Jukka Ruusunen, President and CEO, Fingrid Oyj Tallinn University of Technology: "Strategic Development of Energy System" November 4, 2015

1. Integration of Electricity markets of Baltic/Nordic
and Europe
Jukka Ruusunen
President and CEO, Fingrid Oyj
Tallinn University of Technology: "Strategic Development of Energy System"
November 4, 2015

2. Finland runs on electricity.
Fingrid's most important task is to ensure that Finland
obtains electricity without disturbances at all times.
November 2015 Jukka Ruusunen
2

3. What is Fingrid?
November 2015 Jukka Ruusunen
3
Owners

4. Our Mission
by reliably
transmitting
electricity
actively
promoting the
electricity market
developing the
transmission
system in the long
time span
We work for the benefit of our customers and society
November 2015 Jukka Ruusunen

5. EU energy union:
Towards a fully developed internal electricity market
• Integrated markets in all time frames
and participation of both large and
small resources
• Stronger link between the wholesale
and retail prices
• Integration of flexible resources
• Energy transition
• Market rules suited to intermittent
production
• Transition made at minimum cost
• Correct price signals are crucial
• Market-based solutions
• subsidies
• capacity mechanisms
• Empowering customers
ENTSO-E member countries 2014:
• 34 countries and about 740 million citizens served
• Generation 1024 GW
• Transmission lines 307 000 km
• Demand 3210 TWh/year
• Exchanges about 424 TWh/year
November 2015 Jukka Ruusunen
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6. Regional focus:
From Nordic electricity market to integrated Baltic Sea market
• Baltic countries part of the "Nord Pool
market" from 2013
• Common EU market rules
• New cross-border connections 2015-2016
• Next steps: BEMIP 2 from 2015
– Balancing market integration
– Retail market development
– Synchronization of Baltic power
system
– Increased stakeholder involvement
1000MW
2x600MW
1500 MW
1200 MW
November 2015 Jukka Ruusunen
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7. Main transmission
direction and
net energy flow (TWh/a)
The power price in the Baltic Sea region is at its lowest since
2000
2011 2014
SYS
29,6 €
SYS
47,1 €
Area prices (€/MWh):
< 20 20-25 25-30 30-35
35-40 40-45 45-50 > 50
2
2015*
(*until 9.10.)
SYS*
20,5 €
Note! Sweden split
into 4 bidding zones
in November 2011
Congestion
in transmission
lines (% of hours)
4 2 3*
22%
22 %
48% 50%
11
3 3*
November 2015 Jukka Ruusunen

8. New interconnectors in Baltic Sea area integrate the market
and improve security of supply
• Long-term main drivers
– Significant increase of subsidized intermittent wind
power in Nordics
– Increase of electricity demand has seized
– Weakened competitiveness of conventional
production – decommissioning has already started
• Future expectations
– New interconnectors increase security of supply
– Baltic price level closer to Nordic -
competitiveness of condensing capacity in
Baltics?
– Decommissioning of Swedish nuclear power plants
while Finnish nuclear power increases
– Integration continues: balancing and retail markets
15
20
25
30
35
40
45
50
55
60
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Yearly average electricity prices per
country [€/MWh]
Sweden Norway Denmark
Finland Estonia
November 2015 Jukka Ruusunen

9. Power trade between Finland and Russia
• Historically the trade volumes have
risen with increasing transmission
capacity
– Russian generation used to be
competitive
• Competitiveness has collapsed
after 2010
– Introduction of capacity
mechanism
– Increase of fuel prices in Russia
– Decrease of power price in
Nordics
0
50
100
150
200
250
300
1960's 1970's 1980's 1990's 2000's 2010's
Millioneuros
Rough estimate of the yearly value
of Russian-Finland cross-border
trade
0
10
20
30
40
50
60
70
2012 2013 2014
€/MWh
Energiahinta, Venäjä
Kapasiteettimaksu, Venäjä
Energiahinta, Suomi
Capacity payment, Russia
Power price, Russia
Power price, Finland
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10. Pragmatic solutions for Finland-Russia cross-border trade
• Economical benefits to both parties
• Fingrid develops more market based cross-border trade
– More flexibility, reciprocal principles & transparency
• Trade is conducted via Nord Pool Spot power exchange
• Bidirectional trade possible since summer 2015
• Dynamic tariff enables trade even with low price
differences
• Volatility of Russian rouble affects on trade
• Next steps – targeting flexibility
– Shifting capacity from bilateral trade to spot trade
– Cooperation in technical reserves
– Technical modernization of cross border connections?
– Harmonization of Baltic and Finnish trade set-up towards
Russia?
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11. On the journey towards a new energy system...
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12. How does electricity travel?
Electricity cannot be stored
Supply and demand in balance – in real time!
• "The invisible hand"
guides generation and
demand
• Transmission system
operators responsible
for keeping the balance
in real time
• New energy system:
markets and operation
get closer to each other
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13. Wind and solar challenge the current market model...
November 2015 Jukka Ruusunen
Dispatch
• Renewables not sensitive to price signals
• More difficult for the "the invisible hand" to balance
supply and demand
Investments
• Renewables push down wholesale market prices
• Profitability of market based investments
disappears
• No investments for back-up capacity
13

14. ...and reshape the Nordic power system
November 2015 Jukka Ruusunen
There is surplus of energy
BUT
there will be scarcity of
 peak power
 flexibility
 inertia
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15. Possible implications
November 2015 Jukka Ruusunen
 Power shortages for citizens
during peak hours
 Centralized control actions to
balance supply and demand
 Restrictions for the operation of
big nuclear units
15

16. EU
EU-level goals to maximize European
welfare:
• CO2-emissions within the EU →
emissions trading system
• Total goal for renewable energy +
allocation to Member States
• Energy efficiency in EU
• EU-level electricity markets and
increased cross-border competition
Member
states
Goals of individual Member States to
maximize national welfare:
• Generation technologies, self-
sufficiency
• National support mechanisms e.g. for
renewables
• National energy taxes
• National measures to enhance
energy efficiency
• Electricity price in the Member States
– price regulation in some countries
Problem of the EU energy policy:
How to combine top-down
and bottom-up?
November 2015 Jukka Ruusunen
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17. On the journey towards a new energy system
• Short term: market integration is proceeding – towards the
biggest electricity market in the world!
• From Nordic market to the Baltic Sea market
• Change of the energy system towards CO2-free generation
challenges the grid and the market model
• Low market prices – no market based investments on
generation
• Empowering customers: role of consumers increasing –
new business models needed
November 2015 Jukka Ruusunen
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18. Powering Finland.