Electricity market | Professor: The electricity market will function exactly as it should on Friday – “It's not worth fixing what isn't broken”

Power the stock market price was insane on Friday. In these freezing temperatures, a single-family house with electric heating easily consumes more than 100 kilowatt-hours per day, even if the heat is turned down and it lives on an energy saving flame anyway.

That means an electricity bill of more than one hundred euros for one day.

During the past year, an even greater number of Finns have chosen exchange electricity, and therefore Friday's price spike will also be felt in the wallets of even more people. On a day and week like this, they want to forget the days when consumers were even paid for the use of electricity.

Friday's extreme situation again attracted a lot of comments. In addition to the political opposition, defenders of consumer interests and commentators from numerous social media groups participated in the discussion.

To the electricity market the specialized professor is talking to market smokers and demanders of new coal-fired power plants.

“The basics of the electricity market functioned exactly as they should on Friday. When the price gets high, consumption is cut and the balance is maintained,” says the professor of electrical engineering at Lut University Samuli Honkapuro.

Friday's high prices cut consumption more than anyone expected. In the end, at least in the morning, electricity consumption was about a thousand megawatts lower than what the grid company Fingrid had predicted.

On the other hand the actual consumption of the entire first week exceeded forecasts briskly, despite the relatively high prices. According to Honkapuro, throwing forecasts indicates that the market still does not understand very well how consumption is flexible in relation to prices.

“It's quite a new thing that consumers have a very wide range of exchange electricity contracts in use. Market players still don't know how to fully predict how consumers will react,” he says.

Fingrid predicts electricity consumption at the system level. Instead, all actors in the electricity market predict themselves how much electricity they or their customers will consume, and buy it accordingly. Fingrid is not responsible for market participants' own forecasts.

Even though Oomi or Fortum predict, based on their own models and temperature, how much electricity consumers and companies consume. The forecast should be as accurate as possible, or the company may lose money.

“The companies that sell electricity have bought electricity in advance either on the spot market or with bilateral agreements according to the forecast. When electricity is consumed clearly less than forecast, they have to sell the excess electricity cheaper than the purchase price either on the intraday or regulated electricity market”, says the Director of the Energy Industry Pekka Salomaa.

Of course, the electricity producing companies could also make big profits at the peak price of electricity.

On Friday the prices hit as it were, at least compared to the actual consumption.

CEO of Energiateollisuus ry Jukka Leskelä. Picture: Annika Kangasmaa

CEO of the energy industry Jukka Leskelä says he understands well why people question the operation of the electricity market in extreme situations like Friday's.

“The energy crisis that started a year and a half ago raised fears about whether our system would work at all. Days like this bring that fear back to the surface,” says Leskelä.

According to Leskelä, Friday's price spike is most likely very exceptional, and there is no reason to assume that something similar would happen often. It may be that similar days are experienced, for example, only once in ten years.

The extremely high price is due to the combined effect of the long-lasting cold season and the unexpected disruptions of the power plants. Already on Saturday, the price of electricity will return to normal.

Honkapuro reminds that even in the past week the system has worked very well and the market has taken care of the balancing without the need for intervention. Fingrid has actually not had to implement exceptional arrangements during the entire energy crisis.

“We have been warned about power shortages many times, but not once has it happened. In other words, the market has worked. After all, Fingrid has reserve capacity for unexpected situations or possibilities to exclude consumption, but we haven't had to resort to them,” he says.

On Friday, the energy minister Kai Mykkänen brought up the idea of ​​putting the capacity mechanism into use, which was also recorded in the government program. It means that standby power would be purchased for the system, which could be used to balance production in the event of a shortage.

It is not easy to fit this kind of reserve power into the electricity market. According to Honkapuro, it is not impossible.

By capacity auction however, the acquired backup power would be an expensive remedy for a problem that doesn't really exist. If there has been enough electricity even through the crisis, and the price has been affordable on average, why would backup power be needed?

“I hate it when people talk about whether we have enough production capacity. The right question is whether we have production and consumption in balance. Until now, it has always been,” says Honkapuro.

If spare capacity is built, it is paid for every hour. In practice, the price is ultimately paid by the consumers.

According to Honkapuro, from the point of view of the whole system, it is much cheaper that the necessary flexibility comes from price-flexible consumption.

“The wisdom of an engineer is that it's not worth fixing what isn't broken. Strong price fluctuations make, for example, the construction of various electricity storage and consumption flexibility options really profitable. In the end, it leads to an even more cost-effective system,” he says.

Even last year, although the beginning of the year was still marked by the energy crisis, electricity on the exchange was on average affordable. The taxable average price for the whole year was seven cents per kilowatt hour. There's no reason to assume that this year won't end up being the same.

“We have seen such comments today that we would repeatedly be in this situation. That's not true,” says Leskelä of Energy Industry.

Power According to Honkapuro, the strong fluctuation of prices is a characteristic of the electricity system, when a huge increase in renewable energy production has been built, and there is still not enough flexible consumption.

It can be thought that the foundations of the entire electricity system are completely different now than when Southern Finland last experienced a similar frost season. That's why prices also react very differently.

Almost all coal and natural gas condensing power plants ha
ve disappeared in Finland in the last 20 years. They were fast, flexible production that effectively smoothed out price fluctuations.

The Meri-Pori power plant is Finland's largest coal-fired power plant located in Tahkoluoto, Pori. Picture: Heikki Westergård / People of Satakunta

The EU emissions trading set a high price for carbon dioxide emissions and drove coal power out of the market.

That too has reduced the flexibility of the system that Russia's import connection of approximately 1,300 megawatts was closed a year and a half ago due to the war and sanctions. The transmission connections and thus the control power will be improved when the new Aurora transmission connection is completed in northern Sweden in 2025.

It increases Sweden's possibility of importing cheap hydroelectricity to Finland by about 800 megawatts, and can contribute to lowering prices in Finland.

Price fluctuations have also been increased by the fact that the European electricity market has united. Although the merger in theory equalizes prices, the Finnish market is now between two extreme price areas. That's why the prices vary very sharply.

When Finland also has plenty of its own electricity production, the cheap price level of northern Sweden prevails in Finland.

On Friday, when there was little domestic production in Finland, the price was determined according to the very expensive prices in the Baltics.