Fundamental market models are widely used to calculate the marginal costs of producing and obtaining energy in the Nordic power system. The market models are based on a physical description of actual production, transmission and consumption.
Such calculations can be interpreted as price forecasts since the models simulate market clearing for future scenarios of renewable energy supply (such as tidal, wind and solar), power demand, marginal costs of thermal power, and so on.
Price forecasts are used, among other things, in the operational planning of hydropower production and in investment analyzes for new power production.
A renewable power system presents new challenges
The Nordic power market is developing both in terms of technological solutions and market structures. Stricter requirements have been set to increase the share of renewable energy, while nuclear power is gradually being phased out.
This development means that the total share of unregulated renewable power will continue to increase and entails higher requirements for flexibility and regulation ability on both the production and consumption side.
In such a future system, the price will be controlled by other drivers than what is the case in the current market. Among other things, it is expected that short-term uncertainty related to the availability of wind and solar power as well as flexibility on the consumption side will be important drivers of price formation.