Electricity transmission causes always losses. Transmission losses in the grid are mostly composed of resistive losses occurring in the transmission lines and of so-called corona losses created on the surface of conductors in certain weather conditions.
The annual losses in the Finnish grid total approx. 1 TWh, which accounts for just over 1 per cent of the entire electricity consumption in Finland. The actual loss power varies between 60 and 300 MW depending on the transmission situation in the grid, electricity consumption, and amount of corona losses.
Fingrid purchases the loss energy created in its transmission grid from the electricity market. The objectives of loss energy purchases include predictability of costs and management of cost risks so that the company hedges itself against sudden changes in the market price and against the resulting financial risks. Loss energy is primarily purchased in the Nordic electricity exchange through daily Elspot trade. Before the operational hour, the loss energy balance is adjusted on the basis of updated forecasts and actual volumes by buying or selling electricity on the Elbas market.
The price risks of loss energy are hedged well in advance. The purchases are hedged fully in advance on the financial market. Hedging is based on the forecast concerning the volume of loss energy.
Price hedging employs forward and future instruments quoted by Nord Pool ASA. There can also be trading on the OTC market in instruments corresponding to Nord Pool ASA’s financial instruments.
Price hedging is launched approximately five years before the year of delivery. Hedging is carried out evenly by purchasing the same volume of the agreed instruments monthly so that the year in question is hedged fully by the late autumn in the previous year. Hedging is adjusted during the year based on the forecasts. Price hedging is carried out against system price.
The practical implementation of price hedging has been outsourced to an outside portfolio manager. The portfolio manager carries out hedging in accordance with Fingrid’s hedging strategy. Fingrid does not take part in the detailed timing of hedging at any point.
Fingrid’s costs for loss energy purchasing in 2007 totalled 44 million euros.