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Long-Term Cross-Border Hedging Between Norway and Netherlands

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Long-Term Cross-Border Hedging Between Norway and Netherlands Long-term cross-border hedging between Norway and Netherlands A report for the Netherlands Competition Authority, Office of Energy Regulation (NMa) and the Norwegian Water Resources and Energy Directorate (NVE) March 2013 Copyright © Redpoint Energy Ltd 2012. All rights reserved. This document is subject to contract and contains confidential and proprietary information. 22/03/13 - Redpoint_Long Term Cross Border Hedging_A Report for NMA and NVE_Final 1 Version History Version Date Description Prepared by Approved by Joscha Schmitz 1.1 04/12/12 Draft Vladimir Parail Ilesh Patel Oliver Rix Oliver Rix 1.8 04/01/13 Final Draft Joscha Schmitz Ilesh Patel 2.0 04/02/13 Final Draft after comments Joscha Schmitz Oliver Rix Oliver Rix Final 22/02/13 Final Report Joscha Schmitz Ilesh Patel Contact www.baringa.com, www.redpointenergy.com [email protected] Tel: +44 (0)203 327 4220 Copyright Copyright © Redpoint Energy Ltd 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information. No part of this document may be reproduced without the prior written permission of Redpoint Energy Limited. Confidentiality and Limitation Statement This document: (a) is proprietary and confidential to Redpoint Energy Ltd (“Redpoint”) and should not be disclosed without our consent; (b) is subject to contract and shall not form part of any contract nor constitute an offer capable of acceptance or an acceptance; (c) excludes all conditions and warranties whether express or implied by statute, law or otherwise; (d) places no responsibility on Redpoint for any inaccuracy or error herein as a result of following instructions and information provided by the requesting party; (e) places no responsibility for accuracy and completeness on Redpoint for any comments on, or opinions regarding the functional and technical capabilities of any software or other products mentioned where based on information provided by the product vendors; and (f) may be withdrawn by Redpoint upon written notice. Where specific Redpoint clients are mentioned by name, please do not contact them without our prior written approval. Copyright © Redpoint Energy Ltd 2013. All rights reserved. This document is subject to contract and contains confidential and proprietary information. 22/03/13 - Redpoint_Long Term Cross Border Hedging_A Report for NMA and NVE_Final 2 Contents 1 Executive Summary ...................................................................................................................................................... 6 2 Introduction ................................................................................................................................................................ 10 2.1 Background to this study ............................................................................................................................................................................... 10 2.2 Outline of Terms of Reference .................................................................................................................................................................... 10 2.3 Structure of this report .................................................................................................................................................................................. 11 3 Study methodology and approach ......................................................................................................................... 13 3.1 Terms and definitions ...................................................................................................................................................................................... 15 4 Background, framework and drivers .................................................................................................................... 16 4.1 Introduction ....................................................................................................................................................................................................... 16 4.2 Current regulatory background ................................................................................................................................................................... 16 4.3 Introduction to Financial Transmission Rights ......................................................................................................................................... 18 4.4 Cross-border hedging and FTRs – the evidence to date ...................................................................................................................... 21 4.5 International experience of FTRs ................................................................................................................................................................ 23 4.5.1 Financial transmission rights................................................................................................................................................................... 23 4.5.2 Experiences with PTRs ............................................................................................................................................................................ 26 5 Hedging requirements and cross-border hedging on NorNed ...................................................................... 28 5.1 Introduction ....................................................................................................................................................................................................... 28 5.2 Hedging concepts ............................................................................................................................................................................................. 28 5.3 Conceptual framework – why might cross-border hedging be required? ....................................................................................... 30 5.4 Hedging on the NO-NL border ................................................................................................................................................................... 31 6 Analysis of current hedging opportunities and liquidity in financial electricity markets........................... 36 6.1 Introduction ....................................................................................................................................................................................................... 36 6.2 Criteria for Liquidity Analysis ....................................................................................................................................................................... 36 6.3 Liquidity Analysis of the Nordic Market .................................................................................................................................................... 38 6.3.1 Availability ................................................................................................................................................................................................... 39 6.3.2 Volumes ....................................................................................................................................................................................................... 40 6.3.3 Costs ............................................................................................................................................................................................................ 45 6.3.4 Summary ...................................................................................................................................................................................................... 46 6.4 Liquidity Analysis of the Netherlands market .......................................................................................................................................... 46 6.4.1 Availability ................................................................................................................................................................................................... 46 6.4.2 Volumes ....................................................................................................................................................................................................... 48 6.4.3 Costs ............................................................................................................................................................................................................ 50 6.4.4 Summary ...................................................................................................................................................................................................... 51 6.5 Liquidity Analysis of the German market .................................................................................................................................................. 52 6.5.1 Availability ................................................................................................................................................................................................... 52 6.5.2 Volumes ....................................................................................................................................................................................................... 54 6.5.3 Costs ...........................................................................................................................................................................................................
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