Nordpool tapped to undertake WESM derivatives market study
Nordpool, Europe’s largest electricity spot market catering to the Nordic region, has been tapped by the operator of the Wholesale Electricity Spot Market (WESM) to carry out a two-tiered study on the planned “derivatives market” for the Philippine electricity sector.
According to Philippine Electricity Market Corporation (PEMC) President Melinda L. Ocampo, Nordpool was selected via a competitive bidding process, slugging out two other competitors in the task, namely HongKong-based Lantau Group and Australasian firm Sapere Research Group.
She noted that the required study shall comprise of the technical facets of operating a derivatives market; as well as a legal study component on it.
“The study aims to assess the legal and technical aspects of implementing a derivatives market and strategize the phased-in market development that is appropriate to the Philippine context,” Ocampo expounded.
She noted that the financial instruments and hedging mechanisms that shall be integrated in the envisioned derivatives market shall be part of the recommendations that must be set forth in Nordpool’s study outcome.
Nordpool already has well-established track record in running a derivatives market primarily in the trading of electricity commodities across the markets of Norway, Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, Germany and the United Kingdom.
Ocampo further indicated that the derivatives market study would be complementing the propounded enforcement of financial transmission rights (FTR) in the market.
WESM explained that FTRs take the form of “financial instruments that allow market participants to offset potential losses related to the price risk of delivering energy to the grid.”
Further, such instruments “will address the volatility of prices associated with power supply agreements due to transmission congestion costs.”