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Large scale hydropower investments in Norway for balancing wind power in Northern Europe will not be possible without adequate market arrangements. The market covers the production of electricity at power stations and the import of electricity through interconnectors for the purpose of resale directly to large industrial customers or to retailers.

Driven by the system’s physical ‘balancing needs’on both short medium and long term, decisions to invest in new hydropower generation facilities with pump and storage capabilities will have to consider the possible revenues on the various arenas for electricity trade: spot market, regulation market, ancillary service market and not at least, medium and long term contract possibilities.

Here we work with a rather broad definition of the ‘balancing’ services which does not exclude more detailed assessments, once data and simulation results on the balancing needs are available. The Norwegian hydropower system has been traditionally used to cover peak load (export) during the day and to import during the night (or in low load periods). In the Nordic interconnected system, hydropower from Norway has been used in smoothing out the heat power and reducing start and stop costs of these generation capacities. Due to the steady increase of renewables (largely wind power) the time aspect of ‘balancing’ can change from daily, slow variations to more unpredictable short term (within one hour) generation variations.

To study a systems 'balancing' capability, one has to look at system adequacy and system security. These two aspects refer to having sufficient generation capacity in the system in the long-term perspective and providing sufficient operating reserves in the short-term operation of the system. While the latter is handled within Balancing Markets, the former might be addressed by Capacity Remuneration Mechanisms (CRMs) or Capacity Markets as one of the alternatives of CRMs.