The document discusses differences in electricity prices between areas in Finland and trading methods. It notes that price differences between Finland and other Nordic markets have increased due to delays in new nuclear power plants and changes in neighboring markets. Traders with large volumes prefer negotiating prices over the phone ("voice brokering") rather than executing trades on-screen. The document also considers how best to connect the Helsinki price area to liquid financial markets through products like EPADs or FTRs. It argues that EPADs are preferable to FTRs as they provide a full hedge and work in all market situations without additional costs.

2. AREA PRICE DIFFERENCIES:
EPAD OR FTR
Jouni Mäenpää

3. Development of Area Price Differencies
• Price difference between Finland and system has been increased
due to:
• Delay of commissioning of Olkiluoto 3 (1600 MW)
• Russia introducing the capacity market, leading to reduced exports to
Finland
• Lithuania joining the EU, followed by decommissioning of Ingaliina NPP’s
and Lithuania joining the Nord Pool Spot market
• Slower progress in wind power projects in Finland compared to other
price areas

4. Trading with EPAD products
• Approx. 10 % on-screen and 90 % voice-brokered by telephone
• Players with large interests are motivated to negotiate prices, thus
making voice-brokering more popular
• Access to a liquid market is only a phone call away!
• Voice-brokering does not bring any extra costs

5. Trading by telephone or on-screen?
• On-screen:
• Small volumes
• Fast execution needed at current price level
•  Market order; no negotiation
• Telephone (voice-brokering):
• Large volumes
• More room regarding price and time of
execution
 Negotiation and the players views of the market

6. Financial Electricity Trading in Europe
• Financial products on the Nordic system price are the most appealing in the
Nordic countries. Similarly, financial products on the German spot price are the
most appealing in Continental Europe.
• EPAD products are used to connect physical market to larger financial market (to
system price forwards and futures) in Nordic markets. Similarly, FTR’s can be
used to connect physical electricity exchanges to larger financial market (to EEX
Phelix spot derivatives) in Continental Europe.
• The problem: Which financial market should the Helsinki price area be
connected to in order to gain access to liquid financial market if not to standard
system price instruments? Finland is not physically connected to EEX but access
to liquid market is needed.

7. XX1
XX2 XX(n) HEL
FTR
XX1>XX2
FTR
XX2>XX3
FTR
XX(n-
1)>XX(n)
FTR
XX(n)>HELO
p
e
n
P
o
s
i
t
i
o
n
+ S
Y
S
-
SY
-
HE
L
-
SY
-
XX
1
-
S
Y
S
-
O
p
e
n
P
o
s
i
t
i
o
n
+
XX1
• The neutral hedging positions presented here are identical
(based on the assumption that an FTR corresponds to two
EPAD products).
• Using an FTR results to more complexity and therefore
brings extra costs!
=> Using EPAD’s makes more sense

8. Hedging with Financial Transmission Rights (FTR)
• In certain critical circumstances the purchaser of an FTR is obliged to
return the FTR to the issuer, and exposes to full market risk
• FTR does not give the 100 % hedge that EPAD gives
• Essential part in FTR trading is a direction:
• Essential part in hedging is the bidding zone
• EPAD works perfectly in all situations
• Using FTR when the price difference is negative?

9. Conclusions
• Introducing a day-ahead index combining day ahead prices in all
physical exchanges to one single price index in the Europe makes
one common and liquid European financial market possible.
• EPAD products can be used to connect to this common European
financial market with one single trade everywhere.
• This will never work with FTR products.
• EPAD is the way forward!

11. Electricity Market day 2015
3.00 pm Area price differences – reasons and conclusions
Transmission System Operator's Standpoint
Juha Hiekkala, Manager Market Design, Fingrid Oyj
How to improve hedging
Anne-Marit Rudby, Product Director, Nasdaq Commodities
Comments from market players
Mikko Lepistö, Energy Manager, SSAB Europe Oy
Jouni Mäenpää, Senior Analyst, Power-Deriva Oy
4.20 pm Wrap up
Juha Kekkonen, Executive Vice President, Fingrid Oyj
4.30 pm Buffet