Bidding error sees Finnish day-ahead power price tumble (opens in new tab)

If you have the pdf of the 24, I would love to see it.

Yes, that's fundamentally it. By making the marking more liquid, different types of entities can adjust for their specific predictability/risk needs.

Also note that though these markets are "free" they are still extremely highly regulated. I don't know much about the Finnish market but I've built trading algorithms for CAISO and PJM, and it is by no means a free-for-all. The rules about what types of entities can participate in which aspects of the market are quite strict and detailed.

Especially post-ENRON there is a strong focus on avoiding even any possibility of appearance of market manipulation. Basically the guidance from our lawyers was: every trade needs to have a strong, explicable economic rationale (apart from the market.) In our case we didn't even want to use neural-network based trading algorithms, since they (at the time) weren't sufficiently explicable for us to have a "rationale" for a trade that might later be called into question.

The idea is to buffer changes in price. Started with crops originally iirc. Say I know I need 1 ton of seed for planting. It normally costs $5,000/ton. I am concerned that the rat epidemic might cause a seed shortage. It does. 1 ton of seed next year is worth $20,000. Because I purchased the future of 1 ton of seed for $5,000, I am not affected by this.

Made up numbers obviously, as I know someone is just waiting to “well akshually” me.

Because there is effectively no way to store energy at scale, prices are extremely volatile, like from $1 to $1000 in five minutes.

If you want to buy a solar panel with a useful life of 10 years there’s basically no way to estimate how much revenue it will make. But if I promise to pay you $10 for that energy all year, you have some idea if your purchase makes sense.

> Without trying to fall too hard into a potential late-stage-capitalism hole, what is the advantages on trading like this? Beyond the advantages of making money on futures

Trying to view things as “late stage capitalism” isn’t a good way to really understand anything. It’s a cynical Reddit trope that assumes malice from the start, which doesn’t leave much room for a real explanation.

The reality is that trading like this is a type of contract and it takes two parties to enter into the contract voluntarily. Nobody is forced to trade energy contracts this way, but it can be helpful for both parties to do things like lock in more predictable pricing, hedge certain types of risks, and agree to mutual contracts that benefit both parties’ businesses.

Energy prices going negative sounds like something evil or malicious or “late stage capitalism” to the uninitiated, but even without trading errors there are legitimate reasons to have negative energy prices at certain times of day. For example, certain types of power plants like nuclear can’t quickly ramp up or down as demand changes. A power company might come out ahead by pricing power negative (that is, paying people to consume it) for certain night time hours if it allows them to keep the power plant at a higher, continuous output in preparation for peak times. Energy hungry industries such as aluminum manufacturing or other industrial processes might gladly adjust their production schedules to operate during these times to take advantage of the low or negative pricing. Everybody wins.

There are numerous dynamics like this at play. It’s not a “late stage capitalism” thing, despite how some people like to sneer at anything they don’t understand. There are legitimate reasons to operate this as a market and let market participants work out optimal deals.

Physical commodities cannot be delivered instantaneously, additionally there is no giant warehouse at the commodity exchange that stores the commodities. This means that what you are going to trade is a delivery contract.

If you play a game like Prosperous Universe, there is no delivery problem on the central commodity exchanges and the commodity exchange has infinite storage capacity. When you buy something, you instantly receive the commodity.

If you want to know why there are duration differences on the contract beyond the delivery itself, e.g. why someone would issue the contract 3 months or 6 months before delivery, then the reason is that they want to minimize income fluctuations or to pay off specific contracts. Similar to how businesses want to turn capex into opex at exactly the rate the money comes in, but this time the goal is for the income to arrive at the same time as the expenses.

Electricity market is interesting from a late stage capitalism perspective because it's so managed by regulations and transparent, and relatively pretty closed-world, and there's fast feedback. So many of the capitalism critiques don't work as well against it.

Of course the fundamental problems of unfairness and poor people paying more for electricity than big industrial users can also be attributed to properties of how the market is managed and regulated by the public (the classic "critique of free market" -> "not free enough, ergo not fault of free markets" trope).

Besides generation, this also enables pricing and funding of energy storage. Eg you could use historical data to see how profitably you could play production peaks and lows to charge/discharge battery storage, and use fairly well known risk management stats for the uncertainty factors.

Like all market activity, the high-level point of all that activity is to derive the real price of the thing being traded. Without falling too far into the late stage central planning thing, this is the mechanism that has been absolutely broken (due to been poorly done by pathetic humans) in all previous attempts at communism.

As a tangent, it would be interesting to see if non-pathetic modern computer systems could actually achieve to implement that mechanism successfully. But if sci-fi is to be believed, that could easily fall into another form of dystopia.

I think it's mainly because of large amount of rooftop solars which are either unable or don't have incentive to curtail, and then there are coal generators already running at their lowest output level.

The regulation applies in the opposite side as well. I think the highest bid allowed is like A$16.8/kWh or something like that.

It's not fully clear to me how the market work as a whole. I learnt that generators may have swap contracts with retailers and big users, which, based on my understanding, can distort the price to arbitrarily low, because generators get paid for the difference from the other side regardless of spot price, so they can set the lowest possible to ensure they can dump their power to the grid.

Also when it's predicted to be this low (or that high), there is likely some operations (market or not) behind the scenes to level the price. Usually when it gets to the time, the actual spot price has been in a reasonable range.

On the stock exchanges in the USA, they do that because we didn't use to and trading bots that were mis-configured went nuts and broke the markets for a while.

Now they stop trading for (15?) minutes to let everyone make sure it's real and not their trading algorithms being stupid.

It's not about not letting the stocks crash to far, it's about making sure the pricing is accurate.

The Federal Reserve however is a different story. :)

Price floors don't mandate high profits because you can just not purchase if you don't want to. Subsidies would.

Can't officials just place a bid to buy power at whatever price(negative?) to even out the extra power that is not there?

They cannot produce that amount of power and needs to buy it back on the secondary market. Will likely cost around 100Meur.

No, you still have to pay for transfer.

At first I thought your math was wrong, because that doesn't match the numbers in the article. But then I checked the day-ahead prices at epexspot[1], and it's indeed showing -500 euro/MWh in the afternoon, from 14h00 to midnight!

[1] https://www.epexspot.com/en/market-data?market_area=FI&tradi...

They placed a bit at that price doesn't mean the market price will be that high.

Isn't it very easy to "dump" electricity? Why even sell it?

So why don't they put that towards their own capital in terms of expanding retention capacity?

This sounds like something a toxic middle management bro might say to be edgy.

If this is easier for you to understand, you might have a problem.

Ah thank you. I remember now. Still weird that this can also happen (and is allowed to happen) in an energy market.

Most Finnish households have a contract which limits the effect of this pricing anomaly (fixed price contracts are quite popular as people see the hourly market rate as risky and unpredictable). However, I do have a hourly market rate based contract myself and tomorrow afternoon/evening with rates of -0,50€/kWh any electricity consumption is going to lower my energy bill - even considering the energy sale commission, taxes and energy transfer fees which I will of course have to pay.

Other regulated commodity markets have what is called a «reasonability limit» avoid this exact kind of scenario. It is very concerning that the exchange didnt have any automated alerts that could trigger for example a phone call to verify that the order is correct.