Norwegian measures in the electricity derivatives market not needed now

The Norwegian authorities closely monitor developments in the financial power market, and are in constant contact with other Nordic authorities. The measures announced in Sweden and Finland may reduce the risk of distress in the Nordic financial system. At present, there is no need for Norwegian measures, but this is subject to continuous assessment.

Due to high and volatile electricity prices, electricity producers and others who hedge prices in the electricity derivatives market must provide more collateral to meet margin requirements. The electricity derivatives market in the Nordics is closely integrated, and is mainly based on infrastructures in Norway and Sweden, including a central counterparty in Sweden (Nasdaq Clearing). To avoid defaults from solvent electricity producers due to a lack of liquidity, the Swedish government has announced a guarantee scheme for loans to electricity producers. The Finnish government has announced a separate scheme for Finnish electricity producers.

Norwegian hydropower producers have high profitability and are not known to have challenges in securing market funding. However, any financial issues with other producers in the Nordic region may affect Norwegian producers’ opportunity to hedge prices. Significant defaults at the central counterparty in Sweden may also have damaging effects on the rest of the Nordic financial system. Measures aimed at challenges in the Swedish and Finnish markets therefore contribute to promoting financial stability throughout the Nordic region.

The Ministry of Finance, the Ministry of Oil and Energy, Norges Bank and the Norwegian Financial Supervisory Authority are closely monitoring developments. There is no need for Norwegian measures now. The need for measures is assessed on an ongoing basis, also in the case of any individual solvent participants who may face liquidity challenges.

Background

The physical trading of electricity in the Nordics takes place on the Norwegian exchange Nord Pool. In the electricity derivatives market, various participants enter into derivative contracts to hedge prices or speculate on price movements. The derivatives are either standardized and traded on the Norwegian exchange Nasdaq Commodities, or bilateral between participants.

The derivatives traded on Nasdaq Commodities are subject to clearing at the Swedish central counterparty Nasdaq Clearing. A central counterparty enters into a trade between buyer and seller, and becomes counterparty for both parties. In order for the central counterparty to be able to guarantee settlement, the parties must provide collateral. In addition to being the central counterparty for trading on Nasdaq Commodities, Nasdaq Clearing is also a central counterparty for other financial markets in the other Nordic countries.