Comments on electricity markets and the Nordic Balancing Model: Work to be done; efficiency cannot be compromised

We asked four electricity market specialists how they see electricity markets developing and the Nordic Balancing Model progressing as representatives of their organisations. The responses reveal concerns over the continued transparency of electricity markets and the costs of the Nordic balancing model. There is work still to be done, as the 15-minute imbalance settlement period will require a substantial change to electricity metering.

1. Which aspect of the development of electricity markets are you currently keeping an eye on?

2. What are your views on the Nordic Balancing Model, including the transition to a 15-minute imbalance settlement period?

Petteri Haveri, Senior Advisor on the Energy Market at Finnish Energy

1. We are closely monitoring European energy policy to ascertain whether it focuses on mitigating climate change and reducing emissions or whether public funds will be used for investments that can also be made on market terms.

Petteri Haveri, Senior Advisor on the Energy Market at Finnish Energy.

It is vital for market terms to prevail. In Finland and elsewhere in Europe, the amount and proportion of emission-free electricity generation with limited controllability is increasing and will continue to increase. As the generation side becomes less flexible, it is becoming more important for electricity consumption and various new applications to participate in the market and to react to prices. This holds true from the perspective of individual customers as well as the market as a whole.

2. For balancing power and imbalance settlement the switch from an hourly price determination period to a 15-minute period is not a huge one, but a lot of work needs to be done to switch from hourly metering to a 15-minutes’ metering. Good work has been done in Finland to enable the transition to a 15-minute imbalance settlement period, and metering will be switched to the 15-minute period as cost-efficiently as possible, starting with the customers that consume the most energy. Companies have already begun working on this.

The Nordic balance management entity is usually encumbered by a needlessly technical approach, and there should be greater trust in the power of markets to enable reliable electricity transmission with the help of price signals. Functional electrical markets are the transmission system operator’s best friend, and obstacles to trading should be removed rather than added. As the power system becomes more weather-dependent, it is crucial to have the opportunity to trade right up until the hour/quarter-hour of delivery, as well as the possibility to react to the needs of the system during the delivery period.

 

Marja Kaitaniemi, Project Development Manager, Neoen Renewables Finland Oy

Marja Kaitaniemi, Project Development Manager, Neoen Renewables Finland Oy.

1. We are monitoring the price of electricity and long-term price trends particularly closely. As almost all of the wind power connection is nowadays based on Power Purchase Agreements (PPAs), we are closely monitoring long-term price trends in PPAs to gauge the types of prices available under such agreements.

Connections to the grid and the costs of connections are also being monitored. In Finland, this works well with Fingrid. This is not the case everywhere in the world. During the project planning phase, it is important to be able to discuss the areas that offer favourable building conditions with regard to grid connections.

2. The transition to a 15-minute imbalance settlement period will certainly have a visible impact on us. We must be able to forecast the generation volumes precisely, and this will be challenging for wind power generators. Overall, this is a fair and sensible policy. We understand it, and we will do all we can to adapt to it.

Balance management agreements are made for long periods, and we know that the costs of balance management will rise. We are actively carrying out forecasts, as other factors will also influence the cost level. On the other hand, the costs of generating wind power will decrease as technology develops. We estimate that the cost change introduced by balance management will not affect investments.

Pasi Kuokkanen, Managing Director, Association of Energy Users in Finland (ELFI)

1. We are the advocacy organisation for major electricity users, and the majority of our members participate in the demand-side management market. The functionality of electricity markets is a critical matter for us to monitor, as price is always a consequence of market functionality.

Pasi Kuokkanen, Managing Director, Association of Energy Users in Finland (ELFI).

The most urgent issue for ELFI is price hedging, which is inextricably linked to electricity purchasing. The EPAD product has not adequately hedged the price of electricity, as the product is not genuinely advanced. The Nordic system price has become too detached from the realistic price level, and it is detrimental for Finnish electricity users. Competition between financial exchanges would sort this issue out.

2. ELFI has been involved in commenting on the Nordic Balancing Model in the EU, the Nordic countries and Finland. There are still a lot of question marks and plenty of room for improvement.
When the Nordic countries integrate more closely with European electricity markets, market structures will also change in Finland. Planning is not always conducted in accordance with the best possible model or legislation; other variables include the size of the market. As a group, the Nordic countries represent a small proportion of consumers in Europe. Will we, therefore, take a more agile approach, or will we follow EU values or go even more slowly?

The Nordic countries have been pioneers of the functionality of electricity markets. The debate has been very open, and Fingrid has played an important role in it. We are increasingly required to use the European models that are handed to us. We are joining the common European market platforms MARI and PICASSO. It would go against the spirit of the common market if we delayed our entry. Delays would not be in the interests of buyers.

It is possible that the electricity market will become more difficult to understand in the future. If the number of bilateral agreements increases, the market suffer from a loss of transparency and liquidity. The transition from the one-hour to 15-minute settlement period will require buyers to do more work than before. This will call for additional resources, thereby increasing the cost of purchasing electricity. In conjunction with this change, buyers will also have to think about whom they collaborate with in these new circumstances. Competition is evolving, and companies’ market shares are changing, but will the market be more efficient for buyers?

Esa Ukkonen, Energy Director, Stora Enso

Esa Ukkonen, Energy Director, Stora Enso

1. The security of energy supply and a competitively-priced main grid service play a part in safeguarding the competitiveness of energy-intensive export companies, and will continue to do so. Fingrid’s activities should continue to focus on how these factors can be secured together with national and EU climate goals, the integration of the energy sector and the increasing renewable electricity generation capacity.

2. The transition to a 15-minute imbalance settlement period is doubtless a development path for the electricity market brought on by the introduction of varying renewable electricity generation capacity to the power system. For us, this means that a shorter imbalance settlement period requires more active forecasting of the power balance, as well as balance management measures. On the other hand, this could present us with new opportunities as market participants, for example, via digitalisation.

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