Investigation of forward markets for hedging in the Danish electricity market
The Commission Regulation (EU) 2016/1719 of 26 September 2016 establishes a guideline on forward capacity allocation
According to the regulation, TSOs on a bidding zone border shall issue longterm transmission rights (LTTRs) unless the competent regulatory authorities of the bidding zone border have adopted coordinated decisions not to issue long-term transmission rights on the border.
In article 30, the regulation states that the decision on whether to issue LTTRs shall be based on an assessment, which shall identify whether the electricity forward market provides sufficient hedging opportunities in the concerned bidding zones.
Therefore, the Danish Energy Regulatory Authority (DERA) has asked Houmoller Consulting ApS to carry out an investigation of the hedging options at the Danish electricity market. This report contains the results of the investigation.
Concerning the method employed in the investigation: as can be seen from table 1.3, the Danish market players do not regard Nasdaq’s System Price contracts as a suitable hedge against the Danish spot prices. Hence, if Danish market players want to use Nasdaq’s power derivatives for hedging, they need both a System Price contract and an EPAD.
This is also illustrated by the correlation between the prices. Table 1.1 gives the correlation between the monthly average prices