Electricity market

Electricity market


2016 2015
Day-ahead system price €/MWh 29.41 26.91 20.98
Area price Finland, average €/MWh 33.19 32.45 29.66
Congestion income in Nordic countries, €M 265.8 276.8 380.3
Congestion income between Finland and Sweden, €M 50.98 74.98 173.5
Congestion hours between Finland and Sweden % 24.2 32.7 47
Congestion income between Finland and Estonia,
million €M
0.52 4.74 8.4
Congestion hours between Finland and Estonia % 1.4 9.7 12

An electricity market that functions well benefits everyone: a common regional market and strong transmission connections boost competition and ensure that electricity is produced in the most efficient way. Reinforcing the domestic and cross-border transmission systems in Finland will improve the operations of the electricity market. In a strong transmission network, electricity can freely flow to where demand is highest. A disturbance in a transmission link between Finland and Sweden, for example, may cost consumers several million euros a day.

Markets in transformation

The energy system and with it the power system are in the midst of a major transformation aiming for a clean power system of the future. The ultimate goal of the transformation is to mitigate and combat climate change. The clean power system of the future must be supported by strong transmission connections and market rules revamped for the 2020s.

A special challenge during the transition period relates to the exit of existing non-profitable electricity production capacity, while the storage and other solutions required by the new system are not yet commercially available. This makes the active participation of flexible resources all the more important.

In terms of the functioning of the markets, key issues include the profitability of investments and the willingness of new operators to enter the electricity markets. A clean power system also requires solving many challenges related to technological development. The biggest challenges concern long-term storing of electricity. In addition to technical solutions, political decisions that enable implementation are needed in both Finland and the Baltic Sea Region. 

Strong transmission connections help balance the major fluctuations in production and consumption in terms of time and location. In Finland, this means that cross-border transmission connections and internal transmission lines need to be strengthened. Fingrid targets extensive, efficient electricity markets that ensure power adequacy in the Baltic Sea Region. 2017 was a peak year in terms of the availability of Fingrid’s cross-border transmission connections. The total availability of HVDC connections was 99 per cent and the number, total duration and total cost of HVDC disturbances were significantly lower than in the previous years.

In spring 2017, Fingrid published an action plan titled “Our Shared Journey – a roadmap towards achieving a green power system”. It contains concrete initiatives and measures and ongoing projects to develop the markets. The publication is a continuation of a project that was started a year ago to bring the electricity market back onto a market-based development path. Many of the measures call for extensive co-operation between electricity market stakeholders, both in Finland and internationally.

The electricity market development measures can be crystallised into strengthening the position of the electricity consumer, developing marketplaces in line with the changing structure of power generation, and the active role of market players in balancing the power system. Drawing on digitalisation and developing market models enable, for example, the indirect participation of household users in the electricity market on a new scale.

Electricity market revamp underway

The European electricity markets are in a phase of transformation. There will be changes in trade rules and in calculating the transmission capacities made available to the markets. The purpose of the market rules is to promote electricity trading in the common markets and to ensure the effective and equal use of transmission connections. Along with the new market rules, the number of electricity market operators, or power exchanges, in Finland may increase.

Among the market rules, the implementation of the Capacity Allocation and Congestion Management guidelines (CACM GL) got off to a good start in 2017. Fingrid has participated in preparing both common European method proposals and Nordic and Baltic capacity calculation area proposals together with other transmission system operators. One proposal that is relevant for the wholesale markets concerns the day-ahead and intraday markets’ transmission capacity calculation methods; they are expected to be approved during 2018.

Electricity market players that are capable of a quick response must have the incentive to trade electricity close to the hour of delivery. The objective is to enable trading as close to the start of the delivery period as possible without compromising system security. In September 2016, the electricity exchange Nord Pool extended the trading period by half an hour in the bidding areas of Finland, Estonia and Latvia and in the connections between them and continued the same practice in 2017.

Intraday electricity markets will expand also in geographical terms during 2018. The XBID solution that enables European intraday markets will be introduced in 2018. The introduction of XBID has been arranged through local implementation projects. Fingrid participates in both the Nordic and the Baltic implementation projects.

An integrating electricity market also expands the reserve market. Fingrid actively promotes the integration of the Baltic countries with the Nordic balancing power market. In 2017, it became possible to utilise balancing power bids from Latvia and Lithuania to meet the needs of Finland.

The importance of real-time market for the overall electricity markets is increasing. Most physical electricity trading has traditionally taken place in the day-ahead market. As the production structure changes, some of the current power plants will be replaced by plants with poorer availability and predictability. From the power system’s perspective, this poses a challenge, since maintaining the system’s balance requires that electricity is generated in exactly the same amount as is consumed at any given moment.

As variable electricity generation increases, more opportunities to trade closer to the delivery time are required. This change poses a challenge to develop the market rules such that they encourage the active participation of all parties capable of fast alterations in production and consumption. In Fingrid’s view, this means, for example, increasing the transparency of pricing in the balancing power markets, publishing bid curves and making market entry easier.

In order to increase market transparency, Fingrid implemented, in the winter of 2016–2017, a pilot project on the publication of balancing market prices during scarcity situations. The project resulted in a decision by Fingrid to continue publishing real-time prices during scarcity of up-regulating power. In late 2017, Fingrid expanded the publication of prices to cover real-time price information for down-regulating power as well.

The European electricity market is in the process of introducing a shorter, 15-minute trade period. The relevant legislation, which came into force in December 2017, requires the introduction of a 15-minute trade period also in Finland in late 2020, unless the roll-out is postponed by a decision by the authorities. The length of the trading period has an effect on the management of power system balance. In an effective electricity market, the trade period reflects the physical characteristics of the power system. The current one-hour period is problematic in terms of variable electricity generation and the use of cross-regional transmission connections. Some of the demand side management (DSM) potential in electricity consumption is also left unused in the current situation. On the other hand, it enables the price of electricity to reflect its real actual value over each imbalance settlement period. Fingrid has started an imbalance settlement project for the 15-minute period and established a reference group composed of stakeholders to support the planning of the transition.

Fingrid’s objective is to create new opportunities for electricity market operators to participate in balancing the electricity system in real time. As an imbalance power model, this would mean a one-price system, in which the price of imbalance power would be available to the electricity market operators in real time. Fingrid considers it important that, also in future, the key balance management principles and imbalance power pricing are harmonised in the Nordic countries.

In the Nordic countries, 2017 was overshadowed by a dispute between the transmission system operators over the development and future model of balance management. The Norwegian and Swedish TSOs made a one-sided proposal both to Fingrid and the Danish TSO concerning the decision-making authority and balance settlement structure, both within the framework of European legislation. As a precondition for this agreement, the decision-making powers would have to be handed over to the Norwegian and Swedish TSOs. Negotiations to reach a solution continue.

Consumer at centre stage

The changing electricity production structure increasingly requires the effective and market-based utilisation of the DSM potential. In the European debate this is evident, for example, in the clean energy package published by the European Commission late in 2016. The idea behind the strengthening role of consumption is that, e.g., in scarcity situations, power-intensive industry would benefit from being able to transfer consumption to another moment in time. The active involvement of major consumers alone is not enough.

In future, the goal is to include smaller-scale power consumption increasingly in DSM, including households as well as distributed production and energy storages. The key to the market integration of all these parties is aggregation. Over the past two years, Fingrid has carried out pilot testing on aggregation models and the aggregated units of DSM participate in Fingrid’s frequency-controlled reserve market, for example. Two pilot projects will be carried out in 2018 to test aggregation models for balancing power markets. The participants for these projects have already been selected.

Aiming for a smart power system

The Ministry of Economic Affairs and Employment’s (MEAE) smart grid working group published in late 2017 an interim report that seeks solutions to accomplish the energy shift by means of a smart power system. Such a system would increase the capabilities to balance production and consumption at all times and thereby enable the increasing use of clean energy. To make the smart power system a reality, it is necessary to offer financial incentives both to industry players and consumers.

The progress of technology and automation lowers the threshold for a consumer to participate in the electricity markets. Consumers can also make use of new types of services where service providers pass on electricity saved at points of consumption through DSM to meet the needs of the power system.

Through its subsidiary Fingrid Datahub Oy, Fingrid is building a solution for centralised information exchange, i.e. a datahub, to promote the functioning of the retail markets. Once completed, it will enable nearly real-time processes when changing suppliers and will provide electricity sellers with better conditions for serving their customers. The datahub will contain data from all of Finland’s 3.5 million places of electricity consumption and customers. The information stored in the datahub will be utilised by around 100 electricity sales companies and more than 80 distribution network operators to provide services to electricity consumers.

As part of the datahub project, a data conversion service was acquired during the year for the quality control of customer and measurement data. The service was launched for the companies participating in pilot tests, and it will be made available to the entire industry in the spring of 2018. The first draft of the datahub’s roll-out plan was drawn up in co-operation with industry players. The project will continue in close collaboration with stakeholders, as demonstrated by the highly popular 13 webinars that were held in 2017.


Key events of 2017

Pioneering joint Nordic imbalance settlement introduced

Ollila’s report steers the development of Nordic energy co-operation

Open data to benefit the markets