Towards the power system of the future – developing the market together

The change in the electricity system is underway. The driving force is climate change and its prevention. Emissions trading and targets for renewable energy and energy efficiency are speeding up the change of the entire energy and electricity systems to carbon-free. PUBLISHED 2.11.2016

The change has had a significant impact on the electricity market. The sharp growth in production that varies according to the weather has increased the supply of electricity, while the economic downturn has decreased consumption. Consequently, the price of electricity has come down, added to by the lower prices of fuels and emission rights.

The equation has become challenging for the electricity market: while the increase in varying production requires more flexibility from the system, adjustable production providing flexibility, such as thermal power, has been removed from the market.

In mid-May, Fingrid published a discussion paper highlighting the challenges of the electricity market and possible measures to strengthen it. The fundamental question was how to enable the change to the carbon-free electricity market of the future. Two opposite alternatives for implementing the change are market-based and centrally controlled electricity systems. The best choice is a market-based system, where price efficiently guides the production and consumption of electricity, as well as related investments. The change to a carbon-free electricity system should happen in a way that doesn’t weaken the security of supply and is cost efficient.

Feedback on the discussion paper was requested by mid-September, and we were happy to receive a lot of it. Thirty-six written responses presented the versatile views of different market parties on market development.

Areas discussed included the development of the day-ahead and intraday markets, peak load capacity system, balancing power and reserve markets, imbalance power model and bringing the wholesale and retail markets closer together. Measures to increase market flexibility and demand response were widely supported.

Further work will be divided into three themes: strengthening the position of the electricity user, developing marketplaces to respond to the change in production structure, and active participation by market parties in balancing the electricity system.

Climate change prevention is a common cause for us all, and consumers must have the opportunity to contribute with their own choices. For electricity users, the opportunity to contribute is related not only to the choice of electricity supplier but also to future participation in demand response. Demand response will help the electricity system to become low-carbon and enable the cost-efficient entry to the market of renewable, mostly varying production.

Marketplace development is related to wholesale market rules and principles concerning transmission capacity allocation. Even here, change needs, set by varying production, must be taken into account. Balancing the electricity system during each hour of use is on the transmission system operator’s responsibility. In the future, it will be important that the market before and during the hour of use, or the real-time market, enables active participation by the parties and offers the right incentives for balancing the system.

In Fingrid’s vision, the electricity system of the future is green, bright and affordable. Building it together with all parties is currently underway.

Blogger: Asta Sihvonen-Punkka, Fingrid’s Senior Vice President, markets

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