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Grid operator to interfere in Finnish electricity market after bidding error

33 points by vincnetas 3y ago

vincnetas 3y ago
A bidding error by market participant Kinect Energy resulted in Finnish power prices for Friday plummeting to -203.40 euros per megawatt hour (MWh), data from spot market operator Nord Pool showed on Thursday.
pestatije 3y ago
"Too big to fail" spills from finance to utilities
- shapefrog 3y ago
  I suspect you will find "too big to fail" in the utilities sector pre-dates by a couple of decades.
  - jampekka 3y ago
    That's why they weren't run as a market.
- troupo 3y ago
  In case of utilities that is literally true. You don't just fail an electricity provider, or a waste treatment facility, or...
  - avar 3y ago
    The company can go bankrupt without an interruption in service, it just means that as the company defaults its assets will be sold off, or perhaps nationalized as the state buys it for cheap. "Too big to fail" is just a euphemism for "privatized gains, socialized losses".
  - doikor 3y ago
    Here in Finland we do (and did). Last winter we had a couple go bankrupt as they did some bad gambles with the spot/futures market (basically not buying enough futures to cover their fixed price contracts and once the spot prices went up massively they ran out of money) 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.
jpalomaki 3y ago
So Kinect accidentally told they are selling 5787MWh of energy for the whole Friday, but they don't have this energy. This drove the price to negative. During the afternoon hours the price is -500€/MWh. 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.
- flopbob 3y ago
  Small correction, they sold 5787 MWh every hour on Friday! So the 24-fold
probablypower 3y ago
It is a pretty fundamental flaw in market implementation if producers can bid significantly more than they can physically provide. We (other European country grid operator) run checks on every submitted market order to ensure it is both physically reasonable and that there is equivalent resources on the market to buy/sell to the order. Hopefully the market operator can learn from this mistake in giving market participants such a large foot gun.
- kzrdude 3y ago
  Shouldn't they default on their delivery and have a punishment by the other market participants? Unless of course a more reasonable bargaining situation can solve it.
  - tgsovlerkhgsel 3y ago
    Wouldn't them defaulting without countermeasures being in place mean the power goes out? Hard to have an appropriate punishment for the deaths and damage that would cause.
- fodkodrasz 3y ago
  > It is a pretty fundamental flaw in market implementation if producers can bid significantly more than they can physically provide. Well, many have been saying this same things about the "solar revolution"...
- XelNika 3y ago
  You don't even need to worry about what someone can physically provide. All bids by market participants can (arguably should) be checked for extreme outliers. A bid of multiple GW from a participant that usually only trades hundreds of MW should immediately set off alarms. It only takes a phone call like "hey, are you sure about this?"
- jampekka 3y ago
  If I understand correctly the bidders here don't produce any electricity. They are literally middlemen taking a cut with some, apparently not so fancy, "financial instruments". There's rarely much reasonable going on in markets, especially when they get financialized.
yorwba 3y ago
Previous discussion: https://news.ycombinator.com/item?id=38396526 https://news.ycombinator.com/item?id=38396526 (13 hours ago, 81 comments)
helloguillecl 3y ago
So a few months ago, after a buggy change to a stock update sent to the channel manager (external system for updating pricing and availability of hotel rooms) we lost 21.000 EUR in just 2 hours of the bug being deployed. We exported low season rates (today’s rates) for the higher seasons. 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).
- boricj 3y ago
  > From there on, I’m too scared to make changes to the 20-line function that produces the updates to be sent. 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.
- krisoft 3y ago
  > From there on, I’m too scared to make changes to the 20-line function that produces the updates to be sent. Isn’t this where automated testing shines?
  - helloguillecl 3y ago
    Indeed.
- jacquesm 3y ago
  You need much better testing. And probably that 20 line function needs better documentation and may even benefit from being further broken out. I hope that it at least is a function that is 'pure', in other words that it does not reference any globals.
jampekka 3y ago
Finnish officials now ask people to moderate their electricity use "for the common good". 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.
- krisoft 3y ago
  > Finnish officials now ask people not to moderate their electricity use "for the common good". 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?
  - orwin 3y ago
    One solution, nationalize the company. If they are only a financial company, seize the totality of their asset and transfer their clients to a true company that really create value.
    - jampekka 3y ago
      Why a financial company couldn't be nationalized?
      - orwin 3y ago
NohatCoder 3y ago
"A spokesperson for Nord Pool said it was up to the market participant to resolve the issue." 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.
pelorat 3y ago
Americans, be very happy that you don't trade electricity as a commodity like we do here in Europe. It's a shitshow.
- jacquesm 3y ago
  ENRON.
gfna 3y ago
I find it quite strange they didnt cancel the whole thing and redo the auction. Even normal stock exchanges do this occasionally due to glitches with clearly erroneous bids of smaller proportional sizes

33 points by vincnetas 3y ago

A bidding error by market participant Kinect Energy resulted in Finnish power prices for Friday plummeting to -203.40 euros per megawatt hour (MWh), data from spot market operator Nord Pool showed on Thursday.

pestatije 3y ago

"Too big to fail" spills from finance to utilities

shapefrog 3y ago
I suspect you will find "too big to fail" in the utilities sector pre-dates by a couple of decades.
- jampekka 3y ago
  That's why they weren't run as a market.
troupo 3y ago
In case of utilities that is literally true. You don't just fail an electricity provider, or a waste treatment facility, or...
- avar 3y ago
  The company can go bankrupt without an interruption in service, it just means that as the company defaults its assets will be sold off, or perhaps nationalized as the state buys it for cheap. "Too big to fail" is just a euphemism for "privatized gains, socialized losses".
- doikor 3y ago
  Here in Finland we do (and did). Last winter we had a couple go bankrupt as they did some bad gambles with the spot/futures market (basically not buying enough futures to cover their fixed price contracts and once the spot prices went up massively they ran out of money) 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.

jpalomaki 3y ago

So Kinect accidentally told they are selling 5787MWh of energy for the whole Friday, but they don't have this energy. This drove the price to negative. During the afternoon hours the price is -500€/MWh. 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.

flopbob 3y ago
Small correction, they sold 5787 MWh every hour on Friday! So the 24-fold

probablypower 3y ago

It is a pretty fundamental flaw in market implementation if producers can bid significantly more than they can physically provide. We (other European country grid operator) run checks on every submitted market order to ensure it is both physically reasonable and that there is equivalent resources on the market to buy/sell to the order. Hopefully the market operator can learn from this mistake in giving market participants such a large foot gun.

kzrdude 3y ago
Shouldn't they default on their delivery and have a punishment by the other market participants? Unless of course a more reasonable bargaining situation can solve it.
- tgsovlerkhgsel 3y ago
  Wouldn't them defaulting without countermeasures being in place mean the power goes out? Hard to have an appropriate punishment for the deaths and damage that would cause.
fodkodrasz 3y ago
> It is a pretty fundamental flaw in market implementation if producers can bid significantly more than they can physically provide. Well, many have been saying this same things about the "solar revolution"...
XelNika 3y ago
You don't even need to worry about what someone can physically provide. All bids by market participants can (arguably should) be checked for extreme outliers. A bid of multiple GW from a participant that usually only trades hundreds of MW should immediately set off alarms. It only takes a phone call like "hey, are you sure about this?"
jampekka 3y ago
If I understand correctly the bidders here don't produce any electricity. They are literally middlemen taking a cut with some, apparently not so fancy, "financial instruments". There's rarely much reasonable going on in markets, especially when they get financialized.

yorwba 3y ago

Previous discussion: https://news.ycombinator.com/item?id=38396526 https://news.ycombinator.com/item?id=38396526 (13 hours ago, 81 comments)

helloguillecl 3y ago

So a few months ago, after a buggy change to a stock update sent to the channel manager (external system for updating pricing and availability of hotel rooms) we lost 21.000 EUR in just 2 hours of the bug being deployed. We exported low season rates (today’s rates) for the higher seasons. 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).

boricj 3y ago
> From there on, I’m too scared to make changes to the 20-line function that produces the updates to be sent. 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.
krisoft 3y ago
> From there on, I’m too scared to make changes to the 20-line function that produces the updates to be sent. Isn’t this where automated testing shines?
- helloguillecl 3y ago
  Indeed.
jacquesm 3y ago
You need much better testing. And probably that 20 line function needs better documentation and may even benefit from being further broken out. I hope that it at least is a function that is 'pure', in other words that it does not reference any globals.

jampekka 3y ago

Finnish officials now ask people to moderate their electricity use "for the common good". 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.

krisoft 3y ago
> Finnish officials now ask people not to moderate their electricity use "for the common good". 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?
- orwin 3y ago
  One solution, nationalize the company. If they are only a financial company, seize the totality of their asset and transfer their clients to a true company that really create value.
  - jampekka 3y ago
    Why a financial company couldn't be nationalized?
    - orwin 3y ago

NohatCoder 3y ago

"A spokesperson for Nord Pool said it was up to the market participant to resolve the issue." 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.

pelorat 3y ago

Americans, be very happy that you don't trade electricity as a commodity like we do here in Europe. It's a shitshow.

jacquesm 3y ago
ENRON.

gfna 3y ago

I find it quite strange they didnt cancel the whole thing and redo the auction. Even normal stock exchanges do this occasionally due to glitches with clearly erroneous bids of smaller proportional sizes