Finland’s new normal: volatility rules a market in transition

When I moved to Finland 18 years ago, I was struck by how order and security defined nearly every aspect of life, including the power system. Back then, the grid was anchored in steady thermal generation and managed with a careful, deliberate hand.  

Since my arrival, I’ve seen first-hand how the energy landscape has been reshaped by renewables, nuclear expansion and a growing pursuit of flexibility. Over the years, I’ve watched wind turbines sprout across the west and north, and solar panels appear on rooftops in cities, villages and everything in between. Meanwhile, large thermal plants, usually named after the towns where they’re located, were closing down. 

What I witnessed over the past decade was a seismic shift in Finland’s power system from thermal-based to renewable-driven generation. Price formation, once set by the short-run marginal cost (SRMC) – the variable cost of generating electricity from coal and gas – now follows wind forecasts instead. But does the market setup really work in practice?

Phasing out the old thermal fleet was inevitable – unprofitability piled on top of climate regulations sealed its fate. At the same time, the rapid buildout of intermittent renewables and the phase-in of Olkiluoto 3, the Europe’s largest nuclear reactor at 1.6 GW, left Finland with a production mix dominated by highly inflexible capacity. As a result, day-ahead price volatility has moved to centre stage, as seen in the chart above. 

Stretched at both ends 

On the one hand, Finland’s security of supply demands more baseload to meet peak demand when wind is absent – currently only achievable with imports. On the other, a lack of export demand and insufficient internal flexibility mean spot prices frequently swing wildly on windy days. 

From the market perspective, it’s not only winter cold spells that can trigger risks of price spikes or power shortages. In summer, volatile wind output causes pronounced price swings both up and down, putting investment and existing plants – especially conventional assets – at risk. 

One example was 4 July, when there were negative prices across the Nordic and Baltic regions, as seen in the chart below. This was followed by a EUR 100/MWh spike the next day – even with a weekend demand profile. Inelastic production in Finland exceeded demand on the morning of 4 July, pushing significant hydropower capacity out of the spot market. Wind was not systematically curtailed, as is often the case. By 5 July, though, wind output had collapsed and the day-ahead balance relied on hydropower and imports.

Although Finland has around 3 GW of hydropower capacity, it generally lacks flexibility – unlike other Nordic countries – because it is mostly run-of-river. In a run-of-river system, electricity is generated by diverting part of the river’s immediate flow through turbines, rather than storing water behind a dam for later use. This means output closely follows the river’s natural flow and cannot be ramped up or down on demand. When inflows are high, Finnish hydropower plants must generate power continuously, which limits their ability to adjust production and contributes to overall system rigidity – a sharp contrast with countries such as Norway and Sweden, where large reservoirs allow water to be stored and released as needed for balancing and flexibility.

Flexibility limits  

Low spot prices not only push hydropower out of the market but sometimes even nuclear. Olkiluoto 3 has at times adjusted capacity down in anticipation of high wind, as seen in the following chart. These adjustments are often unannounced, without published capacity reduction messages. This poses the question – is nuclear the right asset to modulate against wind? The answer is unclear – and may only emerge with time.

The day-ahead spot market is still the dominant revenue driver and the key reference for futures trading across the Nordic region. There’s now a growing emphasis on short-term markets for more precise price signals, but for now, those markets lack transparency and predictability. 

What now for Finland? 

As the energy transition advances, it’s essential not to undermine mechanisms that still work. Flexibility in the Finnish day-ahead market is more urgent than ever. 

Any new technology rolled out commercially must be able to participate actively and smartly in the day-ahead market. This is the only way to generate the data needed for more robust forecasting and a deeper understanding of the shifting fundamentals. Ultimately, it is better, faster information, not just more capacity, that will help us regain control over the volatility that is fast becoming Finland’s new normal.  

When I moved here, the rules of the Finnish power market felt clear and reliable – an electricity system designed for predictability. Watching this rapid evolution as both an analyst and a resident, I see a market where flexibility and adaptability now matter most. As Finland continues to write the next chapter of its energy story, I believe that blending new solutions with old strengths is the key to keeping both the lights – and the country’s reputation for reliability – shining bright.

This article originally appeared as a column on www.montelnews.com