Grid operator to interfere in Finnish electricity market after bidding error
reuters.com
reuters.com
Well, many have been saying this same things about the "solar revolution"...
There's rarely much reasonable going on in markets, especially when they get financialized.
It seems they treat this as an irreversible mistake.
Finnish grid officials are calling for this to be possible in the future.
Hard to have an appropriate punishment for the deaths and damage that would cause.
Officials never asked for electricity companies to lower their profit margins during last year's high prices. Actually they were lauded for harnessing the market power by making poor people sit in cold in the middle of winter by raking in hundreds of percents in profit.
Heads they win, tails you loose. This is how markets work.
How would moderating electricity use help in this situation?
> Heads they win, tails you loose. This is how markets work.
Look, i don’t know enough about the system to think through all the consequences. But it sounds like if they don’t intervene the company who filled the wrong bid might default on it.
And not just financially in the “they are bankrupt” sense, but also in the “not enough power will be generated to balance the grid” sense. That can in extremis push their whole country into literal blackout. (I assume there are stabilising functions, and secondary effects which would prevent this, but don’t know about how reliably we can count on them.)
I understand that a faceless corporation suffering massive losses gives you the warm and fuzzy feelings. But if the grid happens to go down because of this, is that a preferable outcome? Do you hate the company so much to risk hurting and risking many many people in the whole country?
As for something like insurance and brokering of commodities not so much.
Financial companies create value. People generally pay for things they want, unless the government have messed up and allowed a monopoly position to arise.
Value here meant productive value. I'm sorry I should have been more explicit.
Financial companies create exchange value (that's their main goal) and sometimes incidentally sign-value (for notation agencies it's not incidental, but I try to generalize here). They do not have any effect on productive value or use value (well, in theory).
You're right and I wasn't precise enough, I should have been, thank you.
As an example: say I'm a farmer. I have a load of crop I'll be producing, but I won't know how much I can sell it for. I can sell it on a futures market, where a financial firm buys the crop for a price fixed now. I the farmer get certainty of money, and the financial firm takes the risk of the market in the future. But they think they've modelled things well enough that they will at least break even, and hopefully make a profit.
In that example, the value added by the futures trader is removal of risk. Nothing additional is produced.
What type of value is that, in your conception of value?
[edit] > those categories I think are either too imprecise to describe reality[...]
I agree signal/sign value and exchange value are imprecise and would benefit being more divided (I really like the notion of sign value as I think it is useful to explain 90% of modern western society). I disagree on their uselessness. Value can mean a lot of things and having more words to describe those things is always useful. A reverse 1984 if you will.
I will say that sign value is sometimes declined from exchange or production value (it's pricy/handmade, hence a good status symbol), but I like to use it because I find it useful to understand the price of representation (and it triggers some Marxists)
> Production value is useful too. It explain the production cost.
Can you give an example?
Its not, not really. Water has the most use value of anything you can imagine, and is also one of the cheapest thing to buy.
Production value is the effort, material and time spent. It is different from production cost, because production cost will say that a SE Asian time is worth way less than an US citizen time. But modulo material costs, items made in the US by US citizen have the same (production) value as the same item made in China. It will also have the exact same use value, the only difference will be its exchange value (items made in Asia are cheaper), and sign value, as you're more likely to say: 'hey, look, it's made locally' than 'hey, look, it's made in China' if you want to brag about your T-shirt.
This is the sort of thing I mean - it seems an artificial distinction to make a political point. E.g. if I rent a warehouse use as a factory building, or buy a machine that can make so many thousand widgets, these don't seem to fall anywhere in the conception of what it takes to make something.
And even if it does - so what? What is production value for?
If it's that important, the players should be nationalised.
Companies that lease vehicles for fuel to be transported are incredibly important. So are their drivers. So are cleaners in hopsitals. So are cell phone tower operators. So are shipping companies. So are computer monitor manufacturers.
Do we nationalise everything?
The truth is that their needs to be a balance.
All political opinions are wrong and harmful, as a fact of human linings on complex systems with enormous numbers of unknowable factors.
So we should instead consider complex systems. A complex system needs to have capacity to change, and contain variation within itself. If it is too chaotic, it will dissipate; if it is too stable, its effectiveness will plummet when the environment changes.
This demonstrates why communists and libertarians are both full of shit.
It suggests that a nation should have a mix of private and nationalised industry.
When new categories emerge, besides private and national, then nations should have some of that in the mix, too: in order to maintain internal heterogeneity, to provide a reserve of dynamism.
Finland's national and third sector (e.g. co-operatives) were (and still are) plundered quite a bit too, although of course nothing like ex-socialist countries.
There indeed needs to be a mix. The "mix" in mixed economy wasn't just about gov ownership vs capitalist ownership. It was also about co-ops, unions, worker ownership and non-profits.
Those all sound like things that would exist just fine in a capitalist system. It's just "free agreement between individuals to create organisations that can only compete based on rules set out by the government". They can all exist in that framework, and do.
Co-ops are just a type of ownership structure, like any other. Unions are a condition of employment agreement between employee and employer. Non-profits, like charities, are just a type of governance and taxation arrangement that exists fine in that system.
That said, co-ops are still huge in Finnish retail, banking and insurance (to great annoyance of the right). But they nowadays they tend to even sort of hide being a co-op and economy is mostly discussed as for-profits vs gov ownership. Other than for-profit doesn't really sit that nicely in the neoliberal ideology.
Co-ops are quite a different form of ownership from private corporations and bring about different kinds of economic organization that is e.g. more robust against offshoring, speculation and asset-stripping.
The type of ownership, i.e. what is enforced by the law, and violence in the extreme case, is the crux of any economic system. E.g. socialism vs capitalism difference is essentially what kind of ownership is enforced by law/state/community.
Can you explain how that is? My conception is if I set up a company today that has as part of its rules the idea that when any employee joins/leaves shares (or virtual shares) with voting rights are rebalanced, do I not have the basic elements of a co-op? Aren't co-ops still for-profit?
The co-op can run a profit, but typically the charter is to provide some service (e.g. retail or banking) for the members (and typically for non-members too). Profits can be shared as dividends for the shares, but this is quite rare nowadays, and more often used to invest in new stores etc and/or lower prices. It typically doesn't make much sense for the members that e.g. your grocery store is moved to Bangladesh, so that quite rare.
Worker co-ops are a bit different. You have to work at the co-op to have a share, and the payout is typically the salary. But crucially an investor can't just buy shares and just move the production to Congo and kick out the employees etc what for-profits do all the time if it gives the owners a higher profit.
Sigh. No they don't. Most for-profits are small businesses. It's really hard to break through the fog of "I'm all right Jack"-inspired attitudes to businesses.
But yes, agree - joining gives you one voting right; the shares can't be bought and sold. That's what I mean about that being a perfectly normal thing to have under capitalism. As long as it's a legal and free agreement between employee and employer, capitalism is very happy with it.
Yes, the legal framework of liberalism typically does allow for a wide variety of contractual associations. Some are more conducive to capitalism, i.e. extracting profits from work (typically by others) by the sole virtue of ownership.
Working for yourself is also capitalism. All of the contractual associations we've mentioned work well in capitalism. Your "extracting profits from work" characterization is misplaced. A self-employed plumber extracts profits from work in a sense, but it's a biased way to put it. Everyone who starts a business and loses money isn't extracting profits.
A more neutral way is "people work and pay based on voluntary agreements, under law". Which would include the co-op arrangement we've mentioned.
The natural monopolies of power generation, water, sewage, public transport, justice, prisons, defence, medical care, etc - why not? Certainly it seems that they were doing a better job when public anywhere they've been privatised.
The main reasons to nationalise are:
- there's no/not much innovation to do; it's just about running at low cost with a standard service (e.g. sewage)
- the incentives are too misaligned to privatise (e.g. prisons; defense)
- politicians can win votes by spending money on it, so it will be worse as a meddled-with private system than a nationalised system (e.g. healthcare)
- there is an actual natural/positive monopoly (e.g. power transmission)
None of that means that in this case a middleman power retailer should nationalise. If there's an actual reason, that's fine. But saying "some things are better national (or at least better than private with a lot of government interference)" doesn't mean that it applies here.
Also public ownership doesn't mean the enterprise can't be self funding or even profitable. E.g. my city's electrical plants and distribution are run by municipally owned company that pays dividends of the profit to the city.
You seem to be using examples I'd also cite as non-terrible reasons for a state/municipality to run something. I.e. things that are mature technologically, or at least we're willing to pause innovation and just stick with what we have, and just need an ultimately simple single product or service to be done efficiently.
However, if you got the municipality to run the companies (one of which succeeded, for each machine in question) that risked a lot to develop the necessary machinery to build those plants, I think you'd have seen a very different outcome.
I can also give a counterexample, if we're into anecdotes: Eskom, the South African state-owned energy company, is running South Africa into the ground with now daily scheduled blackouts, that have been going on for years. The government didn't let Eskom (back when it was private) to build enough power plants, and with South Africa's growing population, they don't have enough plants to keep online at once to serve their grid. This has been going on for 10+ years, but has really been hitting in the last 5. It doesn't matter to politicians, because they can afford generators in their houses and private healthcare. And there are no shareholders to care, because it's a state monopoly.
There can be bad governance in the private sector and in the public sector. The difference is the blast radius is far larger when it's the public sector, as the state has far more capacity to do damage than an individual company does. And if a company gets even 1% as much capacity as the state to do damage, we call it "rent seeking" or "monopoly".
From grid officials' perspective it's to avoid a peak in demand that couln't be produced.
People can/could now literally make money by wasting electricity. And we are told that this is how it should be when companies profit from people's mistakes.
> I understand that a faceless corporation suffering massive losses gives you the warm and fuzzy feelings. But if the grid happens to go down because of this, is that a preferable outcome?
Companies clearly "hate" many many people so much to risk hurting and risking many many people in the whole country, and planet, all the time.
Of course companies don't hate anything. They just don't care. A corporation can't care, nor suffer.
Even if this one goes under, mostly the same people will run another. People in charge of these decisions will likely go on leading very priviliged lifes. It's the system, not the individuals or even individual companies.
If a blackout is needed to change the system, so be it. Preferably would change without such crises but that doesn't tend to happen.
I really dislike the "limited responsibility" concept. If we remove it entrepreneurial people will still want to create stuff and they will but they'll have to care more about how they do it.
Those organisations all use things made/done by private companies extensively. Ultimately, even a state-funded organisation picking a new employee (a private entity) is a competitive process.
One can probably see almost everything as competition with certain colored glasses. With scarce resources you do need some way of allocating them of course. But there are many other ways of allocation. E.g. hospitals (at least in sane system) allocate by need or urgency for care. To get a seat in a bus a lane on the highway or food from a cafeteria or breadline you queue. In national elections the voting power is allocated vote-per-person. In state funded organizations employees are sometimes hired based on the employees needs.
From each according to their ability to each according to their need is just a way of allocating resources. And a very typical way of doing so among e.g. families and friends and volunteer run organizations.
Medical urgency - yes, but this is imperfect, and still is a millions of times more constrained problem than the general problem of allocating resources in an economy.
Queues- but how does that help with, say, oil selling? Who decides who gets the oil? Does each person queue and get their own free barrel of oil? What if I need a hundred barrels because I'm making plastic things, whereas Fred just wants to heat his home? How does it help with allocating people? Does each company get one employee at a time? Or do they queue for their own employees, and keep coming back for more?
> From each according to their ability to each according to their need is just a way of allocating resources. And a very typical way of doing so among e.g. families and friends and volunteer run organizations.
Yes, because the likelihood of the parental figure doing the allocating being awful is low, and the blast radius of them being awful is small (while tragic when it does happen).
Scale it up and the "your ability meets my need" will also scale up, as that parental role has unbelievable amounts of direct power allocated to it. That's why some tens of millions died in poverty in the USSR and communist China, and why tragically Venezuelans are starving today, due to the state utterly mismanaging the largest oil supply in the world.
I really can't understand looking at the state as a giant parental figure. If we were to make it one, it will attract power-hungry people to it, and it will fail to hire on competence (what if the incompetent people's need for a job is greater?) As seems to have happened in the past every time it's been tried.
What do you mean by imperfect? The original claim was "competition is needed to make everything better". I'm guessing you don't mean competition by e.g. surgury to highest bidder would be a very good way of allocating them?
> Queues- but how does that help with, say, oil selling? Who decides who gets the oil? Does each person queue and get their own free barrel of oil?
In oil shortages rationing is very common. E.g. New York does this for heating oil (of course queuing isn't really needed here). California rations or restricts usage for water all the time. Details depend on the situation. That something is rationed or has to be queued for doesn't necessarily mean it's free of charge.
> I really can't understand looking at the state as a giant parental figure.
I think you are doing exactly that. States aren't typically run by monarchs anymore, they are run democratically (at least in theory). Try replacing "state" with "democracy" to see why some don't see state managed things in so bad light.
State isn't of course ideal, and in most leftist thought it's seen more as a hopefully temporary "necessary evil", but not as bad as dictatorship of privately owned capital.
While need is the sorting criterion, it's not done perfectly. Nor can it be
> The original claim was "competition is needed to make everything better". I'm guessing you don't mean competition by e.g. surgury to highest bidder would be a very good way of allocating them?
It definitely makes things better: we don't let just anyone be a surgeon. You're confusing money with competition, I think, but it's hard to follow your thoughts. I'm not saying "highest bidder" is the best way to allocate everything. I'm saying that even in a really constrained, defined situation, it's not perfect, and it's a million times easier than the general case of allocating resources through a national economy.
> In oil shortages rationing is very common. E.g. New York does this for heating oil (of course queuing isn't really needed here). California rations or restricts usage for water all the time. Details depend on the situation. That something is rationed or has to be queued for doesn't necessarily mean it's free of charge.
Rations or restrictions aren't queues. Think of any of the tens of millions of goods and components that flow through an economy. You cannot design a top down system that allocates them all efficiently. You certainly can't say everyone should queue for everything. You let people buy what they want, and if you need to put your thumb on the scale a bit for some reason (e.g. emergency healthcare for someone with no money) you have taxes to pay for that.
> I think you are doing exactly that.
Can you cite any of my beliefs that would give you that impression?
> they are run democratically (at least in theory). Try replacing "state" with "democracy" to see why some don't see state managed things in so bad light.
They aren't run democratically; their leaders are occasionally elected, but based upon a huge number of factors (including charisma as one of the main ones). Electing someone is a very weak signal that you like/dislike any number of their policies. I think it's misleading to pretend that state institutions are run by the people. They can be influenced, but only really if enough people think of them as their top, overriding voting preference every 4 years or so. That's incredibly unlikely. If Netflix starts doing a bad job, it will lose millions of subscribers instantly. That's why they have to keep doing a good job forever.
> dictatorship of privately owned capital
Private capital is not a dictatorship. It can't lock you in jail, or send you off to die in a war, or starve a country. It's just people risking their own money to put behind a venture, of far more limited blast radius than a monarch or authoritarian regime can achieve.
More likely they’ll just go to some place that allows them to do it.
If a jurisdiction is hostile to capital, then the capital will just move somewhere else. That’s a simple as transferring an account balance to a brokerage account in another country. If an advanced economy decided to do away with the concept of LLCs, then yes, I’d assert very confidently that almost nobody would want to do any business there at all, and all of the capital in that economy would migrate to basically any other advanced economy in the world.
Those were thrown out in the neoliberal craze and the race to the bottom got into full speed.
Jurisdiction without e.g. any labor protection is very friendly to capital. Capital indeed used to benefit tremendously from being able to outright own the laborer.
The most significant example is Bretton Woods, which couldn’t last 30 years without completely collapsing. Other than that you have China, the USSR (and immediate post-Soviet Russia) and a collection of failed states or borderline failed states that have implemented them temporarily and lifted them as soon as capital inflows resumed.
If a country like the US decided to remove the concept of an LLC, presumably they could prevent some level of capital outflow (which would be equivalent to nationalising all foreign owned capital). But inflows would never resume. The US (and every other advanced economy to a lesser extent) attracts capital investment from all over the world. The US government presumably has the power to transform its own population into serfs, but you’ll never convince a foreign investor to buy shares in a company that could expose them to unlimited liability (especially so if you wanted to extend that to include criminal liability), so long as there are alternative markets for them to invest in.
Furthermore, without the free flow of capital, it’s impossible to balance your payments. Meaning basically nobody is going to trade with you.
I know you big government types think you can regulate anything if you really wanted to, but removing limited liability is the most fundamentally insane, economy killing idea I’ve ever heard from this camp. It’s even more absurd than full blown central planning, because there’s at least some model by which you can theoretically operate a centrally planned economy (no matter how badly that might be).
Capital controls mean in practice that selling and buying of companies or shares across borders is limited.
Cross-border capital ownership was quite rare pre WW1 (in current form, colonialism is quite different), so there was little need for control. Bretton Woods collapsed largely due to US plundering the gold to fund the Vietnam war and switching to the petrodollar system.
Balancing payments worked fine with capital controls. Some trade (e.g. between Finland and USSR) was even done without currency, but most of course with just money.
Few probably support removing limited liability overnight, like few support overnight ban on fossil fuels.
There are plenty of companies with no limited liability in LLC sense. Many small businesses are not LLCs or the owner has personal collateral as liability.
I'm not really a big government type. I just prefer democracy to plutocracy. I don't find nation-state representational democracies that great, but it's best we have for now on large scale.
I think what's being said here is that the private ownership of the company shouldn't have to keep existing. The utility, as it is, can keep operating and providing a service while it changes hands.
Presumably they also didn't offer to subsidise them during periods when demand was much lower, such as during the pandemic?
For a solar or wind plant, construction costs are almost the entire cost, there's no fuel and low maintenance, but almost nowhere has saturation, so outside of freak situations you're always selling into a willing market anyway.
My understanding was that solar and wind are just necessarily the low bids so that's why they always sell into basically any market until they saturate all demand.
They're the low bids because if your power plant needs fuel, you must bid high enough to pay for the fuel, at least on average and at least most of the time, or else you go bankrupt when you can't pay your fuel bills. But wind and solar don't need fuel. While you're not going to make a profit selling wind electricity for $5 per MWh because of your enormous capital costs - you make more money doing that than if you bid $50 per MWh and lost the auction to a gas plant.
These auctions actually pay everybody the same price, so even though your bid was $5, if some $45 per MWh gas plants were needed to hit the target capacity, you're getting $45 per MWh for your wind power. But because your bid was low, you always sell at whatever the price is.
[0] https://www.gov.uk/government/news/boost-for-offshore-wind-a...
The electricity market isn't paying that strike price, it's just paying the market rate.
The government (via the "Low Carbon Contracts Company" which it owns for this purpose) settles the difference (hence "Contracts for Difference") between the strike price† and the market price of electricity when you sell it.
There are three prices to think about here:
A. The price you are willing to sell your electricity to the market for. This is probably very low, let's say it's £1 per MWh.
B: The settled price for a period, paid by the market. The market pays everybody a price determined by finding the minimum price for which it could buy enough electricity (with some margin). This will usually be higher than A, if it was lower you just won't sell electricity, for a coal or gas plant this means you needn't burn fuel to make electricity. Maybe B is £48 per MWh.
C: The strike price from your government auction. This will often be higher than prevailing market prices (B) but not always. LCCC settles the difference with you, if C is higher than B (the usual case) you get enough money to make that up, if B is higher than C, you pay them the difference. C might be £67 per MWh.
So in our worked example we bid A = £10, the market settled at B = £48, but our net reward is C = £67.
If other people's prices were way higher maybe a major gas pipeline exploded, maybe A = £10, but B = £200, however our net reward is still C = £67.
Why would anybody want a CfD? Because all the cost is in building the wind farm, whereas all the profit comes from long term energy supplying, and it's hard to predict what that'll pay. Knowing, a decade in advance, that you're getting £67 per MWh, no matter what, makes it much easier to find investors for your wind farm project.
For fossil fuel companies, their costs of exploration and development remained the same during the pandemic, forcing them to eat the losses - https://www.theguardian.com/business/2021/feb/02/bp-loss-cov....
In the meantime people struggling with inflation are getting huge cuts to benefits, pay and public services.
> The Finnish government said its loans to power companies under the guarantee scheme would initially come at an interest rate of 10% plus the six months Euribor daily reference rate.
Not dirt cheap at all!
https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...
Uh no. Government gave above market rate short term loans (literally mostly 1 day) so the electricity producers could sell their electricity to the market due to the price being high and the market rules requiring you to put money into escrow as insurance.
Basically if you had 200 million worth of electricity to sell and had to put 1 billion into escrow as insurance but did not have that money it meant you could not sell that electricity and it would have driven the price up further forcing every producer to not sell their electricity crashing the whole system.
I'm not talking about that. There are a lot of energy subsidies, to the electricity companies and to energy intensive companies.
https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...
> Valtiovarainministeriön tukiohjelmasta voidaan myöntää lainoja, joilla tilapäisesti turvattaisiin yhteiskunnan toiminnan kannalta kriittisten sähkön johdannaismarkkinoilla toimivien yhtiöiden likviditeettitarve.
Basically says the loans are given to cover electricity derivatives market liquidity needs for companies that are important for society in general (basically all large electricity producers)
> Lainoja voi käyttää vain sähkön johdannaispörssikaupan vakuusvaatimusten kattamiseksi.
"The loans can only be used for covering electricity derivative market collateral/deposit needs"
As I said when someone sells electricity they have to put money into escrow that can be used to cover that electricity production from the spot market in case they fail to produce that electricity for whatever reason (wind did not blow a much as the forecast said, nuclear plant had to be shutdown due to faulty sensor, etc)
So if you had a customer on a 5c/kWh 2 year long contract and the spot price for an hour is 2e/kWh you would have to put 2e into the escrow account for every kWh of electricity you sold for 5c/kWh during that hour (meaning you would need 40x your revenue for that day in cash just sitting around)
The system makes sense/works well when prices are somewhat normal but needs massive amounts of cash when the prices spike and this is what the government had to help with. Without this loan program there would have been many players on the market with hundreds or thousands of MW of production capacity who would have had to turn OFF their power stations at the moment when the country was almost running out of electricity because they could not have covered the deposits.
There is also the municipal owned electricity company version of that with slightly different conditions.
Now Kinect needs to try to purchase the energy they have sold from other producers, on the daily market. Some estimates say their losses will be tens of millions of euros.
A reasonable number of consumers are paying the market price for electricity. This might mean you can make few euros by spending electricity. Interesting to see how this works out in practice.
Luckily a human saw the error, when he saw a big flow of reservation coming in at anomalous peace.
From there on, I’m too scared to make changes to the 20-line function that produces the updates to be sent.
We had not a chance to cancel the reservations made through the channels (websites were you book the reservations).
Given enough regression testing coverage, any load-bearing function can be changed.
This sounds to me like your project had insufficient or non-existent software quality practices to let this slip through. Hopefully your team has done a post-mortem analysis to make this a learning experience.
Isn’t this where automated testing shines?
That is no way to operate a power exchange. This is not just money being made and lost, the whole grid will go down if such an error is allowed to stay. Saying not our problem when you are in the prime position to fix it is criminally irresponsible.
"Too big to fail" is just a euphemism for "privatized gains, socialized losses".
This is mainly because by law the local grid operator and actual electricity providers have to be different companies. The grid operators must/should not go bankrupt but electricity providers can and do.
There is a whole process about what happens if the company your are buying your electricity from goes bankrupt. Basically you automatically get a new spot price contract with some designated local "default company" and obviously you are free to make new contract with anyone you want at that moment if you don't like that option.
The local grid operators are highly regulated (as they should be as natural monopolies) and basically make their customers pay costs + a small margin and thus can't really go bankrupt.