As soon as the noon deadline for members to submit bids has passed, all purchase and sell orders are aggregated into two curves for each delivery hour; an aggregate demand curve and an aggregate supply curve.
The system price for each hour is determined by the intersection of the aggregate supply and demand curves which are representing all bids and offers for the entire Nordic and Baltic region.
The system price denotes an unconstrained market clearing price since the trading capacities between the bidding areas have not been taken into account in finding this price.
The system price is calculated locally at Nord Pool after PCR area price calculation. Calculated flows between the Nordics and the Netherlands /Germany are taken into account. These flows are used when calculating the system price either as import/sales or as export/purchase for NO2, DK1, DK2 and SE4.
System price calculation has a different area configuration compared to areas price calculation. Norway, Denmark, Sweden and Finland constitute one bidding are. Baltic countries and Poland are configured as one area each, just as when calculating area prices.
The majority of the standard financial contracts traded in the Nordic region use the system price as reference price.
There are also standard financial contracts with reference to specific area prices.
By increasing the price in the deficit area, the members in this area will sell more and purchase less while in the surplus area a higher price will lead to more purchase and less sale. The area price calculation is iterated so that the capacity between the high price area and the low price area is utilized to the maximum. In this situation the flow of power will always go from the lower price (surplus) area to the higher price (deficit) area.
Whenever there are grid congestions, the Nordic area is divided into several price areas. The members’ bids in the bidding areas on each side of the congestion are aggregated into supply and demand curves in the same fashion as in the system price calculation. A volume corresponding to the trading capacity on the constrained connection is added as a price independent purchase in the surplus area and a price independent sale in the deficit area. In the deficit area the sale will give a parallel shift of the supply curve while in the surplus area the additional purchase will give a parallel shift of the demand curve.
The area price in the surplus area and the deficit area is found in the new equilibrium points given after the addition of the flow between the areas as purchase and sale respectively. The new price is now higher in the surplus aren and lower in the deficit area.
If the contractual flow of power between the bidding areas is within the limits set by the transmission system operators, then the system price is the only price for that specific hour throughout the entire market area. In this situation, the system price is identical to the area prices and also the settlement price for all power traded in that hour.
You can also read about price calculation principles.
The price for producers and consumers
The equilibrium point reflects the cost of activating the last needed MW. All producers that produce, and all consumers that consume power in a specific hour is then paid according to the equilibrium point, the market price. The producers with the lowest marginal cost will then earn a margin. The margin will be equal to the market price minus the producers marginal cost, as the producer is willing to produce at a lower cost than the final price.
For block orders, the same manner applies. If the average price in the selected hours are higher than the specified bid price, the producer gets paid the market price and may earn a margin. For purchase bids, the opposite is true, hence if the average price is lower than the specified bid price the consumer has to pay the market price. The market price might be lower than what the consumer is willing to pay, hence the consumer may earn a margin.