The Norwegian Water Resources and Energy Directorate (NVE) and the Netherlands Authority for Consumers and Markets have announced the publication of a report providing an in-depth assessment of the requirements for long term cross-border hedging via NorNed, the electricity interconnector between Norway and the Netherlands.
Led jointly by the Norwegian and Dutch regulatory authorities and supported by Redpoint Energy, a business of Baringa Partners, the report provides and applies an analytical framework to support regulatory decisions within the context of E.U. target model requirements regarding interconnector capacity and hedging opportunities. It is now publicly available at Baringa Partners
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 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 allowing the free flow of energy across Europe. While the European target model is clear that liquid options must be available to market participants, and that the provision of financial transmission rights by transmission system operators is one means to achieve this, it is not prescriptive, leaving key judgments with national regulators.
Baringa 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 financial transmission rights for NorNed, or contracts for difference between the two markets.