Integration progresses in the European electricity market

The launch of a cross-border, intraday market model is an important step forward, but the European electricity market needs more changes, believes Tomasz Sikorski, Vice President and COO of PSE, which is the Polish Transmission System Operator.

“The electricity market in the Baltic region is already quite well integrated, but there’s still room for improvement,” says Tomasz Sikorski, Vice President and COO of PSE, Poland’s Transmission System Operator. He notes that all of the countries in the region are already part of the day-ahead market, which makes daily operations smoother.

“The next important integration step will be a pan-European intraday market allowing continuous trade throughout the continent. Implementation of this market will certainly be a challenge for all TSOs and electricity exchanges,” explains Sikorski. The market is expected to launch in the first quarter of 2018.

The solution will involve the use of so-called “local implementation projects”, in which the actors do regional, cross-border cooperation. For example, PSE’s partners are Lithuania and Sweden. This cooperation is still in its early stages, but the parties believe that implementation could happen in late 2018.

Getting more out of infrastructure

TSOs in Poland, Lithuania and Sweden have also decided to create a new price area in Poland. The main target is to make more efficient use of existing electricity transmission infrastructure and bring more transmission capacity to the electricity market. The new price area will significantly increase commercial transmission capacity between Sweden and the Baltic countries.

According to Sikorski, the Polish electricity market should be based on sufficient market expertise so that both electricity and money move the “right way”. He believes that there are four key points to building an electricity market: reliability of the electricity system, economic efficiency, compatible incentives and a transparent model.

From PSE’s viewpoint, the current European market model is changing constantly and does not meet the requirements for an effective market. This means that finding a new and more systematic approach is even more important:

“A decisive factor in coping with future challenges is to send the right price signals to the parties so that we can offer real incentives to all grid users. This will lead to more efficient use of resources.”

 

Price area thinking doesn’t work

Sikorski says that a model based on price areas is not the best possible, because each area has its own transmission problems. This certainly doesn’t make price integration easier. The end result is skewed price signals that are difficult to coordinate – and the larger the price area, the greater the number of pricing errors.

In comparison to Finland, Poland’s main grid is weak in many places, which means that transmission bottlenecks make it impossible to balance prices in large price areas. In a point-of-connection pricing model, different points of the main grid have different prices, which divides the market into small areas.

Poland’s electricity market is moving towards a more functional point-of-connection system, and Sikorski says that the same applies to other parts of Europe. PSE believes that help will also be needed from the capacity market side. The objective is a completely market-based mechanism that collects – in advance – all the energy production resources needed to cover future energy consumption needs.

Price-conscious appliances

The future will also bring other changes, such as the “final” breakthrough of smart devices. Sikorski believes that once all appliances – from washing machines to electric cars – begin to independently search for the cheapest time to charge electricity, energy pricing will become a big topic of discussion.

“Sooner or later price will become the only mechanism that steers energy consumption and production,” he states. Sikorski is certain that Fingrid and PSE will continue their good cooperation in this field as well. •

Poland is becoming active in the energy discussion

Vice President and COO Tomasz Sikorski’s summer visit to Fingrid brought a message that, following a quiet period, Poland is once again taking a role in Baltic region energy cooperation. At the same time, Poland’s transmission system operator PSE will become a concrete part of this cooperation as it prepares a joint electricity market area with Lithuania and Sweden.

“For Fingrid, it’s important that Poland and PSE have returned to Baltic region cooperation. The EstLink connections mean that Fingrid has a big role in the Baltic region, and this is why it’s important to also have Poland at the negotiating table and bringing its views on the expanding market,” says Fingrid’s President and CEO Jukka Ruusunen.

The huge electricity market changes taking place in Europe will present Poland with many challenges. Poland currently produces a large part of its energy with coal, and coal mining is important in terms of the country’s employment. The main grid is weak i n many places and this is why Poland is interested in a point-of-connection pricing model in which the price of electricity is determined at different points in the grid. A change in the energy system is inevitable before long, but it must be done in stages and in a controlled manner. The driver in this process will be the price of electricity, because in the future producing renewable energy will be much more cost-efficient than the traditional method.

“Poland’s cooperation with Lithuania and Sweden is a good step towards operating on market terms. This will have an indirect impact on Finland: earlier, when transmission capacity was increased between the Baltic countries and Sweden, the transmission capacity between Finland and Sweden was also indirectly increased and we may have received electricity from southern Sweden. This development continues and expansion of the joint market will also continue to balance prices in the Baltic region,” states Ruusunen. •

 

Vice President and COO Tomasz Sikorski (on the right) from Poland’s PSE transmission system operator met Fingrid’s President and CEO Jukka Ruusunen early in the summer. PSE’s management group and IT organisation also took part in the discussions.