Capacity Market Options for Finland's Energy Transition

This public report outlines the challenges and strategies related to Finland's transition towards becoming a green superpower, focusing on the need for firm and flexible capacity in the electricity market. As Finland aims to attract new industries and increase electricity demand, particularly from wind generation, the existing energy-only market faces resource adequacy challenges due to the retirement of older thermal units. The report discusses the inadequacies of the current market design, which does not incentivize investments in necessary firm capacity. It emphasizes the importance of implementing a capacity market to ensure resource adequacy, mitigate risks associated with infrequent operation of flexible capacity, and enhance the reliability of the electricity supply. The report also evaluates different capacity market design options suitable for Finland, recommending a centralized market-wide capacity mechanism. It stresses the urgency of action, as simulations indicate that resource adequacy will become a significant issue by the end of the decade, necessitating swift implementation of the proposed capacity mechanisms.