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“The power market has never been more volatile,” says Mikael Lundin, without any room for misinterpretation. As CEO of Nord Pool Spot, Europe’s leading power exchange, he knows what he is talking about.

Mikael Lundin sits at the helm of a Nord Pool Spot that has been growing since its inception in Norway and the Nordic countries in the early 1990s. These days, the Nord Pool CEO divides his time with Europe as well.

"A typical working day usually starts at an airport around six in the morning. Over the course of a week, I'll travel to Germany, Poland, Lithuania and Brussels, before landing in Stockholm Friday evening," he says.

Powertalk

Mikael Lundin, Knut FjerdingstadStatkraft's press spokesperson Knut Fjerdingstad talks with Nord Pool Spot power exchange CEO Mikael Lundin on the development in European power markets.

Market integration

The weekend is reserved for family time, and he is careful to protect it. If he thinks about work, it is to take joy in the success of the market integration in Europe. Nord Pool Spot has played a key role in the efforts to connect markets in Europe, a process called market coupling.

"We have worked intensely together with other major exchanges and system operators. The objective has been to ensure more efficient use of all electricity, and to increase liquidity when trade between various markets increases.

A complete change

For 20 years in the industry, Lundin has seen the development move from a market-happy deregulation to increased regulations of markets in recent years.

How would you describe the market situation in the Nordic region and Europe?

"After many years in the industry, I must say that it has never been more uncertain than now. It is very difficult to say anything about the future."

What makes it so uncertain?

"When the Nordic markets were deregulated in the 1990s, the politicians loosened their grip. Eventually, Europe did the same. The markets contributed to moving the industry forward and improving profitability. But now we are seeing a complete change with more regulation."

So it has become more difficult to predict what will influence the market in terms of regulation and directives?

"Yes, exactly. We don't know the direction. Will we see even more regulations, or will we continue to have a free market? Then we have the green development, with government subsidies of renewables that also increases this uncertainty.

I would go as far as saying that the EU has failed in terms of climate policy. Had the climate policy been based on market forces, it would have also provided Europe with a competitive advantage.

Let the markets work

It is early November, and 13 degrees C outside the power exchange at Lysaker in Oslo, Norway. This autumn has been one of the mildest on record and very wet. However, Mikael Lundin is not confident that the politicians will be able to find the most efficient solutions to the climate challenge. He believes the markets would be far better suited.

"We had an opportunity to let the market reign. The politicians could have kicked off the ETS system once more, but instead chose to do the exact opposite. I would go as far as saying that the EU has failed in terms of climate policy. Had the climate policy been based on market forces, it would have also provided Europe with a competitive advantage.”

What can the market do that the politicians can’t?

“The market’s advantage is an efficient allocation. There is no more efficient way than to have the market’s invisible hand govern it.”

What makes the ETS system so good?

“It is a genius system, but you need to have the calm to remain in it. If you let it deteriorate, it will not work.”

What do you mean by that?

“I mean that certain countries have various support schemes for renewable energy. Each country does what suits them best. In Germany, they are discussing phasing out coal, while Poland is modernising and developing new coal power plants.”

Lundin believes that the basis for a good climate policy is a coordinated effort, and that the climate challenge is a global issue that needs a great degree of coordination.

The market’s advantage is an efficient allocation. There is no more efficient way than to have the market’s invisible hand govern it.

Loves interconnectors

Despite all the challenges, the Nord Pool boss also sees reason for optimism.

"In Nord Pool Spot we love interconnectors – markets that are connected to liquid, transparent and major trading volumes."

And the consumer has to pay more for electricity?

"In some countries this is a touchy subject, where there is concern for electricity prices and the industry. But the Baltic states want as many interconnectors as possible."

The Nordic power industry wants interconnectors to avoid ending up with a major power surplus and collapsing prices. What is your view?

"That's the big question. I don't really have a good answer to that."

Realising synergies

European utility companies are struggling. Some acknowledge that the green development has slipped. Is this a "Kodak moment" for the power sector?

"No, not quite. Things are not moving as fast, and there are scenarios where the major companies bounce back. However, many have been stuck with the old technology for too long. This is what characterises most of the companies. In this regard, Statkraft stands out and has a unique position."

How do all the small-scale producers on the continent impact the market?

"Currently, the development is very much driven by subsidies. In order for this to work properly, they also need to take their share of the balancing obligations. Security of supply still rests with the system operators and the major companies."

Statkraft has had success on the continent by offering market access to small-scale producers?

"Yes, that is a good example of how synergies for the growth in renewables are realised. This is what I mean when I say that the major companies can regain some of the command they have lost."

Mikael Lundin

AGE: 48 years

POSITION: CEO, Nord Pool Spot

EXPERIENCE: 20 years executive experience in the power sector

EDUCATION: Stockholm School of Economics

FAMILY: Wife and daughter

 

Glossary

MARKET COUPLING: Term used for the connection of power exchanges and system operators in northwestern Europe.

EU ETS: Emission Trading System, the EU's most important measure to curb carbon emissions.

KODAK MOMENT: A sentimental or charming moment worthy of capturing in a photograph. (The expression was originally used to promote Kodak.) In business, its refers to a company that has not – like Kodak – kept up with modern developments.

SMART GRID: Smart electricity, a technology that enables consumers and the entire power grid to manage consumption.

Uncertain, but exciting

Nord Pool Spot has had major success. Will it continue?

"I'm very optimistic on behalf of Nord Pool Spot. Trading is moving towards shorter time horizons, and the need for a well-defined reference price has never been greater. The entire smart grid technology is driven by a well-defined spot price."

You have talked about the uncertainty in the market. How about job opportunities?

"The number of full-time equivalents might decrease, but the content of the jobs increases. This uncertainty will lead to even more exciting tasks."

Lundin glances at his watch. The day's "magic moment" is drawing near. This is when the invisible, yet efficient, hand of the market will do its thing. Throughout the morning, the various players report their production plans, power demand, and relevant transmission capacity. At 12:42 sharp, the prices are made public in the market.

"For a time I worked with stock portfolio management. The nice thing about power trading is that it is combined with a product that is important for society. Both the employees and I are very proud of this."

Text: Knut Fjerdingstad
Photo: Tommy Andresen
Also published in Statkraft's magazine People & Power no. 4/2014