Renewable Energy's Impact Grows
The transition of energy system from fossil fuels to renewable energy sources is placing new demands on the power grid and electricity markets. The share of renewable and decentralized energy production is growing significantly in both Finland and Sweden. Progress has been made on this path, as the share of renewable energy sources in Finland increased from 27 percent in 2010 to 42 percent in 2022.
Changes in electricity production create pressures on reserve markets. These changes are also influenced by regulatory changes, the development of technologies participating in reserves, and the integration of Nordic and European electricity markets.
New business opportunities
According to Maria Joki-Pesola, Head of Balancing Markets in Fingrid, the role of reserve markets will grow as electricity production becomes more decentralized and increasingly dependent on weather conditions.
"We hope that all stakeholders recognize the business opportunities in reserve markets. Reserve markets will continue to grow, as without the flexibility of reserves, the efficiency of the electricity system maintenance suffers, and this reflects in costs”, says Joki-Pesola.
BESS solutions have vital role
Battery energy storage system (BESS) solutions are already an active part of maintaining the electrical grid's reserves, especially in the Frequency Containment Reserves market.
"The importance of batteries as a vital reserve technology is expected to grow as reserve needs increase and retiring reserve capacity is replaced with new reserve assets, where battery technologies are a promising alternative," says Taneli Leiskamo, an expert in Fingrid's reserve markets.
In the future, batteries will be used not only for Frequency Containment Reserves but also for many other types of reserves, as the needs for manual (mFRR) and automatic Frequency Restoration reserves (aFRR) are also increasing. The advantages of batteries over traditional reserve technologies include their operational speed and cost-effectiveness over their lifetime.
"Especially for battery systems with a higher energy-to-power ratio, there will be demand in the future. Reserve providers owning or managing such assets have particularly good prospects," says Leiskamo.
Better stability with BESS solutions
"We have a lot of hydropower in our reserve markets. In recent years, battery systems and wind power have also come into play," says Anna Jäderström, Head of Balancing markets at Svenska Kraftnät.
She welcomes the arrival of BESS solutions in the market because their response time to frequency changes is very fast and precise. Their technical performance meets the needs of power systems stability.
"We constantly need more capacity for Nordic reserve markets, and BESS solutions are an excellent addition to existing technologies," says Jäderström.
Still there are no quick fixes – batteries solely cannot provide all the needed new flexibility. The increasing need of reserves for balancing in the Nordics requires the Nordic hydro power to remain a stable provider of reserves as well as an increased installation of wind power to take an active role in the balancing markets.
New technologies needed in reserve markets
Market players now understand the possibilities of reserve markets in Sweden much better than a couple of years ago, which accelerates the development.
“We need competitive markets, where we continuously hope for new players and technologies," says Jäderström.
Fingrid is completely technology-neutral when it comes to reserve markets.
"We do not take a stance on what technology market participants use. Above all, we want there to be a sufficient number of operators in the reserve market on both the consumption and production sides”, says Joki-Pesola.
Advanced technology and declining prices
The primary or partial driver for procuring battery solutions may also be non-reserve market needs, so it is advisable to consider multiple use cases when designing these systems and business models.
In the development of battery technology factors such as increasing battery capacities contribute to the breakthrough of BESS solutions in reserve markets. The attractiveness of battery systems is also enhanced by declining prices, evolving control systems, and more responsible raw materials and manufacturing methods.
"Because BESS solutions are an important part of future energy systems, it's worth getting acquainted with them now alongside an experienced partner in energy solutions.