Many households and companies have been buzzing for the past few days, when the price of electricity has risen to as much as 60 cents per kilowatt-hour after hovering around zero just a little before. At least that’s the case with those who rely on stock exchange electricity.
“Our message is that the politicians’ onions can withstand this disgusting intermediate phase, where the fluctuation is really hard,” says the energy company Helen’s managing director Olli Sirkka.
Sirkka reminds that Finland has wanted to build clean, weather-dependent electricity production, i.e. wind power at the forefront, and it has also been profitable. This fact should be acknowledged.
“The situation is not such that we are in a situation of choosing whether such a volatile market and a market based on renewables will come to us, but it has already come. We have to start from the fact that it has already come to this,” Sirkka enthuses.
The solution is adaptation
Helen is critical of such thinking, in which government action would intervene in the operation of an imperfect market in itself, for example either by price ceilings or by supporting energy companies to build production, which could be used in extreme situations to curb price fluctuations. The latter describes the capacity market idea which Fortum has served.
“If the state were to guarantee the price for some form of production, then it would reduce the incentive to create a flexible market, which is the sustainable solution. And the regulation doesn’t turn a calm day into a windy one,” Sirkka reasons.
So Helen’s recipe is a flexible market. It is an accepted fact that there is a significant amount of weather-dependent generation in the electricity generation palette, which causes price volatility.
Consumers, citizens and companies should learn to live with it. It requires consumption flexibility, i.e. the ability to avoid price peaks and on the other hand to take advantage of cheap electricity. According to Sirka, the technology is also beginning to adapt to the flexibility requirements of the market, which reduces the burden on citizens and companies.
“It happens automatically when, for example, new geothermal heat pumps use automation to recognize the stock market price and adapt to it,” says Sirkka.
So is it acceptable that the price of electricity can vary, for example, between zero and 60 cents?
“Fluctuations will be commonplace, but the answer to extreme fluctuations is a flexible market, not subsidies. For example, we have invested in batteries and heat storage. Finland has cheap electricity by European standards. We think there is strong evidence that a functioning flexible market is emerging,” says Sirkka.
Higher but more stable price?
According to Sirka, it would be ideal if the average price of electricity in Finland were slightly higher. It would make electricity production investments more profitable than at present and would eventually even out price fluctuations.
This was especially the case if the investments were also aimed at more stable production, such as small nuclear power plants, which would have an adjustment feature suitable for the flexible market.
“This is how the market-based model works. It works when you let volatility do its job,” Sirkka claims.
Sirkka calls small nuclear power plants “modern nuclear power plants”, which are at the top of the company’s priority list.
“That is our number one priority. Our owner [Helsingin kaupunki] wants us to give up all energy production based on combustion, which is understandable,” says Sirkka.
Finland wins?
According to Sirka, a delusion has arisen in Finland that a clean transition will only take place through the power of energy companies.
“We like to say that the green transition happens in such a way that the energy industry just stops burning coal and builds windmills instead, but that is part of the truth. Consumers also need to be involved,” says Sirkka.
He believes that a functioning flexible electricity market would ultimately benefit Finland, attracting industry here as well.
“The question is not whether the industry wants to be flexible in consumption, but whether it is able to make money with it, of which the forest industry is a good example.”
Fact
Price fluctuation under control?
In order to curb price fluctuations, Fortum has presented the so-called capacity market. Its idea is to guarantee reliable electricity production and storage.
In the model, the state could be the guarantor of projects promoting low carbon.
According to Helen, state subsidies and other regulations are not needed, but the solution is a functioning flexible market.
In the company’s opinion, the current price fluctuation leads to invest in heat storage and batteries, among other things, and to develop technology that can take the price fluctuation into account.