6What keeps me motivated, curious, and forward looking is that I'm working in a social welfare business. Power market participants all have their individual priorities, but they can only thrive by constantly adapting to the needs of society and helping society to renew. For me, working on short-term markets and mostly in the spot market, the meaning of social welfare is also much more tangible. It is matter of fact for each day and for each hour.In the previous MI articles, my colleagues have presented the expected changes in electricity demand, highlighted the importance of system integration in renewable energy growth, and addressed the expectations from the power system by looking at the Texas case. As a short-term analyst my focus is on the current functioning of power markets and my story is based on related observations.Social welfare is at the core of the marketIn the Nordics the vast majority of electricity is traded via day-ahead auction of energy, often called the spot market. Everyday buyers and sellers tell the marketplaces how much volume they are able and willing to offer or purchase, and this information is given to an algorithm, EUPHEMIA, Pan-European Hybrid Electricity Market Integration Algorithm. What the algorithm is doing is selecting offers from Finland to Portugal so that "The social welfare generated by the executed orders is maximal." This quotation is from Euphemia public description (nordpoolgroup.com), the introductory chapters are an essential read for anyone interested in the power markets, and the latter chapters provide information also for the more mathematical enthusiasts. The point is that social welfare in the power market is not just an ideal and a long-term strategic thing for the power market participants, it's also a matter of fact ­ hour by hour. And, suitable to the spirit of our time, algorithm-driven.Flexibility is the key enabler for power market to serve society efficientlyJust as with social welfare, the viewpoints to energy system flexibility are many ­ from cost-efficient adaptability to demand UNDERSTANDING HOW THE POWER MARKET CREATES SOCIAL WELFARE AND UTILISES FLEXIBILITY IS ESSENTIAL FOR THE IMPLEMENTATION OF A CARBON-FREE FUTUREMikko Kattelus, Manager, Short-term Analysis, FortumCXO INSIGHTSfluctuation, security of supply and the power system, and predictability enabling planning on both the supply and demand side. What I want to highlight is that the main part of flexibility is produced and consumed in the wholesale market. There are two figures of note here. First, in the Nordics the size of the day-ahead auction is well proportional to consumption, Nordic electricity sold via Nord Pool was 358 TWh in 2020*. Second, the predictability of the next-day market level demand is over 97%. These figures show that even as the discussion around flexibility often concentrates around very short-term needs related to security of system and balancing the unpredictable deviations of e.g. wind, the vast majority of the market is still sufficiently predictable to be traded in auctions based on social welfare optimisation.Besides Nasdaq and Nord Pool, Nordic derivatives are traded
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