Electricity market | Fingrid: The Finnish electricity market has a problem – “Frankly, last week was a pretty rough situation”

In the electricity market there have been exceptional situations a little too often and there should somehow be a solution to them, says the recent CEO of grid company Fingrid Asta Sihvonen-Punkka.

Last week, electricity consumption clearly exceeded Fingrid's predictions for the peak consumption on a bitterly cold day, and at the same time there was a lull and several power plants were scattered.

In August, on the other hand, the price of electricity hurt when border lines were closed, nuclear power plants broke down and at the same time it was very quiet.

“Last week, frankly speaking, we had a pretty tough situation. It was record cold and consumption was high for many days. At the same time, we have a lot of production capacity that varies depending on the weather, and it was not possible to predict with certainty even a few hours ahead how much electricity will be available,” says Sihvonen-Punkka.

The production of wind turbines depended on the movements of the weather front.

“These situations have made it clear that we need some kind of mechanism to get new weatherproof and flexible power plants, and we need it faster than just at the end of the decade,” he says.

Fortum's manager Simo-Erik Ollussen said Thursday in Helsingin Sanomatthat the extreme fluctuation in electricity prices indicates that something is wrong in the market.

Ollus thinks that the electricity system is already too efficient and the price fluctuations are too large at times. The system should get more stability-producing production, for example, with a capacity mechanism that works through an auction.

Fingrid's Sihvonen-Punkka also considers the capacity mechanism a possible solution. It would be important to obtain regulated and supply-reliable electricity production as much as possible on market terms, which would ensure the sufficiency of electricity for longer than just a few hours.

Fingrid does not want to specify the technology, as its selection must be based on market conditions. According to Sihvonen-Punka, one possibility is even multi-fuel engines, which are made in Finland by Wärtsilä. They can also use renewable fuels.

“Fingrid in itself has the capabilities to cope with difficult situations. We can no longer think that all of this can only be managed with consumption flexibility.”

According to Sihvonen-Punka, Fingrid already concluded last year, after investigations, that in the long term, some kind of incentive mechanism is needed in any case, in order to build sufficient electricity production capacity in Finland. The grid company constantly performs scenario work predicting the long-term use and production of electricity.

Its instead, Helen's CEO Olli Sirkka not enthusiastic about the capacity market presented by Fortum's Ollus.

“Battery investments are starting to look profitable right now. They should not be deprived of incentives or create too much uncertainty,” says Sirkka.

In Sirka's opinion, intervening in the market easily endangers current investments in flexibility mechanisms that utilize electricity price fluctuations. Their need has been highlighted in recent years by many parties.

“The large price fluctuation has brought a market-based incentive to build flexibility capabilities. Helen has invested quite a lot in heat storage and batteries in connection with wind power parks. Demand flexibility is also being built with customers.”

Sirkka says he is optimistic that the balance of the electricity system will be found through market mechanisms and the flexibility they create.

“I agree with Ollus that the industry should have a common long-term vision of which direction to go and what kind of balance is desired between different forms of production, if everyone can then commit to it,” says Sirkka.

In Sirkanki's opinion, in the very long term, some kind of mechanism may be necessary to achieve sufficiently versatile electricity production. But it must be market-based and “smart”.

Job- and the Ministry of Economic Affairs and Trade (TEM) said a week ago that it would start an investigation into the possible capacity mechanism, because the matter is included in the government program.

General Manager of the Energy Department Riku Huttunen emphasizes that there is at least no known quick solution. First we will find out, then a possible working group will sit and if it is decided to proceed, the draft law could be ready in about two years.

“If a capacity mechanism or some other mechanism to achieve weather-proof production is desired, one must consider that at the same time incentives for market-based investments are not removed and that the means are right in relation to the goal,” says Huttunen.

According to him, first of all, you have to think carefully about what the possible changes are aimed at.

“From the civil servant's point of view, it is above all about the sufficiency of electricity and reliability of supply in all conditions.”

Finland responsible for the energy business of the second largest electricity producer forest company UPM Tapio Korpeinen considers it good that the adequacy of electricity production is discussed. But, according to him, you also have to be careful when looking for solutions, and not jump straight to conclusions.

“You have to think about what problem to solve. If the problem is the very high prices experienced by consumers from time to time, perhaps the most important thing would be to get the electricity derivative market to work in such a way that it would be possible to build better electrical products for consumers,” says Korpeinen.

According to him, the Nordic energy market itself has worked well in short-term balancing. Consumption has a
lways been flexible in a tight situation and production and consumption have found a balance.

Longer in the long term, Korpeinen also believes that the development of electricity production must be planned as a whole.

“For the longer future, we need some kind of model where capacity also has some kind of value. Otherwise, the situation will not improve at least from this, but will rather worsen, when renewables are wanted and there will be more,” says Korpeinen.

According to Korpeine, building a model that works in practice is not simple. The risk is that the market will be distorted or even that by supporting new production, the old one will be driven out of production.

“How can Fingrid or anyone else predict how much capacity will be needed in 2030, when it didn't even succeed last Friday.”