growth opportunities.  

Nord Pool’s innovative approach continues to shape Europe’s energy landscape and Hans Randen’s expertise has played a pivotal part in setting the standard. The exchange’s visionary spirit has not only facilitated seamless cross-border trade but also supported the integration of renewable energy sources. These strategic moves and collaborative efforts have made Nord Pool a model for energy markets worldwide. Link to Nord Pool consulting 

European collaboration 

Nord Pool is now performing a dual role in the sector’s functionality. The power market expert sheds light on this intricate operation: 

 “We have a double function. One is to run the market as a marketplace, interacting with customers to take orders, settle trades and manage collaterals, as we also act as their clearing house”.  

But Nord Pool’s responsibilities extend beyond the confines of a traditional marketplace, he explains. It plays a crucial role in setting the price for electricity across Europe, a task achieved through a collaborative effort among the Nominated Electricity Market Operators (NEMOs), as part of the regulatory framework.  

“We are now eight power exchanges running this process on a rotational basis, managing the algorithm and overseeing the daily procedures”.  

The cooperative model is not only limited to day-ahead auctions but also encompasses intraday auctions and the continuous market. As a Market Coupling Operator (MCO), Nord Pool aggregates order books from all exchanges, all the NEMOs, and calculates the prices for the entirety of Europe.  

“One day we do this here in Oslo, the next day in Madrid and the next day in Prague. We’re doing this in rotation, but we have the same set-up and get the same results – and send them out,” Hans describes.  

This rotational system ensures consistency, robustness and fairness in the pricing mechanism across the continent. Randen concludes with a reflection on the uniqueness of this arrangement; 

 “I believe it’s quite exceptional on a global scale to have such extensive cooperation for a market of this magnitude”. 

by Irene Zeier
Communications Director

[email protected]