BLOGSamuli Honkapuro: Future Success Factors in the Nordic Electricity Market

14.9.2021 | Blog, Electricity Sales

“The future success factors of the Nordic electricity suppliers are service offering, risk management, brand and green values. On the electricity market of the future, companies will not only compete with prices, but with many other factors as well.”

Nordic Electricity Market

The Nordic electricity market is well-functioning and progressive. There are many changes taking place in the energy sector. The share of green energy in production is increasing, which increases the variability in production volumes. At the same time, electricity consumption is increasing e.g., with the increase in electric heating, the electrification of industrial processes, and electric cars. Flexibility is needed in the market when electricity consumption and demand must be in balance with production. The end customer will play a more active role in this future, which will affect the business of the electricity supplier. The product sold in electricity sales is homogeneous and the only competitive factor has been the pricing, if the electricity seller has not developed other services alongside.

Demand elasticity

Demand elasticity is an important factor in the future. The more weather-varying production increases, the more electricity demand should be adjusted, and use shifted to a time when more electricity is available. The customer does not want this, he or she wants to use electricity as before and the financial benefit from the flexibility is quite small for an individual customer. On the other hand, an electricity supplier with thousands of flexibility targets can reap significant economic benefits. So how can we make the customer’s use of electricity more flexible?

It is important to communicate the benefits of demand elasticity and increase the customer’s own awareness of their electricity use. The services provided must be easy for customers to understand. As an example, the customer hands over the control of his heating system to the electricity seller for a fee or the customer gets a mobile app where he can monitor his own energy consumption. “The customer needs to be told how they can reduce their carbon footprint with their choices, and flexibility of demand does not mean sitting in the dark and cold.”

New Services, Green Values, and Brand

The energy revolution has changed the industry and forced vendors to develop new products, new solutions, and new competitive factors that change the service concept. “Offering service packages, presenting the origin of electricity and a certain kind of branding are important factors for electricity sales companies. It is no longer just energy that is sold, but comprehensive service packages, such as the installation of solar panels. The form of service and the provision of services are key issues in the market of the future.”

Risk management

“An important issue for electricity suppliers, which will always remain, is risk management. There are very large price fluctuations in the wholesale electricity market, and these will increase with the increase in renewable energy.” Risk management is then further emphasized. If the electricity seller has the possibility to control the end customer’s load, for example when there is a high price spike in the wholesale market, the seller can reduce consumption by the high price hour and thus reduce the risk of the price spike.

 

Samuli Honkapuro
Samuli Honkapuro is Professor of Energy Market and Head of the Electricity Market Laboratory at LUT University. The key issues in Honkapuro’s current research are how to integrate decentralized resources into the electricity market, electricity system and power grids.