Electricity markets during a period with extreme prices - Experiences from the NordPool market

Electricity prices in Norway increased to new levels, never seen before, starting in the late summer of 2021. Electricity prices in Europe were even higher and Norway, as part the European electricity market, exported electricity even if reservoir levels were rather low (cf. Figure 5 week 30 onwards). The paper summarizes the experience from the period since the summer of 2021 and focuses on some of the investigative analyses that the authors have contributed to as part of the government's analyses [1] to understand and implement possible relieving measures. The Norwegian electricity market is challenging as more that 90 % are based on hydropower with long-term storage. The current value of stored water, used for dispatch decisions, depends very much on what market actors believe about the future. The first part describes the Norwegian electricity system as part of NordPool and the European electricity market and shows observed prices from the relevant period. Chapter 2 focus on the Norwegian experience and discusses some of the measures and investigations the government has initiated to handle the situation. Two of the authors has done some of these investigations. Chapter 3 comments on the model used in these investigations and chapters 4, 5 and 6 summarise results from three different investigated subjects. Chapter 4 concerns the observed reservoir operation for the south of Norway during the fall of 2021. The following question is analysed: is observed reservoir operation consistent with socioeconomic optimal operation. Chapter 5 discusses what effect the two existing HVDC cables to Germany and UK had on the electricity prices in Norway during the high price period. Finally, chapter 6 comments on the calculated consequences of one of the measures that have been discussed, i.e., implementing artificial reservoir constraints to increase security of supply and reduce export. The main conclusions from this investigation are: • The believe during fall 2021 that European prices will be lower 2022 is the main reason for the observed reservoir operation in the fall of 2021. • The HVDC cables to UK and Germany contributed significantly to higher prices for the period August 2021 to December 2021. • Reservoir constraints have a cost but can give an "insurance" against different types of special events.