National support schemes reaching end of road – regional energy policy development and a more market-based approach needed

The electricity market is in trouble. Extensive renewable energy support schemes in Europe have led to a deficit problem on the supply side. Achieving a reliable, cost-effective and low-carbon energy system requires a more market-driven approach. In order for the markets to function, the impacts of the support schemes must be reduced and the mechanisms harmonised in the entire Baltic Sea area. The bulk and retail electricity markets must be more closely linked than they currently are, and demand-side management in the retail markets must be introduced to balance the power system.

 

Fingrid is responsible for the technical functionality and system security of Finland’s power system.  The loss of adjustable, flexible production capacity from the market and the lack of market-based investments have led to a situation where the sufficiency of electric power is in serious jeopardy. With the increase of wind and solar power, electricity production is becoming more irregular, which increases the need for flexibility in the power system. Previously, thermal power plants provided flexibility and reliability of supply, but these are rapidly disappearing from the market.

 

“The continuation of the current broad support schemes, which are based on national perspectives, threatens to lead to a situation where traditional electricity production will also have to be supported by means of capacity mechanisms,” says Fingrid Oyj’s CEO, Jukka Ruusunen. “A market-based power system would ensure overall efficiency and flexibility, but may periodically mean very high price levels.”

 

Fingrid has been looking into ways of developing the electricity markets, with the objective of ensuring sufficient electric power and the flexibility required by varying production as effectively as possible. A market-based development path requires the current Nordic electricity market to be developed in a manner that increases the role of market operators in balancing the electricity system. The measures would be targeted at, among other areas, the regulating power market and balance power pricing.

 

Grid companies are collaborating in the Nordic countries and the Baltic Sea area to develop the electricity markets, but their actions alone will not be enough. “Energy policy requires better regional co-ordination than is currently the case. I have high expectations of the Nordic Council of Ministers’ review, which is being prepared by Jorma Ollila,” says Ruusunen.

 

The Nordic Council of Ministers commissioned Ollila in January to undertake a strategic review of the Nordic region’s energy sector. The objective is to strengthen and develop Nordic co-operation on energy policy and to clarify how Nordic co-operation on energy can be most effectively developed over the next five to ten years.

 

A low-carbon electricity system will require co-ordination between the bulk and retail markets. The retail markets must be included as a source of flexible capacity. During peak consumption, demand-side management would hold a significant role in ensuring a sufficient supply of electricity. It would lower electricity consumption during periods of high consumption and prices, or it would transfer it to a period with a lower cost. While keeping the power system in balance, this would also benefit consumers through lower electricity bills. The system is not ready, so it is important for the various actors to join forces to study, test and commercially introduce the opportunities of demand-side management.

Fingrid’s Electricity Market Day, taking place today, the 5th of April, will deal with the changing situation in the electricity market. Speaking at the event will be, among others, Fingrid’s Senior Vice-President of Electricity Market Development Asta Sihvonen-Punkka, Director Stephen Woodhouse from Pöyry Management Consulting (UK), and Vice President Søren Dupont Kristensen from Energinet.dk.

 

You can follow a live webcast of the Electricity Market Day presentations at:
http://webcast.dimmercity.fi/view/Fingrid/Sahkomarkkinapaiva

 

Further information:

Jukka Ruusunen, President & CEO, tel. +358 30 395 5140
Asta Sihvonen-Punkka, Senior Vice-President, tel. +358 30 395 5235