Electricity market | There is something wrong in the electricity market, says Finland's largest electricity producer

of the electricity market the official line in Finland is that swinging is good. When the price of electricity fluctuates widely according to demand and winds, affordable renewable electricity production and, before long, also flexible electricity consumption will appear on the market.

It has been thought that the market guides investments as efficiently as possible. In the end, the growth of green electricity production will also bring green industrial investments to Finland.

Director of the major customers and markets unit of Finland's largest electricity producer, Fortum Simon-Erik Ollus now challenges this thinking. According to Ollus, the electricity market in the Nordic countries and Finland works quite well in what it was created for: It produces electricity extremely efficiently and the average price of electricity is affordable.

But extreme efficiency means that there is no extra adjustment capacity in the system, because it is not worth maintaining it under these conditions. It leads to extreme price fluctuations.

Last year, the average electricity price was negative on 11 days. Last Friday, the most expensive electricity on the market was 2.35 euros per kilowatt hour.

According to Ollus, both situations are disturbances in the market, which indicate that there is something wrong with it. With negative prices, electricity is wasted on magpies. Friday's exorbitant prices meant that some people had to compromise on heating their homes – the basics of life.

According to Ollus, even industry considering investments does not want such an electricity system.

“Nordic an electricity system where you only pay for the energy produced is an exception in the world. In many countries, the system has a so-called capacity market alongside the energy market, which creates stability in the market,” he says.

According to Ollus, the capacity market would encourage the operators of the electricity market to invest in the kind of electricity production that produces other features needed by the electricity system than just cheap electricity.

In the current market, it is worth investing only in the cheapest production. It is wind and solar power, the output of which varies depending on the weather. They do produce a lot of electricity on average, but the production is random.

What capacity market then really mean? In the simplest terms, it means that the operator responsible for the operation of the system (Fingrid in Finland) would buy a specified amount of weather-independent production from the cheapest bidder for one year at a time.

This production would be paid a fixed compensation to keep it on the market.

“In many countries, power is purchased a little more than the estimated peak power need, if it is cheaply available,” says Ollus.

Current the market system has led to the fact that rapidly flexible electricity production has disappeared from the Finnish market almost entirely, with the exception of hydropower.

A power fee could ensure that sufficient weather-independent production would remain in the supply for those situations when the demand for electricity is high.

The capacity mechanism is different from the power reserve used in Finland, where, for example, Fortum's Meri-Pori coal-fired power plant was in previous years. The power reserve can only be used when the system threatens to run out of power, but it must not be used just because of a price increase.

Production purchased on the capacity market, on the other hand, would participate in the market as normal. The capacity fee would provide that small extra that would make it profitable to maintain an adjustable power plant, even if it only happened occasionally.

Capacity market can also be used to guide investments. Then the company building new production would receive a capacity payment for, for example, 10–15 years.

Ollus thinks that the introduction of the capacity market would at best mean a kind of plate model of the electricity system, in which one would have carefully thought about the direction in which the system is to be steered far into the future.

Experts and (no doubt politicians too) would decide how much it makes sense in Finland to have variable production depending on the weather, how much steady base power is desired, how much quickly adjustable production or consumption.

Lines based on this, an auction would be organized for the price at which new production of a certain type would be created.

“The capacity market would reduce the risk of these investments. For example, the construction of pumped power plants or new nuclear power would become easier.”

The total cost of capacity charges would be collected from all market players, for example, as main network charges, which would eventually flow through the system to be paid by customers as transmission charges.

According to Ollus, it would be good to have a slight overcapacity in electricity production as a final result. The daily electricity market would still function as before, i.e. the so-called running order of the power plants would be determined by supply and demand.

Excess capacity and an increase in weather-independent adjustable production would lead to the fact that the price of electric energy itself would probably decrease and price fluctuations would decrease.

As a whole adding a power or capacity market to the electricity market would still make the current system more expensive.

Professor of energy technology at Lut University Samuli Honkapuro told HS last week that from the system's point of view, it is cheaper that the necessary flexibility comes from price-flexible consumption than from production maintained with a power fee.

“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 said.

“

Customers considering large investments in Finland are scared by the current fluctuation in prices.

Ollus in my opinion, however, extreme price fluctuations do not really serve anyone anymore.

“From the point of view of the national economy as a whole, I believe that the capacity market would ultimately be more affordable than extreme fluctuations.”

Increasing wind power both on land and at sea is justified by the fact that the production of renewable electricity attracts large green hydrogen-based investments to Finland.

However, according to Ollus, industrial customers and especially customers considering large investments in Finland are already scared by the current fluctuation of prices.

“We are also responsible for large industrial customers. In those discussions, it has become clear that very few people want to build, for example, hydrogen-producing electrolyzers based on fluctuating production, but emission-free electricity should be available 24/7.”

Finnish large companies are also worried about price fluctuations. to the freshman of the OP group According to a large business survey 69 percent of large companies estimate that price unpredictability weakens their company's competitiveness.

capacity market there are many examples in the world, so there would be no need to invent it from scratch. Some kind of power market is in use in Europe, at least in Poland, France, Ireland, Great Britain, Belgium and Italy.

In Finland's current government program, it is written that a capacity mechanism will be created in Finland, which is practically the same thing as a capacity market. The Ministry of Labor and Economic Affairs is starting an investigation into the matter.

In Sweden, too, the government is discussing how to get more stable electricity production.

According to Ollus, there is no life-threatening situation. In the short term, Finland's situation will be eased by the completion of a new 800 megawatt transmission connection to northern Sweden in 2025.

“Things have to be thought through carefully when changing the market.”

Fortum's The Meri-Pori coal condensate power plant is the last of its kind in Finland. This winter, the power plant has produced electricity when the price has risen so high that the price of coal and emission rights will be covered.

At the beginning of March, however, the power plant will be transferred to the arsenal of the Security Service Centre.
It therefore no longer normally participates in electricity production, but is kept on standby only for emergency situations.

Otherwise, the power plant would be closed. Next winter, the market will therefore still lack 500 megawatts more of regulating power that kicks in at peak consumption than this winter.

Ollus does not miss the fact that Meri-Pori would have been kept running with a power charge.

“In any case, Meri-Pori would hardly have the kind of adjustable and stable capacity that Finland wants in the future. I would see pumped power plants, batteries, for example gas engines running on hydrogen and also nuclear power there.”

Read more: In Finland, there is a system in case of a power shortage – why wasn't it in use on Friday?

Read more: Did the electricity producers make a giant account with Friday's peak prices?

Read more: The “big kettle” heats more and more homes, and money is saved – “The thermal water tank was filled at the weekend”