Pilot project: support for increased hedging opportunities in the Swedish electricity market

Svenska kraftnät is currently working to identify and develop measures to increase the possibilities for price hedging in the long-term market in the Swedish and neighbouring bidding zones. The pilot project is carried out as part of Svenska kraftnät's work related to the responsibility for TSO’s to participate in the long-term electricity market, which is regulated by the Commission Regulation Forward Capacity Allocation (FCA).

About the pilot project

The project aims to increase liquidity in the Swedish market for hedging and act as an example of an alternative to the measures currently described in the FCA regulation.

The pilot project provides a basis for assessing the effectiveness of Svenska kraftnät's proposal for measures and provides practical experience that can be of use for future methodology proposals under the FCA regulation.

The measure tested in the pilot project is auctioning of financial contracts, so-called EPADs (Electricity Price Area Differentials). In the pilot, Svenska kraftnät will offer in auctions to both buy and sell EPADs in the bidding zones SE2, SE3 and SE4. For the implementation of the auctions, Svenska kraftnät has procured Svensk kraftmäkling AB (SKM).

Link to the Swedish page for the pilot project: Pilotprojekt: stöd för prissäkring på den svenska elmarknaden

More information about Svenska kraftnät's EPAD auctions

The following link contains further information on the auctions, such as trading rules, allocation principles and the auctioning schedule. The material may be updated.

More information about Svenska kraftnät's EPAD auctions

Background: Effective hedging on the long term market is a prerequisite for a functional electricity market

The long-term market shall ensure that there are sufficient opportunities for market participants to hedge the price risks that the trading in physical electricity entails. As system operator for electricity transmission systems, Svenska kraftnät is obliged to promote liquidity and function in the hedging market and ensure that the opportunities for hedging are sufficient. The pilot project is part of Svenska kraftnät's work related to the Commission Guideline FCA, and parallel work is ongoing with methodology development.

Requirements for system operators to support the long-term market

The national regulatory authorities in EU carry out evaluations of the hedging market every four years and, in cases where inadequate price hedging opportunities are identified, may decide that further measures must be implemented.

In these cases, the NRA of the member state where insufficient hedging opportunities have been identified, will make a joint decision together with its’ counterpart in a neighbouring Member State on measures at the bidding zone border in question. FCA art. 30 describes the options for measures decided by the NRAs where the system operators are requested to either (a) introduce long-term transmission rights, or (b) ensure that other long-term risk hedging products are made available to support the functioning of the wholesale electricity market.

Until now, Svenska kraftnät has not been active in the price hedging markets based on decisions made by Energimarknadsinspektionen (Ei) and the regulatory authorities in our neighbouring countries in connection with the evaluation of hedging opportunities in Sweden in 2017.

Based on the most recent evaluation carried out in 2020-2021, it was found that there are insufficient opportunities for risk hedging in the Finnish bidding zone, FI. The relevant NRAs, Ei and their Finnish counterpart Energiavirasto (EV), could not make a coordinated decision on what measures the system operators should take and referred the matter to ACER in the spring of 2022.

In September 2022, ACER decided that the concerned system operators on the Sweden-Finland borders; Fingrid, Kraftnät Åland, and Svenska kraftnät, shall develop the necessary arrangements according to FCA art 30.5(b), which means that hedging instruments other than LTTR must be introduced and made available. In November 2022, Fingrid appealed ACER's decision to ACER's Board of Appeal, which is now assessing the case. The work on developing a common methodology proposal continues, but the potential decision of the Board of Appeal may affect the work.

Link to news about the appeal: Fingrid has appealed against ACER’s decision concerning risk hedging opportunities on the bidding zone borders between Finland and Sweden

Link to ACER's decision for the Swedish-Finnish borders: Decision (europa.eu) (.pdf) Opens in a new window

Svenska kraftnät and Energinet are requested by the relevant NRAs, Ei and Forsyningstilsynet (DUR), to develop necessary arrangements to ensure other long-term cross-zonal hedging products than LTTR are made available to support the market on the bidding zone borders SE3-DK1 and SE4-DK2. The proposal should be submitted to the NRAs the 31st of July 2023.

Link to the Ei decision on the Swedish-Danish borders (Swedish): Ei har fattat beslut om risksäkringsprodukter mellan elområden i Sverige och Danmark - Energimarknadsinspektionen Opens in a new window

For Sweden's other borders, no updated decisions have been made based on the latest evaluation. New decisions may mean that Svenska kraftnät is requested to take further measures to support the hedging market on additional bidding zone borders.