Electricity market players
There are different categories of electricity users, everything from industrial plants to private households. Local grids are normally divided up into low-voltage (400/230V) and high-voltage (normally 10-20 kV) grids. About 5.2 million users are connected to the low-voltage grid and about 6 500 to the high-voltage grid. All users, regardless of category, have an agreement with the electric grid company for the transmission of electricity and an agreement with an electricity trader or producer, directly or via the electricity market, for the purchase of electricity.
Electricity is produced in power plants and fed it into the grid. Most of the electricity in Sweden is generated by nuclear power and hydropower, although the share of renewables is steadily rising. Producers can choose whether the electricity they generate is to be sold to electricity traders or users, sold via the electricity market or used for their own purposes. Acquisitions and mergers have reduced the number of major players over the last 20 years. The largest producers in Sweden are: state-owned Vattenfall, Fortum Sverige, E.ON Sverige, Statkraft Sverige and Skellefteå Kraft. Central government owns approximately 39 percent of the installed electricity generation capacity. Foreign owners account for about 39 percent, municipally owned entities constitute about 12 percent and other owners make up the remaining 10 percent.
The electricity companies own and run the grid and are responsible for transporting the electricity from production sites to the users. This takes place via the three levels into which the Swedish grid is divided: the national grid, regional grid and local grid. They have different voltages and are owned by different grid companies. Sweden has about 170 grid companies of varying sizes. The national grid is owned by Svenska Kraftnät. The electricity is transported from large producers to the regional grids via the national grid. Three grid companies – E.ON Elnät Sverige, Vattenfall Eldistribution and Fortum Distribution own the majority of the Swedish regional grids. The regional grids then transport the electricity on to local grids and even directly to customers who use large quantities of electricity. e.g large industrial plants. The local grids distribute to private households, factories, etc. These are owned not only by the state, municipalities and private companies but also by economic associations. A grid owner must have a permit, known as a grid concession, from the Energy Markets Inspectorate in order to build and operate high-voltage power lines. The grid concession also includes an obligation to connect electricity plants in the concession area and the responsibility for collecting and reporting measurement values for use and production.
Electricity traders and balancing services
Traders buy electricity from producers, via the electricity market and/or from other traders and sell it under different contract terms to users in competition with other traders. An electricity trader can have several different roles including being responsible for balancing and acting as a retailer. A trader can also offer portfolio management services and other trading-related products and services. About 120 traders, who can be differentiated between both in terms of their actions and the focus of their activities, compete for end-customers on the Swedish electricity market. There are large, vertically integrated power utilities, municipally owned companies and co-owned electricity trading companies (often municipalities that have merged and formed a joint trading company) active on the market. There are also a number of independent electricity traders that are not part of a sphere in which other activities are pursued on the electricity market. According to the Swedish Electricity Act and the “balancing responsibility”, there must be a company that is legally responsible for balancing all the electricity that is produced or consumed at the input and outlet points of the grid. A balancing responsibility means that the company has a financial responsible to ensure that there is always a balance between electricity production and consumption with regard to its undertaking. Before a company can have a balancing responsibility, it must first have a balancing services contract with Svenska Kraftnät.
Physical electricity trading – the electricity market
The Nordic electricity market, Nord Pool Spot AS, organises electricity trading for physical supply, the “spot” market. The spot market is a market for short-term trade in physical electrical power/physical electricity contracts. Players submit their bids to buy and offers to sell to the market and, in accordance with these, a system price or “spot” price and area prices are calculated for the electricity for every individual hour a day ahead of the supply period (24 hours). The spot markets system price also constitutes a reference price for the financial trading on the electricity market. On the “Elbas” adjustment market, players have the opportunity to trade during the current 24-hour period up until one hour before supply, and to adjust the imbalances that may have occurred as a result of events taking place after the spot market has closed.
Financial electricity trading
The Nasdaq OMX Commodities market organises a futures market (financial trading) for long-term electricity trading. This allows the players to guard themselves against the varying spot price and manage the risk for the electricity that they buy and sell for future supply. This, in turn, enables other players to act who are more interested in purely financial trading, e.g. banks and traders. The market supplies standardised financial contracts (futures) for delivery further down the line. These contracts contain a certain volume of electricity for a certain period at a certain price. The spot market’s system price constitutes the reference price for the financial trading. Financial futures trading can take place for a time period of up to four years and trading can be done on 24-hour, weekly, block, seasonal or annual contracts. The market also offers clearing activities aimed at reducing the financial counterparty risk for those who have bought the contracts.