Nordic Balance Settlement, cornerstone to a common Nordic power retail market

The EU has many visions, more or less realistic ones. One vision is the creation and establishment of an European common retail market for electricity. On the way to this goal there are many obstacles to be removed. It begins with the insufficient political will, continues with fragmented legislation and ends with technical problems. Norway, Sweden and Finland however are convinced that all these barriers are surmountable. Their goal: To start in 2015 their own common power retail market with many positives (legal and technical harmonisation and long term savings) and a few negatives (high start up costs). And their hope: To present an effective and workable example to the up to now hesitant partners in the EU.

Europe's Northern region is in general regarded as an in many fields rather harmonised part of this continent. And the electricity market is no exception. The national regulators of Sweden, Norway, Denmark and Finland are closely cooperating in NordReg (Nordic Energy Regulators), the national electricity producers are closely interconnected in an almost single wholesale market and – finally – the energy exchange Nord Pool Spot is setting the price for the entire region. However, for Norway, Sweden, Finland and Denmark, this is not enough. Their vision reaches wider into the direction of a common Nordic retail market. And one important cornerstone on the way to this goal is the Nordic Balance Settlement (NBS). Since a few years ago, Norway, Sweden and Finland are working resolutely towards the establishment of NBS, which is supposed to become reality sometime in 2015. Denmark stepped aside, is however a keen observer of this project which it in principle supports and at a later stage probably will join. Beside the goal of a harmonised settlement market for the Nordic countries, the parties involved are also looking beyond their borders, to the rest of Europe. Under the headline "Why NBS?" the reference group of the three Partners formulated at a meeting in November 2012: "NBS will be a reference model within the EU for the development of a common end-user market."

All for one and one for all

Even though the Nordic region may look like a reasonably integrated power market, the differences between the three parties are still comprehensive and wide ranging and an obstacle on the way to Nordic harmonisation. At the end Sweden, Norway and Finland will get the Nordic Balance and reconciliation Settlement (NBS). The three countries Transmission System Operators (TSOs), which keep at the same time the role as national Settlement Responsible (SR), become the equal shareholders of the Nordic Settlement Responsible, which should be organised as a separate legal and eventually independent entity. In Sweden, the TSO is Svenska Kraftnät, in Norway Statnett and in Finland Fingrid. At the beginning, the Nordic SR will be heavily dependent on services provided by the TSOs, however, the actual working plan says "Nordic SR shall in the first two years make a plan describing how the provision of these services from the TSOs shall be terminated within a period of three to five years of operation" and replaced by an independent Nordic SR system. At the beginning, these services should comprise personell, at least ten persons, among them at least two national SR experts from each TSO and IT-Settlement System experts. As Fingrid has been chosen as main host, the Nordic Settlement Responsible unit (SR) will at least at the beginning be housed in Finland. However, the legal structure of SR will be as such that the unit, for which they are still searching for a name, could be established in each of the three countries.

The Nordic SR will have the following responsibilities:

Its main task is to perform the balance settlement and to invoice the BRPs (Balance Responsible Party). The BRPs, there are approximately 29 in Finland, 35 in Sweden and 90 in Norway, are responsible for a working electricity market in their regions. Furthermore, the SR will set the collateral levels (economic security) and monitor whether the BRPs are following the laws and regulations.

NBS will be a reference model within the EU
In the first hand the NBS project is regarded and strongly supported by the governments as a harmonisation process which should lead to a single retail market. Therefore, NBS is often described as a cornerstone on this way. However, nobody denies that costs and economical efficiency play a major roll. The common view is that at the first stage there will be additional costs, whilst in the longer term there will be cost savings on different levels. At the beginning, the TSOs, which are still responsible for the settlement in their areas, will outsource some activities to the Nordic SR, which could save costs. On the other hand, with the exception of Norway, the national TSOs have further need for their national IT-systems. First when they have to be replaced, will the TSOs be able to adjust their needs to the new situation. By the way, the establishment of an entirely new settlement IT-system represents the most considerable cost in the starting phase. The working group, representing the stakeholders, does not give any estimate, but points out, that "these funds must be made available by the TSOs". Regarding the operational cost, this is expected to be approximately 2,2 Mio Euro per year. On the other hand, the saving potential for the first years is set likewise at 2,2 Mio. The cost for all three TSOs of implementing NBS is estimated to approximately 7 to 8 Mio Euro over a three year period. In the long run this is however compensated by reduced individual costs for each TSO so that the costs including depreciation will be levelled out after ten years.

Harmonisation of data is essential

By introducing NBS, one of the major preconditions is the harmonisation of the Automatic Meter Reading (AMR) in the three countries. According to the working group, "the AMR status at end-user level varies throughout the Nordic countries. There are significant differences in how data are recorded (i.e. what kinds of registers are used, hourly or monthly energy data), how metered data are collected and used in the balance settlement and finally different invoicing process". In Finland, by the end of the year 2013 almost 90% of the consumption energy will be recorded by using hourly metered data and all these energy data will be collected every day and submitted to the balance settlement. In Sweden, to the contrary, the system is currently based on monthly meter collection for customers below the limit 63 Amp. However, many of the installed meters are able to collect hourly metered data. There are plans to adjust the system. In Norway new regulations from June 2011 requires AMR for all electricity metering and daily reporting of hourly meter data the day after delivery day. The deadline for implementation is December 31, 2016.

The working group concludes: "Due to the fact that the level of AMR is different in each Nordic country, the NBS model is in this respect a compromise as the model needs to suit all countries AMR-systems." The regulators are asked to agree on a harmonisation of the AMR structure, since "the present different rules are an obstacle to 'deep' Nordic harmonisation".

Furthermore the regulators in NordREG are asked to make their contribution to establish a common standard for data communication. Currently, each country has its own standard when it comes to balance settlement and these are not compatible with each other.

There are significant differences in how data are recorded
Parallel, a separate working group will look at the establishment of a common standard for the same high capacity communication technology in order to ensure fast data transmission between the parties. Even the legislators in the three countries are asked to pave the way for NBS. In Sweden and Finland the law has to be changed in order to allow Svenska Kraftnät and Fingrid to outsource the operational SR task. This process is expected to take about one year. In Norway a BRP has to be a Norwegian company but this is not the case in the other Nordic countries. Norway is asked to adapt to the other Nordic countries.

Also common principles for calculation and final settlement have to be found. It is suggested a one-price system for consumption imbalances and two-prices for production imbalances. The preliminary settlement is set for daily collection with corrections for up to eight days, whilst the final settlement is due after nine days. Corrections after D+9 must be done bilaterally between the Distribution System Operators (DSO), the local and regional net owners, and the BRPs. This solution was a crucial point for the Danes to step aside in autumn 2011. Henrik Hornum from the Danish Energy Association explains to EER: "The NBS project was locked already before we decided to participate or not, in the decision on how to handle corrections of meter data. After nine days, after the day of operation, corrections will not be accepted by the NBS. In reality corrections after nine days will anyway occur. This means that DSOs will have to deal with these corrections in a bilateral way with all the market players (BRPs). This bilateral way of handling corrections is from our point of view very inefficient (and expensive) compared to just letting NBS run the balance settlement again with corrected data."

For the NBS project the first important step has been done. The design phase has been finalised and the implementation period has started. Until mid 2013 the regulatory changes are expected to be accomplished and the industry preparation commence. The test period is planned for the end of 2014 and the beginning of 2015 with the intention to start the Nordic SR sometime in 2015.

The name of the game: closer integration

The parties involved in this project, from the governments and the regulators to the national SRs, do not see only economical and material advantages like increased competition among BRPs and lower costs for retailers and producers, increased quality of settlement and invoicing, increased innovation and reduced costs of balance settlement and increased transparency, they also pay a lot of attention to the idea of ever closer integration in this part of Europe.

Fruitful international cooperation that works for the best of the customers
This time it is the creation of closer Nordic cooperation for a single electricity end-user market. In addition, Jukka Ruusunen, CEO of Fingrid, regards NBS "as a good example for the whole of Europe about fruitful international cooperation that works for the best of the customers in all countries." In the first hand however, the three Nordic SR partners hope that Denmark will finally join the project. The Danish Energy Association emphasize on one hand that we "support that Denmark is not participating", but on the other hand "that we actually welcome the idea of a common Nordic retail market including a Nordic balance settlement unit". However, by now "we have not seen any positive business case for the project. The balance responsible players cannot expect lower fees for the handling of balance settlement, on the contrary fees are expected to rise." And the Danes are looking to another important project which could open the door for a return to NBS: "Denmark is at the moment in the final stage of developing a DataHub-solution for the retail market. This solution has gone live on March 1st this year. This solution will develop efficient meter data management between market participants and efficient business processes. We notice that particularly in Norway but also in Sweden there are discussions of similar solutions. A common Nordic approach to DataHub and the associated business processes could bring the NBS project into a new context where it would be sensible also for Denmark to participate."

One aspect, not to be ignored, is the possibility for NBS to become a reference model within the EU for the development of integrated power markets. Worthwhile to note, despite the fact that Norway not even is a member of EU and only Finland has the Euro, the three NBS parties decided to use Euro as the common currency.