A gas or power connection between two different locations
Usually used to flow gas or power from a lower priced location to a higher priced location
Interconnectors consist of either a pipe, or cable connecting two hubs or grids
For a trading company the process of flowing gas or power from one location to another goes as follows:
Procure capacity on the interconnector
This may be through an auction, mainly annual and day ahead, or in some cases through a secondary market (i.e. buying or selling capacity to other organizations)
Capacity is usually bought in flow rate units (e.g. Nm3/hour for gas, MW for power) over a period of days, a month, quarter, years etc.
Capacity on an interconnector is much like an option on a location spread
Capacity gives the right, but not the obligation, to flow gas or power from one location to another
In order to use the capacity the trading organization needs to nominate transmission of gas or power to the TSO
Let's say we have a long term capacity contract to flow power from the France to the UK through the IFA
Noticing the price of power is less in France than in the UK so we nominate to the TSO that we will flow power (up to the capacity flow rate), using the capacity.
We normally book this as a trade in our ETRM, but there is no change of title - this is an internal trade
We usually book this trade at a fair market price to keep P&L shifting between locations
Obviously we need to hedge this with an appropriate long position in France (we buy the power in France) and a short position in UK (we sell the power in UK)
» Detailed Glossary
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