Supply and demand set the price
The power price is determined by the balance between supply and demand. Factors such as the weather or power plants not producing to their full capacity can impact how much power can be transported through the grid and will therefore influence the price of power. This is called ‘transmission capacity’.
Today, there is general agreement among politicians and other stakeholders in the Nordic and Baltic power markets that this power model serves society well. While the price of power is determined according to supply and demand, it also becomes clear where there are issues in the grid when the price of power goes up. This makes it easier to identify where production or capacity is lacking, as there is too high demand compared to production supply.
Integrating Nordic and Baltic markets
The Nordic countries deregulated their power markets in the early 1990s and brought their individual markets together into a common Nordic market. Estonia and Lithuania deregulated their power markets in the late 2000s.
The term ‘deregulation’ means that the state is no longer running the power market, and instead that free competition is introduced. Deregulation was undertaken to create a more efficient market, with exchange of power between countries and increased security of supply. Available power capacity can be used more efficiently in a large region compared to a small one, and integrated markets enhance productivity and improve efficiency.
An emerging Northern European market
Now that transmission capacity is in place between the Nordic countries, the European continent and the Baltics, the power market covers large parts of northern Europe. This means that power from many different sources– hydro, thermal, nuclear, wind and solar – enters the grid. This ensures a more ‘liquid’ market, where large volumes are traded daily, and a more secure power supply.