Joffrey Faucon, Nord Pool

Italy and Greece are part of the SIDC market. However, they operate as State monopolies and are not open to competition. NordPool operates in all SIDCs where competition is open, as per https://www.nordpoolgroup.com/en/trading/intraday-trading/capacities/. Our partners IBEX (Bulgaria), CROPEX (Croatia), and BRM (Romania) operate these countries using Nord Pool technology.

Joffrey Faucon, Nord Pool

If you asked for a definition of temporal arbitrage, we could take the simple example of a battery operator who buys electricity at €30/MWh when wind output is high and demand is low but then sells it later at €70/MWh when demand peaks (low wind, low sun, or failure of a traditional power plant). This difference represents the profit opportunity from temporal arbitrage.

Joffrey Faucon, Nord Pool

It depends on the production capacity of the boilers. As Karri explained in his presentation, some of these boilers have activation time, which does not make them always too flexible. However, on a local level, when working on the flexibility market, for example, the OneNet initiative, an electric boiler could play a role in balancing the market and the Intraday market. Boilers currently on the mFFR market could be traded on the Intraday market, thus with a specific locational ID system in place. Then, the boiler would help solve local grid congestion issues but also help to get the prices lower if traded intraday rather than balancing the market and, in general, having a more efficient market.

Karri Mäkelä, Fingrid

Boilers, of course, have technical possibilities and limitations. If there is a boiler of 100MW, there might be the ability to have 20MW for some quick responses or even to be flexible about offering it as a resource for Intraday. Typically, I’ve understood that not all capacity is available there, but a certain amount of it, depending on the technical set-up. We see these as opportunities, of course, for any market.

Joffrey Faucon, Nord Pool

That is an excellent question. You are touching on one of the paradoxes of the storage business case and the Green shift in general. First, Let’s remember that the initial goal of the SIDC market is to keep the grids balanced and the prices at an acceptable level (social welfare). As Henri explained in his presentation, there are different possibilities for monetizing BESS. Storage solutions will provide more liquidity and flexibility to the Intraday market in general, and there will still be a lot of arbitrage opportunities, thus reducing the high price variation at the same time. Another aspect to look at is the regulation part. Let’s see how the regulation plays in the future and what kind of incentives there will be to invest in storage solutions as part of the green shift.

Joffrey Faucon, Nord Pool

I tend to agree. In Germany, arbitrage is key because the larger share of renewables creates more price fluctuations. Also, the German market itself is the most liquid and most active with algo traders of the whole SIDC. IMHO, factors like market structure, renewable penetration, and regulatory incentives (not to be forgotten) will drive the potential shift business case for BESS.

Henri Taskinen, Capalo AI

Currently, arbitrage accounts for about 20% of the revenue stack, with ancillary services making up the remaining 80%. However, due to the rapid growth in renewable energy commissioning in Finland, we anticipate increasing volatility in the Intraday market, leading to a rise in arbitrage opportunities.

The aFRR market has also transitioned into an energy market, similar to what we see in Central Europe. This can also be considered a form of arbitrage. You charge the battery in the aFRR down-regulation market and discharge it in the aFRR up-regulation market. We believe that the aFRR energy market, soon to be known also in Finland as the PICASSO, will become one of the primary arbitrage opportunities. In conclusion, the growing value of the Intraday and aFRR markets will play a larger role in the revenue stack.

Joffrey Faucon, Nord Pool

Yes, there are differences, for example, between Finland and Germany, as discussed in the webinar, as the market is serviced a bit differently. Germany is really a market on its own. It is the biggest market in Europe and the most liquid. (Please see the full answer in webinar 1:32:30)

Henri Taskinen, Capalo AI

Yes, we limit the battery cycles depending on the day’s volatility (and ancillary market price levels). We utilize the battery more for extremely volatile days (more profit), and for less volatile days, we utilize the battery less. Warranty terms (usually cycle-based) are automatically considered in the optimization.

Henri Taskinen, Capalo AI

Yes, warranty terms are automatically considered in our optimization.

Henri Taskinen, Capalo AI

Yes, you’re correct that combining multimarket optimization with Intraday trading is complex, generating a large volume of data each day. We operate on an open-book basis, so if a customer wishes to audit all revenues, we can provide the data, as every trade is logged for billing purposes and can be shared with the customer when needed.

Henri Taskinen, Capalo AI

Our objective is to maximize the lifetime value of the BESS asset, meaning that we also optimize the degradation side in our trading. We want to maximize the value of each full charge and discharge cycle of the battery. There are also usually different warranty terms for different BESS assets. We have automated the whole process of considering warranties and simultaneously maximizing value.

Henri Taskinen, Capalo AI

To participate in the day-ahead ancillary markets, you would have to use the production forecast with some safety margin for errors. Let’s say you want to use your wind park for FCR-D down-regulation; assuming the controller is fast enough, you would need to bid the capacity you forecast to produce to the market. If you fail to maintain it, you receive penalties, which are three times the capacity price in Finland.

Joffrey Faucon, Nord Pool

The shared order book (SOB) is a module which is part of the central Single Intra Day Coupling (SIDC) algorithm, commonly known as “XBID”, which calculates the intraday market results for the most important European intraday markets. In this sense it is a single order book for all European intraday markets. An order placed with a NEMO in Spain can, in theory, be matched with an order placed with a NEMO in Finland. Having the SOB means for market participants that they can chose freely at which NEMO they place their intraday orders.

The SOB ensures maximum efficiency for market participants in the intraday trading timeframe. It ensures that the cost for electricity for market participants, transmission system operators, system balancing and, ultimately, end customers, remain as low as possible by allowing intraday volumes to be matched in the widest possible liquidity pool.

A recent change in European regulation, which has entered into force on 16 July 2024, closed the last remaining loophole in the SOB (see new Article 7(2)(ca) of the Electricity Regulation: L_202401747EN.000101.fmx.xml). Now NEMOs in important central European intraday markets such as Germany/Luxembourg, France, Belgium, the Netherlands, and Austria, are obliged to share their liquidity until such time as intraday trading is allowed in a market, meaning in these markets right until the delivery of the electricity. Prior to the entering into force of the changed European regulation, the incumbent NEMO in these markets could stop sharing in the SOB at sixty minutes prior to delivery and continue trading on its own, proprietary market to which only its own members have access.

Currently, we are still waiting to see all NEMOs to share their orders in the SOB. Despite being under a clear legal obligation to share its orders in the SOB since July 2024, the incumbent NEMO in the above-mentioned markets is not yet sharing its intraday orders in the last hour in the SOB.

In Nord Pool’s view, this is detrimental to the success of European Market Coupling, as it affects precisely the time period in the intraday markets prior to delivery, which is most crucial for the efficient integration of intermittent renewables generation.

Henri Taskinen, Capalo AI

It’s true that extensive energy management isn’t required if you are only attending the FCR markets (you could combine FFR with that as well). For example, FCR-D doesn’t activate at all frequently. In addition, both the FCR-N and FCR-D markets have mandatory energy management principles that must be followed, which, in a sense, already cover most of the energy management needs for the batteries only in these markets.

Now, adding the aFRR market to the mix can significantly boost revenues, especially if FCR markets start to saturate. However, the aFRR market is very energy-intensive since it’s evolving into an energy market. Relying solely on the aFRR market for energy management can be challenging since you need to forecast the activations accurately. While possible, it carries more risk than using the Intraday market to restore batteries to the desired SoC level.

Leveraging the Intraday market for energy management is beneficial for maximizing revenues and avoiding penalties when utilizing multimarket optimization. This approach can increase profits by around 30% compared to operating only in the FCR-N and FCR-D markets. Moreover, as market volatility continues to grow, this effect will likely be amplified even further in the future.

Karri Mäkelä, Fingrid

I could clarify that aFRR and mFRR have more room for this kind of product with the introduction of 15-minute energy activation markets. In the aFRR energy market, we already have some participants who have started placing offers. For mFRR, we do not yet have participants. That is why they were not in the presentation picture, but now it would be time to update that picture.

Henri Taskinen, Capalo AI

The model requires prior estimations for bidding in the markets, as the actual price for the market being bid on is unknown at the time. Therefore, the bidding is based on forecasts. Following each auction (e.g., aFRR, then Spot, and in the evening FCR), the model benefits from more accurate forecasts for subsequent auctions due to improved weather predictions and updated information on available power and energy capacity for the specific market. Furthermore, Intraday trading is based on continuously updating forecasts for every hourly/quarterly product.

Henri Taskinen, Capalo AI

The FCR markets have restrictions for 1-hour batteries, allowing the use of half the capacity for FCR-N and 80% of the capacity for simultaneous FCR-D up/down participation. There are no restrictions on the aFRR and mFRR markets. For example, a 30 MW / 30 MWh BESS can prequalify the full 30 MW for participation in both the aFRR and mFRR markets.

Aleksi Nordlund, Taaleri

Paistinkulma was an equity investment. Project financing opportunities in Finland are limited.

Aleksi Nordlund, Taaleri

Relevant question. This depends heavily on the investment period. Battery cells and inverters do have a limited lifetime.

Aleksi Nordlund, Taaleri

We evaluated potential BESS traders for our Paistinkulma asset, local and international.
One of the drivers of our selection of Capalo was their AI knowledge and competence.

Aleksi Nordlund, Taaleri

The size of BESS is the interplay of market size, grid connection, and unit size.

Henri Taskinen, Capalo AI

If you visit our website, you can find a case study with our customer, Exilion. They have a 6 MW / 6.6 MWh battery, and we made roughly 40,000€/MW/month last year optimizing it. The current earning level is around 30,000€/MW/month, though it fluctuates from month to month. However, the rough ballpark is currently above 30,000€/MW/month. The revenue stack will change in the future, but the revenue opportunities remain, as discussed in the webinar. We see that the opportunities in the Intraday market caused by growing volatility will continue to make batteries lucrative investments.

Henri Taskinen, Capalo AI

The bidding phase considers each battery’s individual characteristics, but the bidding is executed at an aggregated fleet level.

Henri Taskinen, Capalo AI

We have our own forecasts for all the markets, and then we use third-party forecasts on the weather side. We also continuously benchmark the forecasts and even combine them (meaning our own and 3rd party) for some markets.

Henri Taskinen, Capalo AI

We currently operate in Finland and Sweden, where we also hold the BRP role. We are also expanding our services to other countries, and further details on these expansions will be announced later.

Henri Taskinen, Capalo AI

Currently, one-hour systems are more profitable if you look at the earnings compared to CAPEX, but in the future, energy capacity will be more and more valuable for these assets, so it might be that a 2-hour battery is a better investment case in Finland then. One of the best options can be to have a one-hour system with the opportunity to expand to a larger one energy-wise.

Aleksi Nordlund, Taaleri

It also depends on the rules and regulations of the ancillary services, like in the USA, Texas. There was a change in the ancillary services, as they introduced a new service that required a 2h battery, so it had an advantage over a 1h battery. Multiple aspects impact this heavily.

Henri Taskinen, Capalo AI

Changing regulations could be one of the challenges. For example, as for the mFRR and aFRR markets, there are no regulatory restrictions on how much capacity you can prequalify for the capacity markets. In contrast, the FCR markets have restrictions for prequalifying power capacity to the markets, as discussed above. If regulations were to become stricter in the future, it could potentially pose a challenge for battery investments. As we’ve mentioned, we believe that energy-intensive markets will become the primary revenue sources. Therefore, if new regulations appeared there, it could affect the business case negatively. We don’t expect FCR regulations to impact overall revenues significantly.

Another challenge is grid congestion and potential long waiting times to get connected to the main grid. At the moment, the situation is still fairly good in Finland related to that.

Lastly, a slowdown in the renewable energy market could impact BESS investments and profitability, but we do not foresee this happening.

Henri Taskinen, Capalo AI

There are minor differences between the ancillary markets. In Sweden, the FFR product is procured only on an annual basis, whereas in Finland, there is only an hourly market. Sweden has D-2 (bidding is conducted two days in advance) and D-1 (one day in advance) day-ahead auctions for FCR products, whereas Finland operates with a single day-ahead auction. Additionally, the aFRR market in Finland is currently divided into separate capacity and energy markets, and Finland will join PICASSO this Autumn. Sweden has an aFRR capacity market and will join PICASSO later.

Aleksi Nordlund, Taaleri

BESS projects in Europe tend to be entire equity investments.

Henri Taskinen, Capalo AI

Nuclear power generation increases the inertia of the power system, which, on average, decreases the need to procure volumes for ancillary services, leading to lower prices, especially for frequency containment reserves. However, plant outages, whether planned or unexpected, temporarily increase demand for these services, causing prices and volatility to rise during those periods, as we have seen many times over the past years.

Henri Taskinen, Capalo AI

Increased cross-border interconnectors enable more efficient power exchange, reducing bottlenecks and leading to lower peak prices and more harmonized price levels across regions. However, as societies electrify and the share of renewable energy continues to grow, the revenue opportunities remain strong, especially from Intraday trading.

Henri Taskinen, Capalo AI

While forecasting intraday prices is essential, the main priority should be predicting the overall direction of price movement. Forecasting whether buy and sell prices will rise or fall is more critical than pinpointing the exact price level.

Karri Mäkelä, Fingrid

There are no ongoing plans to stop FCR yearly procurement now. Fingrid assesses procurement rules and practices continuously, where we always consider all stakeholder feedback.

Karri Mäkelä, Fingrid

With an assumption that 100% of the bids are selected, the ratios in the Finnish markets as an example are the following:

FCR-D (up and down) = ~2% of the time, ~0-10% “ratio” (not netted gross average)

FCR-N =100% of the time, ~n. 20-30% “ratio” (not netted gross average)