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The electricity market needs fixing

The change currently underway in the electricity system requires a new kind of energy policy and stronger markets, Fingrid said when addressing the topic this spring.

While proposing a number of concrete measures to restore the viability of the electricity market, Fingrid also expects comments and views from industry actors and spokespersons. Comments were requested from Fortum’s President and CEO Pekka Lundmark and chair of the Green League Ville Niinistö; read their thoughts on the following pages.

Subsidies to renewable energy disturb the market

Fingrid emphasises that the Nordic electricity system is facing significant changes. The transition to low-carbon electricity production will bring enormous changes.

National subsidy systems have, in a short time, significantly increased the production of renewable electricity on the Nordic electricity markets.

This has caused an energy surplus on the electricity market, as a result of which the market price for electricity has crashed to an artificially low level. Market-based electricity production has had to be phased out. In Finland, the production capacity of flexible condensing power has collapsed and Sweden has made decisions on the premature closing of nuclear power plants.

“These days, the electricity markets don’t have the preconditions for market-based investments. This trend is extremely worrying, because the viability of the electricity markets is weakened and the security of electricity supply is under threat,” says Fingrid’s President and CEO Jukka Ruusunen.

In the future, we may be forced to subsidise all electricity production, which would be very expensive to society. Until now, the market mechanism has guided the movements of electricity extremely efficiently.

Seeking to end price regulation

Along with solutions related to energy policy, the electricity markets must be developed so that they provide the system with market-based flexibility. This means removing all price regulation from the electricity markets. Thus, we’d face more varying prices for electricity but, especially in the long term, the resulting cost efficiency would benefit all of society.

In its opening address, Fingrid also presented a number of concrete measures to improve the functioning of the markets during the transition period towards the electricity system of the future. The measures are related to things such as the pricing of regulating and balancing power, power reserve and the linking of retail and wholesale markets. Households should also be able to enter the real-time regulating power market to benefit from demand response.

“I hope that decision makers are brave enough to commit to market-based options on the way to the electricity system of the future. Achieving climate targets is the starting point, but it’s also a question of doing it either cost-efficiently and on a market basis, or inefficiently with centralised control,” states Jukka Ruusunen. •