The dynamics and distribution of the area price in the Nord Pool

The Nord Pool is often cited as a standard and successful electric power exchange. It was first created in Norway and developed into the power change system covering the Nordic countries. The Nord Pool provides a physical market where electricity producers and consumers/distributors meet by submitting bids for sale and purchase for 24 h time segment. If there does not exist a restraint of transmission capacity across the member countries, a single price—system price—is calculated by the intersection of the demand and supply curves, whereas if there exists congestion of transmission lines, area price instead of system price emerges. We are interested in analyzing how often and how far the two prices diverge and the probability distribution of the price ratio between system and area price. We found that the price ratio does not follow the normal distribution but the distribution is fat-tailed.