Finland’s Black Friday

A bidding error in the Nordic spot power market could be the costliest fat finger event ever in European energy markets – both in terms of financial losses but also the reputational damage for the electricity system and the companies involved. Listen to a discussion on the events that led to EUR -500/MWh power prices and why some Finns treated it as Black Friday.

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guests: Maarit Uusitalo, Manager, Market Solutions, Fingrid ;Riku Merikoski, Senior Power Analyst, Axpo; Gert Ove Mollestad, Editor Norway. 

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:18

Hello listeners and welcome to the Montel Weekly Podcast. Bring Your Energy Matters in an informal setting. In this week's pod, we'll discuss in detail last week's speeding error in the Nordics bock market. Quite possibly the costless in European power market history, not just financially, but also for the Nordic electricity system and the reputational damage incurred a clearer and obvious error. For half of Finland's peak power demand slipped through the net and sent power prices plunging to minus 500 euros a megawatt hour instead of Euro 60 per megawatt hour as forecast. What happened? Who was responsible, and what will the consequences be? Helping me Richardson to discuss this unprecedented incident is Maarit Uusitalo of Fingrid, RiRiku Merikoski of Expo and own Gert Ove Mollestad. A warm welcome to you all. But before we start, I'd like to make clear that I invited NPO to participate in the podcast. But they declined and the company responsible for the bidding error, Bergen based connect energy, has been asked for comments several times. But as always perfused to give any, let me start with you Gert, what actually happened on the Thursday, the 23rd of November?

Gert Ove Mollestad, Editor Norway: 1:30

We were looking for the spot price for Friday and checking that, and then we saw some very peculiar numbers for Finland. They outturned at minus 203 and we really couldn't believe our eyes. And then we saw that the 10 consecutive. The hours were at minus 500, which is in the, at the technical price floor, and it was hard to believe that this could be right. We tried then to check with NAL that the price was correct and we got confirmation that the price was firm at this. As I said, even though everybody, I think very quickly acknowledged that this was something very wrong going on, on here.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:05

And since then we, you've discussed with the Nord Pool ceo or Tom Darel. What's his version of events?

Gert Ove Mollestad, Editor Norway: 2:11

He said that they got a wrong bid from Connect Energy. Connect Energy is sold on average, almost 5.8 gigawatt of power in Finland for Friday, which it didn't have, and which caused the prices to plunge. And the wrong bid is solely connects responsibility. However, the bid was flagged in no pole system, and it was as an outlier and it was marked with a red alarm but no pole. They didn't discover it soon enough to avoid it going through the auction and causing them the price to crash.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 2:44

So there seems to be some system deficiencies at Nord Pool as well, not being able to spot it, although of course the era was connects. But that's something that, that, that wasn't flagged up in, in the Nord Pool system.

Gert Ove Mollestad, Editor Norway: 2:55

I think it was flagged, but the Nord Pool they didn't take it further. The system identified a bit that something very fishy but nal they didn't, have time where they didn't act on it at least. And it's very common when bids deviates considerably from the day before that normal noal checks with the customer. If anything, everything is all right. But that was not done in this case. And we also asked Noal and exactly when the bid from Connect was submitted. But Nopa has declined to answer and says that. Connect has to answer that question, and we tried several times to get some answers from Connect, but then they've declined the commenting, their whole story. So far, unfortunately, I'm must say.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:34

Yeah, absolutely. Maarit, if I could turn to you, what was the frid reaction here to the auction and the outturn of the prices there?

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 3:42

I think the initial reaction was just like you said an astonishment, what can this be correct? Because it was not all at, at all aligned with the system fundamentals that we were expecting. So we in our control center as well, started looking very error and of course it was clear very fast that it's an error. And of course, connect came out with this market message quite soon. And then. We of course talked with snow pool. We asked them to make a rerun because we thought this is this is not gonna work for the finished system. As mentioned the error was in average about half the finished consumption. It was clear that it had replaced correct production or generation from the market. And in addition, there was a curtailed energy about those bids that were actually little bids in the market. That was our initial reaction. And then we started conducting the. Participants, we sent a message to our market participants that please be aware of the situation, please be active in future in preday and balancing markets to be able to correct this. And then we also asked Nor Port to come out with this information about the active and so they and you also put out the message that please be active on intraday market to correct. And finally, we also were in contact with this connect energy and made clear to them that it's a task to, to start acting in the intraday, to correct the error as soon as it was clear that it's not gonna be. Cleared with the rerun by North Pool or by the market Coupling. Coupling processes.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:22

I think we'll come back to touch upon the consequences and what happened the day after in Finland as well. But Riku, what was the reaction from the market participants such as yourself? I know you've posted some things on LinkedIn and you weren't very pleased about what, what happens. But do you think the exchange should have undertaken a second auction?

Riku Merikoski, Senior Power Analyst, Axpo: 5:40

I wasn't expecting anything strange in that day. So let's say I was completely doing normal work. When I one client asked that, what's wrong with Finland? And then I was almost about to answer that, not, but there is shouldn't be anything tomorrow, which was in line with the expectations. However, then I looked at the prices and also updated maybe 10 times before I believed my eyes. In a way this has done well. I had the first right idea at the first site, so in a way, there must be wrong volumes on the cell side. That's the first thing I checked, and this was very correct. Yes. However, what happened thereafter, of course, let's say I immediately started thinking of this, that in a way, how is this possible that this can have gone through? The power exchanges system because in a way, the power exchange is a big part of the critical system infrastructure. And if it fails to provide prices, which are reasonable, that's a major system problem. And I'm, let's say. I'm really disappointed that this, it was possible that this happened because also this quite clearly points out that if someone wanted to harm the Nordic power system, it would have been really easy if even this much, this clear, wrong bit was not stopped. Because it, it could easily have gone to the other direction as well. And then the people would, in Finland, would have been on the streets the next day. It was a pure, I would say it was pure luck that we had a sell side error and not a buy side error there. Nothing has been proven that there has, would have been a different reaction if it had been on the other side. That's what I'm really worried that it doesn't see. We are ready for the some, if someone would try to harm us on purpose.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:37

So that, that has quite serious security implications, what you're saying there, Riku and then are you concerned, from what we're hearing that it was flagged up the era, but nothing was done about it. Is that a worry here?

Riku Merikoski, Senior Power Analyst, Axpo: 7:50

For all market players? It doesn't play any role. If it was flaked, the most important thing was that it was not acted urban. Like I, I don't think anyone cares or of course it's better that it was noted, but it was, it's maybe even more concerning that then no action was taken. I'm also a bit like worried about the decision process here because I would say that the harm caused by this is massively larger than any amount of delay in publishing. The prices would have ever been even, let's say, five hour delay of prices. Publishing would have been totally a hiccup compared to this total disaster, what we have at now at hand.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 8:34

So the minimum would've been a second auction and dealing with that or?

Riku Merikoski, Senior Power Analyst, Axpo: 8:38

Yeah. I know the argument that they didn't have the grounds to do but in a way, somehow even the major Stock Act changes can roll out false trades out of their system. There has been multiple events in stock exchanges where you can have millions of trades in seconds and that there, there are possible to, let's say, delete the wrong trades. So somehow I don't buy the argument that it was not possible at all. I have a hard time to believe that the other operate market operators in Europe would have declined to cooperate in a situation which actually. It harms all power exchanges in Europe that this happens. I think that this is a clear problem from them all. Not only Nord Pool.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 9:22

We heard as well for that frid wasn't com in dialogue with Nor Pool there. Maarit was your understanding that they grasp the gravity of the situation.

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 9:32

I can't say I, I can't say that whether they did or not what we asked them to do was but of course that was already after the prices were out, and I totally agree with Rico that it, this should have been acted upon before the prices bear out. And the Aron beat should have been cleared. From the market coupling process. And I also agree that if that would have been done in addition, that we do not have real processes right now. We don't have the second option in the Nordics, and we don't have a process for this in the market coupling process. But that's it. I agree that it would have been a minor discussions today or this situation that we would be now discussing. Okay, why did we break our own rules about not. Making a clear gut for or, now we are talking about this in public. We are talking about the public opinion or power exchanges, which are already. Already in bad reputation after last winter, at least here in Finland I assume not very many are happy about the price fluctuations due to the wind power, but at least here in Finland it has again started discussions about is this really a way to go electricity market? So it's, I, in my opinion, it is really detrimental effect that it has had on the whole electricity markets. And this might have not been recognized by the power exchanges. This happening in Finland, which is a bit bit on the borders of the European system. But anyway I totally agree that it should have been cleared before the prices were out.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:05

How was the situation covered by the finished media? Were they quite critical of the exchange, how the process happened and of the consequences in Finland on the Friday.

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 11:16

Some part of the media discussion was about expected reaction of the consumption because now they were having black Friday on power exchange prices minus five, 500 euros and they have been hit with the high prices the last winter. One part of the media reaction was anticipating that, and another part of the media coverage was about has this been done in deliberately, has this been done with the target of harming the sister? And that sort of field was also covered in the inter media. And then of course started. How can this happen and all these power exchanges how do they actually work? And after we cleared that deliberate act of harming in media then we started discussing about the Power Exchange Act activities.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 12:04

How close was Finland to a blackout? The lights going out.

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 12:08

We were not worried about really about, for example, about power adequacy because we knew Aika was mentioning we didn't expect any special day for that Friday because we saw that there was wind power in the system. There were no, no major generated trips. Announced. So we knew the system was adequate. We know the generations are still there. They haven't gone anywhere. Only that the market results has not started them up. So we were not really worried about the power adequacy. As such but what, what worried us was about how will that be handled? And then about the visibility of the sort of system state we use the spot results as the initial system balancing for the next day. And that is really important for the system. So having a visibility for the next day, which, which comes as a result of this calculation or. Market coupling system, which generates up and running who gets the power and such, and what sort of defines the system? Transmission system state and as we did not have that that sort of worry us the more.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:16

But you saw big increase in power consumption as well. On the day we saw some figures, 17%.

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 13:23

Yeah. I'm not sure about the percentages, but on, on, on MegaBots when that our change came when the 500 minus Euro stock came up we saw system consumption change. I think initially on the, our change, it was like that thousand megawatts and the peak power engine on these 13,000 sos. Quite remarkable change. And looking at the what was the consumption on those hours in the previous day? I think it was like between thousand and thousand 400 megawatts more on both hours. So people were really having a few day on, on this Black Friday.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:57

Yeah, exactly. On the Black Friday in there. And firing up their saunas. Yeah.

Riku Merikoski, Senior Power Analyst, Axpo: 14:01

Yeah, I could actually continue on that a bit. That in a way I would say that this went pretty much as I expected, as well, that in a way I was expecting quite a strong consumption increase. And especially I, let's say I was worried about the distribution grid side. And we actually, what happened we know from several reports that there was some distribution grade level problems because people used so much power in at weak line ends that some fuses were blown and that kind of stuff. But in a way, of course, that's a, in a way in the big picture is it's a, it was a minor problem. However, I think it's also proves that people have been said that everyone has been saying for quite some time that you must react to power prices. And then suddenly you say that you shouldn't react to power prices. That's a very. Unfortunate thing to say, what do we say them next time? So do they have to call first Fingrid to ask that, are these PRIs real or not?

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 15:01

That's a very fair point, Riku. I think a very good one. But if I can ask you Gert, how we've seen the reaction from Finland, but how was it perceived in Norway and elsewhere in like Sweden, for example?

Gert Ove Mollestad, Editor Norway: 15:13

Oh, it, the reactions has been really strong and people are characterizing this is something the worst that's ever happened in, at least the Nordic power market. We, we never seen a fit a fat finger of this magnitude before and. People have also compared it to the n os default, the agnostic. But then they say this was purely, that was a purely financial incident. Incident. But this is, this was physical and way more serious. So this is a really this is a really, serious event. And people are also very, I would say, disappointed by the lack of transparency from both noble and Connect. They want more facts on the table, and both the fin regulator and the Norwegian regulator are going to probe the case with Finland towards Kinect and the Norwegian regulator towards Nord Pool but I also would say that it's important for the credibility of the system going forward, that we actually get to know what happened and when it happened and I don't think they should hide at all in this matter.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:09

Do you think for example, March has, there's been some questions raised about the structure of the market, how it's organized. Do you think that could rear its head as well? That people say, oh, why were, why did the. The TSOs, why they sell themselves out of the market. Is the structure that we have at the moment with exchanges competing with each other, is that the correct way to go forward? Do you think these questions will come up?

Gert Ove Mollestad, Editor Norway: 16:32

Definitely. And there's always already a debate about that going on, and there's been a suggestion to. To, instead of having several exchanges calculating the price that you have one entity in Europe, and this might be a step toward, towards that. I don't know how that's gonna pan out but at least there's been so much criticism and I don't know, disbel not. No. This credibility for the whole energy market the last year, and then you have this story on top of everything, which is just really harmful.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:04

Exactly.'cause like you pointed out the a o there was a one guy who lost hundreds of millions of krona,

Gert Ove Mollestad, Editor Norway: 17:10

but that didn't affect public money in, and that was private companies exchanging money and he lost of course but this has serious consequences for the whole society, and it's a completely different matter.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:21

Absolutely. This is the physical market, this is the power system and the credibility and the security of where we get our energy from there. So put, put to question here. Maarit what can you see as being the consequences or what would you like to see as the consequences of this mistake? A deep seated inquiry and a promise that, what to, what should. Be put in place to ensure this doesn't happen again.

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 17:42

I would like to mention that sort of an open discussion on how can we together prevent this again so all the power changes. It's not only nor fault, but all the power exchanges need to check that. How are they dealing with Aaron speed? How are they figuring out that there is actually an error speed? And we, together, we need to look into the process. I understand that the existing setup. Need some rigid processes because there are so many actors. We have I don't know, 40 TSOs, 15 power changes and so forth. So I understand that there needs to be rigid processes, but we really need to look into those and the timelines about the market coupling process that. We need to introduce a place where a speeds as clear as this one needs to be cleared before the prices are out. So that's my wish that we can find that kind of a process development.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:37

And Riku, do you have any idea of the costs of the mistake? Who, who did it hit the hardest here?

Riku Merikoski, Senior Power Analyst, Axpo: 18:42

Of course what we know for certain is that Kinect came out this. Extremely brief statement that they lost between 50 and $55 million. That's what they say. And nothing, absolutely nothing else. So I think we can agree on that point. Then I have heard some calculations that Swedish producers lost a couple of tens of millions, and definitely Finnish producers lost some tens of millions in the crude sense of it as well. Then we have actually also those finished sales companies whose let's say sales forecasts failed quite a lot because of this extreme increase and totally, which no one was prepared for. So I think they lost also considerable sum of money. So I would very easily believe that the cost of this is well above a hundred millions in total. I could also even add that. Because in a way, now you are, the error was so big that in a way now whole monthly settlement and partly settlements of the financial market are quite a lot wrong for Finland. So anyone who had Finn EPAs or this even system prices, they were settled against. Totally false. Thing. So in the, then in the financial market, in a way, incorrect money flow is also really big. And I could even add that even the Finny state has to pay more sub subsidized seeds for the subsidized windmills, because even on the quarterly level, this has a major effect on the Finnish quarterly average based on which subsidies are counted on. In a way, and I think it's very desperate to believe that you would ever get that money back from anyone. I, that doesn't seem to gra it'll be a very hard process to hope anything for like that. I think some statements from North Poor Side that anyone harmed by this should maybe then try to sue Connect Energy. I don't think that was a very serious statement. The likelihood of getting money that way. It might be a quite hard and expensive process to try. Of course someone better notes the legal stuff better than me, but in a way. I wouldn't believe that. It's an easy way to get anything reimbursed that way.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:12

No, absolutely. But bid bidding errors happen all the time, Gert, don't they? We report on several companies. They do one a week almost, but but not to this manage

Gert Ove Mollestad, Editor Norway: 21:19

No this is completely overshadows everything else we see on a normal week at least. So usually you have, I don't know, co couple of maybe a hundred or a couple of hundreds megawatt hours for some hours during the day in some price area or some country. But this was just like unprecedented.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 21:35

Absolutely. And Maarit to round off here, I think with you and Riku here about the public perception o of energy. Energy companies over the years have got a bashing. Now the exchanges, the high volatility over the energy crisis, it's a, it's an area where there's a lot of focus. What does this do to the way, the finished population will look at, companies such as yourselves or the exchange or other suppliers and power generators?

Maarit Uusitalo, Manager, Market Solutions, Fingrid: 22:02

In my opinion, this hasn't helped any of the already bad reputation due to the high and volatile prices. And what requisite. Previously about the message has been now I think a year and a half, that yes, you should react to the prices and then about the, the public opinion now is that how can we believe in these prices that come out of this lottery? So that, that has really been a bad reputational effects on the whole. Whole field actually for the energy site.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:33

And have the ripples even been felt as far away as Switzerland, Riku? That's, I know where you sit that's where the headquarters of your company is.

Riku Merikoski, Senior Power Analyst, Axpo: 22:41

Yes. I would say that this not in the, I wouldn't say that in the media. This has been that much. It's, in a way it's clearly an Nordic. Nordic context where this has but I think the, anyone in the industry feels the same worry because in a way now it's also about whether it's actually really, so how Norwell stated it that in a way, due to this European integration process, we can't, cannot act on these kind of cases because then we, it would actually extend the problem any, anywhere else as well that. If then someone asked this next week on some other place, then we could face the same error. I don't know, but it seems like it's possible, but in a way to just estimate the size of the public damage, one should look at the commentaries on those newspaper articles on this. Those are full of, let's say, energy industry bashing. I think this is a very high price to pay for this in a way, hold reliability of the. Whole system has been widely questioned, and even not only by angry people, but even like the largest newspapers are writing that. Is this system worth to be trusted? I think that's, you rarely see that kind of articles in like mainstream media that in a way does to market work anymore.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:05

Absolutely. It's a, it is a very serious matter and I think we will watch very closely what happens at the regulatory level. Of course you better read all about on Montel News, but I think we'll sort see what the regulators come up with to avoid this kind of very grave beating our mistake.

Riku Merikoski, Senior Power Analyst, Axpo: 24:19

I could actually. One more point. I think one idea, which is really some people point out is the question of somehow position limits. That in a way, should you really be allowed to beat much more than you can actually, you physically have that, should there be asset based biding limits? This is one, one clear idea, which. Who could have actually could actually regulate. I don't know how that would change things, but somehow I think most people would agree that if you have a hundred mix of assets, you shouldn't be able to beat thousand. I think most people would somehow agree with the principle, but in a way it seems currently there is none. But I think many people will be asking this question that should, that then be.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 25:10

Absolutely. Yeah. Very good question to ask. I think they're a good Maarit, Riku and Gert, thank you very much for being guests on the Montel Weekly podcast this week.