Derivatives trading helps make the price of electricity more predictable for market participants

Elering has proposed to NASDAQ OMX Commodities that market participants in the Estlink price area should also be able to trade in energy derivatives. This would make the price of electricity more predictable, and this in turn would lower financial risks.

The Estonian Transmission System Operator Elering proposed on 7 September to the derivatives exchange NASDAQ OMX Commodities to work together to expand the derivatives market into the Baltic states. The events of 24 August in the Nord Pool Spot (NPS) Estlink price area, when the market price for electricity was at the maximum permitted by the NPS system for five hours, also gave a strong impetus to the need to expand the financial markets into Estonia. The ability to sign long-term financial contracts is very important for a functioning electricity market and lowers the impact of such price shocks on the economy.Elering believes this would represent a logical development for NASDAQ OMX Commodities as such services are already available in the Nordic states under the Nord Pool ASA brand. Nord Pool ASA offers financial services for trading with electricity bought from the physical exchange in all the NPS price areas. The successful expansion of the NPS power exchange into Estonia shows that extending the derivatives market into Estonia should not be difficult or costly.Chairman of the Elering board Taavi Veskimägi said that as well as trading in physical electricity, the market seriously needs to start up a financial market to allow participants to manage their risks better and lessen any impact that could come from shocks to the price of electricity. “Those participants in the open market in Estonia who bought electricity at the high price of 24 August because of contractual arrangements clearly need to be protected against similar price fluctuations over which they have no control” he added. The results from the NPS Estlink price area’s first five months have beaten all expectations, and the total turnover in the Estlink price area was more than 1 TWh in July, with the average daily trading volume more than tripling in four months, from 4.5 GWh in April to 14.1 GWh in July.Nord Pool ASA is owned by NASDAQ OMX.