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10 December 2013 13:59

Explanation of prices - Latvia and Lithuania, Monday 9 December 2013

For the hours 2, 3 and 5 on Monday 9 December the area prices for Latvia and Lithuania were slightly higher than the Estonian and other Nordic area prices, despite transmission capacity from Estonia towards Latvia not being fully utilised.  The situation was caused by a price indeterminacy (or ‘vertical overlap’)* for those three respective hours in the Latvian and Lithuanian bidding areas. 

Due to this price indeterminacy the algorithm chose prices 0.05, 0.09 and 0.74 EUR/MWh higher than Estonia (the neighbouring price area) for the three indicated hours. Price indeterminacy is normal and occurs daily in several hours in several bidding areas, but the selection of the three prices yesterday deviated from the defined market rule as described below.   

The issue is being investigated by Nord Pool Spot’s algorithm experts. Automatic and manual checks of the calculation results have also been implemented, to help prevent a similar situation happening again before the issue is fixed permanently.

 

* Price indeterminacy (‘vertical overlap’) occurs when there exists at least two feasible solutions when prices are calculated with the same matched volume, the same block selections and the same social welfare.  The only difference is the market price. In a price indeterminacy situation, all solutions have an identical social welfare, and it is necessary to define a rule to choose between the set of prices. As a general rule, in a case of price indeterminacy, the price chosen will be the one that is closest to zero (the lowest price, if price is positive) or if there is free transmission capacity to neighbouring areas, the same price as the neighbouring area.


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