Opinion: Bringing Sense to the Electricity Market with Flexible Large-Scale Demand
Thomas Brand
Head of Institutional Sales and Research @ Coinmotion | Bitcoin, Macro, Monetary Systems, Market Infrastructure & Energy (?/acc)
The Finnish newspaper Helsingin Sanomat reported on July 31 and Iltalehti on August 3 about the record-low Finnish electricity prices in July. This is a basic result of the price theory: supply exceeded demand, so the price dropped low. The increased supply was influenced by, among other things, full reservoirs of hydroelectric power plants, a growing amount of intermittent wind and solar power, and the return of nuclear power plants from a prolonged maintenance outage. On the other hand, the low demand was influenced by temporarily weakened transmission connections to Sweden and Estonia and low overall domestic electricity consumption that has plagued Finland for a long time.
So in July, the situation was that there was plenty of electricity available, but on the other hand, the overall demand was not enough.
Meager electricity prices cause distress for current energy producers and increase uncertainties for new energy production investments. If an energy producer does not get a meaningful margin for the electricity produced and may sometimes have to pay for producing electricity when the price is negative, the economic realities of the energy production business will sooner or later hit hard.
In an article in Helsingin Sanomat, Jukka Leskel?, the CEO of Finnish Energy, said that despite low electricity prices in July, fluctuations will still be seen in the electricity market, with subsequent price spikes. According to Leskel?, there is no way to keep the electricity price low and reduce price fluctuations simultaneously. In Iltalehti, Pekka Salomaa, the energy market director of the Energy Industry, characterized the electricity prices in July as exceptional.
Affordability is always a relative judgment, and no energy producer can produce electricity at a loss in the long term. Despite these factors, numerous ways exist to smooth out the electricity price to a more "reasonable" level and reduce price fluctuations. Ultimately, all market participants benefit from such a stable and predictable price, reducing uncertainties for new energy production investments.
How could this situation - a stable and reasonable electricity price - be achieved? It would be possible to resort to coercive measures and instruct energy producers to sell electricity at the maximum price. Another option is centralized planning of electricity consumption and production, where a certain amount of electricity is allocated to each electricity user for specific hours, and precise production volumes are assigned to producers. Additional consumption or production licenses would be obtained by strictly following the rules. Both arrangements suffer from numerous problems typical of centralized arrangements.
Fortunately, there is also a third, market-driven alternative. Thanks to this, the seemingly distant dream of stable, predictable, and affordable electricity could be achieved in our lifetime.
The key factor here is to attract a large-scale flexible electricity consumer to Finland. Such a consumer is capable of responding extremely quickly to fluctuations in electricity production and consumption and producing a continuous, predictable income by consuming electricity. There are not many such large consumers because the majority of large consumers want to consume electricity at a steady pace and flex as little and infrequently as possible.
There are exceptions thanks to the latest developments in computing operations and data center business. Flexible data centers originating from traditional data center services are capable of gradual and programmatically predictable large consumption. The electricity-intensive, stateless computing processes performed by flexible data centers generate real-time cash flow, and electricity consumption can be adjusted 24/7/365 for any reason and to any extent.
"Finland is a country with high expertise in energy and electricity technologies. We have the expertise and knowledge to take the electricity grids and markets to the next development stage. In this development process, flexible data centers performing stateless computing could play a key role, as their waste heat could decarbonize heat production. Does Finland have enough will to secure current and future energy investments, attract new large consumers, and finally get rid of the mindset of "there's nothing to be done about the price of electricity, so adapt"?
Finland has much to gain in the world energy transformation. Still, at the same time, special attention must be paid to increasing demand response as the relative share of intermittent production grows. Finland can significantly increase energy production quickly and export electricity through computations to international markets without transmission connections, with the help of a flexible and predictable large consumer.
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Two other op-eds co-written with Jaakko Kaijala:
This article was written in collaboration with Jaakko Kaijala from Nordblock. We offered the opinion piece to Suomenmaa, and it was published online on July 23, 2024.
The statements, opinions, figures, charts, estimates, and forecasts presented in the article are the authors' selections and should not be taken as a recommendation or advice for action or decision. The article is not an investment recommendation or advice. Don't trust, verify. Do your own research. Below are some previously published opinion articles on the transformation of energy production, flexible consumption, and the possibilities of flexible data centers as flexible (large) consumers.
Here are some of the previously published opinion articles (in Finnish) on the transformation of energy production, flexible consumption, and the possibilities of flexible data centers as flexible (large-scale) consumers: