The cooperative’s stand on the public hearing: Revision of the EU’s electricity market design

Lion Hirth defines the marginal pricing model as a system where prices are "being set by the variable cost of the marginal plant, i.e. the most expensive plant that is required to serve demand." "In electricity markets, 'marginal pricing' and the 'merit order model' are confusing people all the way up to heads of state". Hirth quotes two of the leaders:

"People are being charged for their electricity prices on the basis of the top marginal gas price, and that is frankly ludicrous. We need to get rid of that system” (Boris Johnson).
"You have skyrocketing electricity prices that no longer have anything to do with electricity production costs, it follows gas, it’s absurd" (Emmanuel Macron)

A pricing system based on exceedingly high gas prices, seems to remove any esteem of our population on the EU. Other scholars (Janis Varoufakis) are of the opinion that the model is complicated and confusing, because the intention is exactly to do what Hirth says; that is “to confuse the people”.

Dennis Hesseling of ACER explained for the YLE Spotlight program that high end-user prices cannot be affected at the European level. “It is up to the member states to” act. Despite obvious dysfunctionalities, he thinks that “the system is doing what it is supposed to do”.

The validity of these value judgements depends on the evaluator’ s frame of reference. The system seems to be beneficial to electricity companies, while being harmful to their customers. Especially, ACER’s viewpoint cannot be appreciated by the citizens.

In Finland’s case, it seems that marginal pricing has in fact little to do with “efficient dispatch and cross border flows”. Our dependence on gas is very low. Although moments of crisis were experienced during the autumn of 2022, it seems that Finland will soon be self-reliant. There is even talk about future over-production of electricity.

We feel compelled to note that explaining high electricity prices as being predominantly a consequence of the Russian – Ukrainian conflict doesn’t conform to the views of some economic analysts (e.g. Hans-Werner Sinn). Moreover, recent reports from the International Monetary Fund would indicate that the Russian economy remains intact from the sanctions.

Being a recipients of EU support, we would be inclined to summarize our view in this way:

• The marginal pricing model channels unjust profit to energy investors at the expense of rural end users
• EU needs to get rid of the marginal pricing system. It undermines good-will created by the EU-supported rural development program
• Local electricity prices should be determined – as directly as possible – by actual production costs
• The Union should consider reformulation of the energy blockade against Russia, as it doesn’t seem to have the intended effect; instead it apparently seems to have the opposite outcome.

The cooperative believes in the importance of proactive approaches to control infrastructure usage. This is especially important in environments where extreme weather phenomena can unexpectedly create unbearable conditions. The day-ahead mechanism could be a way of correcting some of the irregularities created by the current marginal pricing model.

It is essential to be aware of the dependency if information society on electricity. Most of the essential tools of production are most often somehow based on electrically mediated information. This all the more important in rural areas with predominantly long distances.

Therefore, we studied practices of Nord Pool, Fingrid, the Finnish Energy Authority, electricity distribution company Kajave and eight retail companies. The cooperative aimed at finding out how the day-ahead-market mechanism could promote electricity usage, in ways which would be most beneficial to end-user households and companies, as well as to the national economy.

Nord Pool represents the highest level in the transaction chain. Unfortunately, their details on the total cost of a day-ahead data license are until today rather unclear. As soon as the public consultation arrived at the cooperative on 25.1.2023, we sent a query to the agency asking about their pricing details as well as about conditions of being granted an ‘Internal use only’ license. The company sent a message in receipt of our message next day. After experiencing delay in getting a response the cooperative signaled 8.2.2023 the urgency of the matter. Two months later there hasn’t been a response from Nord Pool.

It seems that that yearly license cost is 1100€ for Finnish customers (the price being much higher for citizens in some other countries). In addition, the cooperative would have to pay a yearly 250€ fee for each customer which downloads day-ahead data. Training courses (at 750€ per participant) will be arranged, but these are still “to be announced”. It is unclear whether Nord Pool demands payments of other fees for this training.

This pricing can be compared with fees collected on the telemarket. It is not an analogous case, but by studying the telemarket we get a point of reference, on how systems can be organized cost effectively and on a European scale:

RIPE NCC coordinates AS numbers, it maintains databases of border gateway protocol information, allocations of IPv4 and IPv6 network segments; the company offers tools for analyzing health of the teleoperator’s local network; it distributes free data probes; and it organizes free webinars as well as face-to-face data courses for teleoperator customers. As the RIPE redistributes excess contributions to the customers, the fee has varied considerably. It was 786€ in 2022 and 1542€ for 2023. This generates an estimated modest yearly payment of only 5,80€ (2022) and 11,40€ (2023) for each household in the cooperative.

Fingrid is the national core network operator. They maintain a service which distributes a number of real-time parameters over the net. Distributing day-ahead data could be handled routinely by them. However, due to restrictions maintained by Nord Pool, Fingrid is not able to relay the relevant information.

Although most Finnish retailing companies present diagrams on current and day-ahead prices, none of them distribute numerical information. Vattenfall was sympathetic to our aim of distributing day-ahead data, while informing that they would come back to our query in the autumn. Lumme-energia reported that they are "with high priority" developing a mechanism for download of day-ahead data.

We would emphasize the following aspects:

• Current practical conditions tend to work against attempts to optimize electricity usage to the advantage of the end-user
• Our research demonstrates that the pricing scheme created by Nord Pool currently blocks end-users from optimizing their electricity consumption according to the day-ahead market
• Pricing should be regulated to become comparable to the level of fees on the European tele market
• Introducing mandatory distribution of pricing data and enabling automatic electricity control could be beneficial to end-users and the national economy
• It seems that real-time distribution of next-day prices over the Internet can and should be achieved easily, as the necessary frameworks are already available at the national level.

Deduction of offsite generation can be vital, but the cooperative would put much more emphasis on self-reliant and distributed, sometimes even off-grid electricity generation, but also on energy storage. These seem to be the best ways of achieving sustainability and resilience.

Distributed systems would promote ideal placing of the solar power plants. Distribution would also strengthen the collaborative nature of rural communities. In analyzing the topology our telecommunication cables, the cooperative arrived at the conclusion that distributed production could support better resilience and even a smarter defense strategy, since a distributed system is much more difficult to eliminate than a centralized one.

It seems to us that this public consultation is much too business oriented, without giving end-users and the national economy due emphasis. This can harm the overall aim, which should be to create sustainable electricity market. The best way of generating electricity savings may often be the electricity which was never used or the electricity which was generated off-grid.

• The electric distribution system can still be a natural monopole, but the regulators should prevent electric companies from being sole authorities on rural electricity production and distribution
• The union should promote the birth of energy communities which should have the right to build extended networks and to distribute electricity to community members
• It is essential that EU rural support rewards self-reliant construction of energy production and storage systems. This can be supported in smart village and smart rural neighborhood programs
• The distribution company should be encouraged to create scheduled pricing schemes, where nightly transfers and use gets premium handling to the advantage of end-users and the state.