November 19, 2017

FINGRID
The proposal regarding a new balancing model made by the Swedish and the Norwegian transmission system operators conflicts seriously with Finland's national decision-making power and the goals of the European Union

September 7, 2017

The Swedish transmission system operator Svenska kraftnät and the Norwegian transmission system operator Statnett have prepared a proposal for the Finnish and Danish transmission system operators regarding a new model for the balancing of Nordic electricity system production and consumption. The proposal includes a renewed management model in which the Swedish and Norwegian transmission system operators would in practice have the power to decide on electricity system management and the related rules for balancing power and reserve markets, also in Finland. In practice, this would mean that the Swedish and Norwegian transmission system operators would handle a key part of Finland's and Denmark's system responsibility for the electricity system. System responsibility is a central element in national decision-making power, and it cannot be transferred to another country. Sweden and Norway have emphasised the central role of national decision-making power in discussions related to the development of the EU electricity market. In light of this, the proposal by their state-owned transmission system operators seems completely incomprehensible.

What is this about?
In June, the Swedish and Norwegian transmission system operators sent Fingrid and the Danish transmission system operator Energinet a proposal regarding a new model for balancing Nordic electricity system production and consumption, in other words, balancing management.

Svenska kraftnät and Statnett propose the new balance management model as a technical matter for the Nordic countries. Ten years ago, the Nordic countries moved to a practice in which the Nordic countries are considered a single entity in terms of balancing production and consumption. At that time, it was believed that this would provide joint efficiency benefits. Svenska kraftnät and Statnett have a service provider role in balancing the entity, but each country's transmission system operator handles its own system responsibility. Now Svenska kraftnät and Statnett are proposing an end to this model and a return to a balancing model in which each country is responsible for balancing its own production and consumption. Fingrid is prepared to discuss development of the balance management model provided that the new model is equally as effective and reliable as the existing model. There is a risk of jeopardising market operations, which would be manifest as increased costs for electricity users.

Approval of an illegal decision-making procedure is not possible
The biggest problem in the proposal is the new decision-making procedure contained in it. The Swedish and Norwegian transmission system operators are offering Fingrid and Energinet a ready agreement in which Svenska kraftnät and Statnett would have the power to decide on electricity system management and the related rules for balancing power and reserve markets, also in Finland and Denmark. In practice, this would mean that the Swedish and Norwegian transmission system operators would handle a key part of Finland's and Denmark's system responsibility for the electricity system. This conflicts seriously with EU and Finnish legislation. System responsibility is a central element in national decision-making power, and it cannot be transferred to another country. Sweden and Norway have emphasised the central role of national decision-making power in discussions related to the development of the EU electricity market and the centralisation of TSO cooperation on a regional basis. In light of this, the proposal by their state-owned transmission system operators seems completely incomprehensible.

Transferring decision-making power to the Swedish and Norwegian transmission system operators would be a threat with regard to development of the Finnish electricity system. In this case, Svenska kraftnät and Statnett could decide the terms according to which production and consumption could participate in the balancing power and reserve markets. This would pose a great risk to the competitiveness of Finnish production and demand side flexibility,  and it would jeopardise development of the entire Finnish electricity system in accordance with the Energy and Climate Strategy.

Fingrid has spoken with the transmission system operators, authorities and customers over the past summer. The Nordic energy authorities have taken a position on the proposal and declared it illegal. Despite this, the Swedish and Norwegian transmission system operators have not reversed their claims.

Is Nordic TSO cooperation coming to an end?
Nordic electricity market cooperation dates back to the 1960s. This cooperation has been based on trust and joint decision-making. The Nordic electricity market was created as a result of this cooperation. The model has been considered an example for the pan-European electricity market. 

Sweden and Norway are taking a step in the opposite direction with their proposal. In addition to the fact that their proposal conflicts with European and Finnish legislation, the way in which they put pressure on Denmark, which is in a weaker position, is quite unprecedented and in total conflict with thinking that is based on European solidarity. The European legislation already obliges the Finnish, Danish and Swedish transmission system operators to cooperate with each other. Among other things, this applies to the development of market codes and agreement on the electricity system's operational functions. If the operators cannot agree on a matter, it is eventually submitted to the the EU Commission for a decision. In practice, two countries cannot mutually agree on activities that are contrary to the will of other countries.

Customers and consumers will pay
Fingrid regrets that the proposal, which has far-reaching impacts on Nordic cooperation, has not been prepared jointly on a Nordic basis. It would have been vital to ensure that the central principles were prepared together with the customers and the authorities. Fingrid's aim is to enable open and effectively functioning electricity markets based on principles of equality for the entire Baltic Sea region in a manner that benefits all electricity market parties. In the long run, electricity users - citizens and industry - will pay for ineffectiveness.

Fingrid is prepared to further electricity market development. Last spring, the company published an action plan called "Our Shared Journey - a roadmap towards achieving a green power system", which contains concrete initiatives and measures and ongoing projects to develop the markets. Nordic electricity market actors have commented very positively on our proposal. Fingrid's view is in line with the targets set by the EU.

The proposal by the Swedish and Norwegian transmission system operators conflicts with Jorma Ollila's report

The proposal submitted to Fingrid and Energinett also conflicts with a report compiled by Jorma Ollila for the Nordic Council in June. This report on the development of Nordic energy cooperation is based on the coordination of energy policies and a well-functioning electricity markets. The starting point is a clean, carbon-free electricity system. This transition to this system requires close regional cooperation and making use of the markets.

Ollila's report is based on well-functioning markets and on strengthening them. A market-based approach requires strong political support. The most cost-effective way to implement the electricity market transformation is by strengthening the markets. In his report, Ollila draws attention to the significant role of broad regional markets. In the opinion of Fingrid, this also means the involvement of the Baltic countries. This would boost power adequacy throughout the Baltic Sea area and strengthen the Nordic voice in the EU.

Ollila's proposal to establish a Nordic electricity market forum that brings together all stakeholders is important. The forum is intended to be a high-level, joint-Nordic decision-making body. It enables all stakeholders and market actors to be involved in the development of their region's electricity market. The forum would also contribute to supporting the coordination of the region's energy policies.

Fingrid supports Ollila's proposal for a forum. This has been a missing piece in regional electricity market cooperation. If realised, such a forum could help avoid problems such as the proposal now at hand.

Contact
Jukka Ruusunen, President & CEO
tel. +358 40,593 8428
Asta Sihvonen-Punkka, Senior Vice President, Markets
tel. +358 50 573 9053

For more information

Fingrid

www.fingrid.fi/en/


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