A capacity market to supplement the electricity market could be the answer to the impending risk of power shortage in Finland. The risk of a power shortage has increased as a considerable amount of electricity production capacity has been and will be phased out in Finland.
According to a study conducted by Gaia Consulting Ltd and commissioned by Helen, the exit of market-based generation capacity from the electricity market and the growth in peak consumption will increase the risk of power shortages in Finland in the 2020s, if the current trend continues. The growth is contributed to by, e.g. the increased amount of electric heating and heat pumps. It is not possible to boost the imports of electricity without new cross-border lines, and the increasing solar and wind power production cannot substitute the amount of electricity needed in the coldest periods of winter.
The price of electricity in the Nordic electricity market has dropped to such a low level that it is not lucrative to invest in electricity production in Finland.
– As a rule, investments are made only if the production is subsidised. And that is not healthy for the market. Almost all condensing power plants have already been phased out in Finland. Moreover, a significant amount of combined heat and power generation is leaving the market, says Helen’s Director Harri Mattila.
Helen has also decided to substitute the Hanasaari combined heat and power plant with biogas plants that produce only heat and with various distributed heat production solutions. However, cogeneration plays a key role in Finland’s energy system, and its significance is accentuated in the coldest winter days when almost half of electricity is produced by cogeneration.
– We should now safeguard continued cogeneration also in the future. Cogeneration has been a reliable source of power during periods of peak consumption: it stabilises the entire energy system and slows down any impacts on the system in rapid change situations, Mattila emphasises.
Current peak load capacity is expensive
At the moment, the national grid company Fingrid Oyj and the authorities are responsible for adequate power capacity.
The Nordic electricity market model is based on the pricing of energy, i.e. only produced energy is paid for. In order to have available energy at every moment, it is ensured in Finland with peak load reserve plants, the operation of which is the responsibility of Fingrid. This has contributed to regulation in an otherwise market-driven model.
If production continues to leave the market, the volume of peak load reserves on standby should be increased to a considerable extent. According to Helen, that would not be sensible as the current peak load reserve system does not create new capacity; it is not flexible in the market and it is expensive for consumers. The EU is also critical of peak load reserves.
Capacity should be reimbursed
A solution to the impending risk of power shortages could be a capacity market to supplement the electricity market, where capacity would also have a monetary value in addition to the price of energy. The capacity market would ensure the capacity needed by the electricity system by paying for it according to an agreed procedure. This would have a positive impact on the growth of investments.
For the time being, the situation in Finland is reasonable, but a turn for the worse has already taken place. According to Helen, it is now necessary to investigate what kind of a model would be best for Finland.
A capacity market is used, e.g. in the United Kingdom and the United States. France adopted it in the early part of this year, and Ireland and Poland are considering the same. A capacity market would be open to all actors, and current and new production could take part in the competition.
– According to preliminary estimates, a capacity market would be the most advantageously priced way of ensuring the functioning of the electricity market in the future. It would strengthen the preconditions of domestic energy production and improve the chances of increasing demand response and related services. It would also enable, e.g. a considerable increase in wind and solar power, Mattila points out.
In a capacity market, the power plants would be constantly available to the market.
According to Helen’s view, the capacity market would also have a positive impact on electricity users in the form of reduced electricity bills.
In power shortages, consumption is regulated or power cuts are enforced
In Finland, electricity consumption is highest on cold winter days when about one-third of Finland’s electricity is imported from neighbouring countries. If the sufficiency of domestic electricity production capacity is not taken care of or we cannot significantly increase electricity imports, we will run the risk of power shortages.
In a power shortage, there is no sufficient output capacity and transmission power available. This may result in rotating power cuts, which would have extensive cost impacts on the entire society.