Balancing in transition: how Finland’s imbalance prices reflect nordic market reforms

Structural reforms and their market impact 

The Nordic balancing market is undergoing a transformative phase marked by increased complexity and heightened volatility following significant structural changes implemented in March 2025.  

With the shift to a 15-minute settlement period and the introduction of an automated clearing mechanism for manual balancing energy (mFRR), the Nordic transmission system operators (TSOs) aim to enhance efficiency and align with the broader pan-European energy framework.  

These reforms are designed to accommodate the evolving needs of a power system increasingly reliant on renewable sources and rapid response capabilities. However, early indications reveal a challenging adjustment period characterised by extreme price fluctuations and growing demands for data transparency, prompting market participants to reassess their strategies in this rapidly changing environment. 

Finland and the integration into PICASSO 

In this rapidly changing balancing market scenario, Finland became one of the leading countries among the Nordics to join PICASSO, the pan-European market to exchange aFRR energy reserves. It joined PICASSO on 27 March 2025, while Fingrid had already launched a local aFRR energy market on 13 June 2024.

Therefore, the imbalance prices in Finland since then have been set by both aFRR and mFRR energy market prices and volumes, based on certain conditions, unlike other Nordic countries.

Imbalance price calculation depends on the dominating direction. Up or down regulation reserve activations set the imbalance prices. 

Mechanism for Imbalance Price Calculation in Finland 

Following factors set the imbalance price in Finland: 

• The VWAP of aFRR activations within the 15-minute Market Time Unit (MTU) is considered. 

• mFRR up or down regulation prices of both scheduled and direct activations. 

However, there is a caveat: the dominating direction is decided by mFRR now. If the dominating direction is upwards and aFRR activation is also upwards, then the maximum of the three, depending on the sign of the prices, will determine the imbalance price. If aFRR is in the opposite direction, it will not impact the imbalance price. The same logic applies in the downward direction using the minimum of prices. 

This article will highlight the impact on imbalance prices in Finland because of these two major updates in the mFRR and aFRR energy markets. We will take a deep dive into both markets step by step. 

PICASSO: Harmonising the aFRR market across Europe 

PICASSO is a collaborative European initiative aimed at creating a unified market platform for the activation of automatic Frequency Restoration Reserves (aFRR). It is a common TSO-TSO market which is cleared every 4 seconds.  

Denmark joined Germany, Austria, and the Czech Republic in this common platform on 2 October 2024. On 17 October 2024, the Dutch TSO, TenneT, also joined. Thereafter, Belgium, Bulgaria, Slovakia, and France joined PICASSO. Finland became the second Nordic country to join on 27 March 2025. The Baltics have also joined PICASSO.

Market structure and pricing mechanism in PICASSO 

PICASSO enables the sharing of balancing reserves among TSOs, addressing the growing need driven by higher renewable penetration. Efficient allocation of aFRR reserves is achieved via a common optimisation model cleared at a 4-second frequency as shown in Fig. 4.

Finland joined PICASSO on 27th March 2025. However, as a first step to get prepared for its accession to PICASSO, Fingrid already launched a local aFRR energy market in Finland since 13th June 2024.  

Fig. 5 shows the volume by price class curve for Finnish PICASSO. It shows that the market is supplied with upward and downward resources at moderate prices while the volumes supplied can vary with time.

Fig. 6 displays the Cross-border marginal prices for Finland and Baltics from 7th May to 25th May 2025. Analysing the 4 sec resolution CBMPs of Finland and Estonia, which are directly connected since 7th May in PICASSO with +/- 30 MW of capacity, we find that the prices were equal 2.3 % of the times until 25th May. 

The merit order curves for Finnish PICASSO looks considerably different compared to those in the Baltics. Fig. 7 shows the volume by price class for PICASSO in Finland while Fig. 8 shows that for Lithuania. In Finland, the most expensive volumes available on the upward side have been for priced up to 550 EUR/MWh and on the downward side for -175 EUR/MWh. In the Baltics, the most expensive bids have been available at 900 EUR/MWh on the upward side and -300 EUR/MWh on the downward side. 

Since the time of connection of FI with Estonia, the convergence of PICASSO prices has been 9% of the time until 25th May 2025. 

Manual Frequency Restoration Reserve (mFRR) market reforms 

The Nordic TSOs introduced a major change on 4 March 2025 with a new model to automate the clearing of the manual frequency restoration reserves (mFRR) energy market.  

The mFRR power resources were activated manually to restore grid frequency when imbalances occurred. This change coincided with a switch to 15-minute settlement times.  

From 19 March 2025, imbalance prices and the balancing market began operating at 15-minute resolution. Cross-border intraday markets also now offer trading in 15-minute timeframes – a shift reflecting the growing need for flexibility and precision as the fundamentals of the power system evolve. These changes bring us closer to the goal: a fully integrated Nordic balancing market that aligns with the broader pan-European system.  

Scheduled vs direct activations in the new mFRR 

Scheduled activations: 

The scheduled activation process runs every 15 minutes and uses the Nordic Activation Optimisation Function (AOF) to select bids for an upcoming 15-minute period. When the Nordic TSOs connect to MARI, the Nordic AOF will be replaced with MARI.  

Scheduled activation is a proactive process. since the mFRR request, which determines the activated volumes in the AOF, is based on an imbalance forecast made by each TSO. 

Direct activations: Triggered in real-time for unexpected imbalances, cleared locally via national processes. 

These are the activations that happen as a response to deviations that arise in the system or if scheduled activations are not enough. Therefore, it is a reactive process. Just the bids from national process with ATC availability within same TSO control area are used for this purpose. So, it is categorised as a local process.  

The bids available for direct activations are cleared as per the merit order. Full activation always starts in one quarter hour and continues into the next quarter hour.  

The activation volumes for each market time unit (MTU) for Finland since 4 March 2025 until 24 May 2025 are shown in Fig. 9.  With this new balancing market update, it was expected that the local activations would increase. This is because the algorithm chooses between imbalance netting and counteractivations based on whichever minimises the balancing costs for the TSOs.

Effects on market behaviour and imbalance signals 

Scheduled activations have been more frequent and of higher magnitude than direct activations for each direction respectively. Downward activations have been more frequent for both scheduled and direct activations compared to the respective upward activations.   

The new mFRR update aims to minimise the Area Control Error (ACE) per bidding zone as opposed to a frequency-based balancing for the entire Nordic synchronous area which was the case before the shift on 4 March 2025.   

In the new Nordic balancing setup, publishing open-loop ACE helps market participants understand true imbalances in the system before automatic reserves are activated.  Fig. 10 shows the current imbalance state for Finland for this year until 26th May 2025. This shows that downward regulation is required more often.

Fig. 11 compares the number of hours mFRR upward and downward regulations were needed. Generally, Finland has a higher number of downward activated hours compared to upward activations (on a monthly basis). Since March 2025, after the shift to mFRR EAM, the number of hours with both upward and downward mFRR activations have increased and, in some cases, even doubled compared to those in the previous months.    

The bidding behaviour in mFRR energy market is shown in Fig. 12 with volumes at the prices submitted by market actors. Notably, there is a visible shift in the bidding behaviour post 4 March when the new balancing market change took place.  

On the upward side, the mFRR volumes have become available at lower prices compared to the previous prices. On the downward side, the last MWs of volumes are more expensive compared to the earlier trends.  

Moreover, after 12 May, larger volumes have become available on both upward and downward sides. This shows that the bidding behaviour in terms of volumes and prices has responded because of high price volatility and need for flexibility in the balancing market. 

Imbalance price spikes and case studies 

Fig. 13 and Fig. 14 compare the activated mFRR up and mFRR down prices in Finland for 2024 and 2025. It can be seen that the highest mFRR up price observed in 2024 was 3,000 EUR/MWh, while in 2025 (especially after the shift since 4 March) prices have reached 5,000 EUR/MWh on multiple occasions.  

The downward prices have also reached the price floor of -10,000 EUR/MWh, whereas such prices were not witnessed in 2024.

Note: The first spike in mFRR up price on 16 March was not reflected in the imbalance prices as they were reported hourly back then (until 18 March). From 19 March, quarter hourly prices were reported.

Case study: 15 April 2025 imbalance price spike 

On 15th April 2025 at 20:00, the imbalance price in Finland reached 5,000 EUR/MWh. Fig. 15 displays various factors in the market that explain this situation. A nuclear outage can be seen in our fuel mix forecast, providing a clear indicator of volume deficit in the market. This was coupled with reaction in the intraday market to buy the lack of supply due to this outage.  

The continuous intraday market was trading up to 1,000 EUR/MWh. However, as seen from the XBID order book depth, there was an indication of sell prices as high as 5,000 EUR/MWh. There were two different types of mFRR activations for the same period. Scheduled activations which are now determined by the mFRR AOF algorithm based on the TSO’s forecasts. It was up to 500 MW in this case, whereas the direct activation which is activated in a reactive manner was close to 600 MW upwards.  

In certain cases, we observe that the intraday market reacts to such outages of nuclear to buy back the deficit created. If that turns out to be the case, the balancing market activations required can be more moderate, leading to mild imbalance prices. However, when the intraday market does not sense the deficit well in advance and cannot resolve it by itself, it creates need for more activations of balancing resources.

Shifts in Price-Setting Mechanisms  

As the imbalance price in Finland can be set by aFRR or mFRR activations, it is interesting to analyse how these prices have evolved post the mFRR EAM go-live.  

Fig. 16 compares the percentage of time, before and after the switch to mFRR EAM, when the imbalance price was set by mFRR up, mFRR down, aFRR up, and aFRR down. Before the switch, there was large share of hours without a dominating direction, meaning the imbalance prices were same as the spot prices.  

Moreover, the total share of mFRR up and down setting the imbalance price was just 22%. After the switch, the hours without a dominating direction have reduced to 3% while mFRR prices have been setting the imbalance prices for 48% of the time.

As imbalance prices are more often being set by the mFRR prices, it is important to focus on the method that determines these prices. The new Automated optimisation function that determines the scheduled activation at Nordic level, uses the ATCs left out after the day-ahead and intraday markets.  

After Flow Based Market Coupling went live, less capacity is available for balancing market. Moreover, there are more local activations which also set the prices. Sometimes there can be small activations that can set the prices, direct activations which might be a bit sudden and unpredictable can also play a role.  

Proposed solutions from TSOs 

The Nordics TSOs have ruled out the possibility of a rollback to the previous model for the mFRR market. However, some of the Nordic TSOs have proposed some amendments to the mFRR market in order to reduce price spikes caused by minor volumes.

• SVK proposes a ±25 MW tolerance band to reduce direct activation spikes. 

A new tolerance band of +/-25 MW has been proposed by SVK aimed at stabilising the rising volatility in the imbalance prices. This tolerance band will be implemented by midsummer for the direct activations which are determined by the national bid selector.  

It will allow the national bid selector to choose a larger, but cheaper, balancing bid for direct activation. The new tolerance band by SVK will reduce the bid skipping issue in direct activations which was one of the reasons for the spikes we have observed so far. This will help with reducing the price spikes from direct activations which are done in a reactive manner and more difficult to predict. 

• Energinet suggests rounding small mFRR demands ≤25 MW to 0 MW. 

Energinet has proposed a different type of tolerance band of 25 MW, such that the mFRR demand for upregulation or downregulation of 25 MW or less is rounded down to a demand of 0 MW. Due to the new mFRR EAM method, the prices are set by mFRR demand instead of activations as the activations can occur in neighbouring regions. 

At the moment, these changes will be applied by TSOs for their own control areas. Updates at the Nordic level might follow later on.

This change from Energinet is set to go live on 2nd June 2025. As the scheduled activations are based on Energinet’s imbalance forecasts, there might be errors in the forecasts. These are part of their proactive approach.

After the new mFRR EAM implementation, most hours have a dominating direction which means imbalance price can be set by very small volumes of mFRR or aFRR. It is especially relevant in the case of Denmark since they are also active in PICASSO with quite high prices for the aFRR resources. As a result, the imbalance prices have been high and volatile.  

Outlook: Toward stability and transparency 

Elastic demand for the entire Nordic AOF would be a better solution as the demand will not always have to be always met entirely. This might compromise a bit on the frequency quality, but would make the market more stable. This will be implemented in the algorithm further down the line.  

Concluding Words: Navigating complexity with data and dialogue. 

Amidst the growing complexity in the new Nordic balancing market, the volatility arising due to several factors remains a concern.  

We see proposals from some Nordic TSOs to help alleviate the situation with certain amendments to the new mFRR energy activation market. This is a positive step and will play a role in improving the situation and hopefully making the market more stable.  

However, there is still a long way to go in terms of bringing more clarity and transparency to the market, as there also is when thinking about introducing more flexibility in the newly introduced balancing market clearing algorithm.  

There is need for further cooperation and dialogues amongst the TSOs and market actors to navigate through the new market setup. It will also be important to observe and follow the developments in this new mFRR algorithm as it is set to evolve and improve with time. 

As the coverage of PICASSO grows further, there will be more markets coupled bringing Finland closer to the real-time markets across Europe. Thereby, the topic of imbalance price formation will become increasingly interesting as well as complex. Such challenging market dynamics will warrant the use of advanced market analytics and forecasting methods to help navigate the growing complexity of electricity markets.