Change in the electricity system calls for new energy policy and market reinforcement
The Nordic electricity system is facing a major shift. The move to low-carbon electricity production will mean massive changes. Energy policy that is based purely on national interests is not the answer to future problems. The viability of the electricity market is weakening, which in turn puts the security of supply at risk. Transmission system operator Fingrid is concerned about the current development and is presenting its own concrete measures to stimulate the electricity market in order to ensure that the switch to a low-carbon electricity system is achieved cost-effectively for society as a whole.
Broad-reaching support schemes based on national interests have, within a short period of time, resulted in a substantial increase in renewable energy production in the Nordic electricity market. This has caused an energy surplus in the electricity market, which is evident in the plummeting market price of electricity to an artificially low level. There has been no choice but to scale down market-based generation capacity. In Finland, the generation capacity of condensing power capable of regulation has crumbled, and Sweden has made the decision to prematurely shut down some of its nuclear power plants. Today’s electricity market does not have the conditions for market-based investments. The risk is that, over time, all electricity production will require support, which will come at a high cost to society.
“The market mechanism steers electricity movements extremely efficiently. This past winter, prices remained low, even though freezing temperatures hit Finland and then Norway and Sweden. Our concern is that if the market is destroyed, this mechanism will be lost,” stresses Fingrid’s CEO, Jukka Ruusunen.
The Nordic electricity system is quickly heading into a situation where on average there is a sufficient, or even surplus, volume of electricity, but citizens and industry will not get it when they need it. The reliability of electricity supply is in jeopardy. In the long term, one solution could be storing electricity in various ways, but the technology for that will not help in this decade.
Alongside energy policy solutions, the electricity market must be developed such that it brings flexibility to the system on market terms. This means the elimination of all regulatory pricing in the electricity market. As a consequence of such measures, the price signals steering electricity consumption and production will strengthen. This will mean even more variation in electricity prices, but particularly in the long term, society as a whole will benefit from the cost-effectiveness.
I hope the decision-makers will boldly commit to market-based options on the path to the future electricity system – Achieving the climate change targets is the starting point, and the issue is whether this will be done cost-effectively and on market terms or ineffectively and under centralised control,” says Ruusunen.
This spring, Fingrid has been looking into measures designed to stimulate the electricity market. The discussion paper “Electricity market needs fixingr – What can we do?”, published today, presents a group of concrete measures that could improve market operations during the transition period en route to the future electricity system. The measures relate to, among other things, regulating and balance power pricing, peak load capacity and linking the retail and wholesale electricity markets. Alongside major consumers of electricity, the demand-side management of domestic consumers and its exploitation must be made possible.
“We believe that the measures proposed in the discussion paper are a step in the right direction. We hope to spark a broad discussion on these themes and on the direction of energy policy, not just in Finland, but in the entire Baltic Sea area. It is clear that we cannot continue on the path we are on now,” stresses Ruusunen.
The discussion paper published by Fingrid today, the 17th of May, entitled “Electricity market needs fixing –What can we do??”, proposes concrete measures to improve the viability of the electricity market.
We hope that this document is of interest and that we will receive feedback on the proposed and other ideas for developing the market and its design. We kindly invite feedback by the 15th of September 2016 to the e-mail address firstname.lastname@example.org
Jukka Ruusunen, President & CEO, tel. +358 30 395 5140
Asta Sihvonen-Punkka, Senior Vice President, tel. +358 30 395 5235