According to Hääl, if market participants no longer trust the market, then it will not work, and in the end, electricity consumers will be ones who lose out.

At the end of July, one Latvian market participant began making small-volume bids on the Baltic frequency reserve market at increasingly higher prices. At its worst point, this raised the price of electricity on the market to €10,000 per megawatt-hour (MWh). This price jump lasted for several days; Estonian system operator Elering also contacted its Latvian colleagues, who in turn communicated with the market participant who had been making these expensive bids

However, according to Marti Hääl, head of energy company and market participant Alexela, everything happened in hindsight, and the response was rather belated.

"Such anomalies should not really reach the market if it is functioning and the system operators and supervisors are doing their job," he told ERR.

The market for frequency reserves, which are procured to maintain frequency in the electricity system, was opened in the Baltic countries this February. As this was done after disconnecting from the Russian electricity grid and connecting to the continental European system, the main objective was ensuring the security of supply when it comes to reserves. According to market participants, the actual functioning of the market was given lower priority.

According to Hääl, the issue comes down to market regulation and supervision. If those processes do not work, the market will not work either.

"The problem is either down to market regulation or in organization and supervision, or both," Hääl said.

The issue is also a result of a lack of transparency in the market, as market participants have previously told ERR – they cannot see or know what is behind the high prices or who is making these types of offers. The only thing that is clear is that extremely high bids cannot in any way be cost-based, as is required by market rules.

"As market participants, we simply note after the fact how much it cost; we cannot see into it. We can only see that our bids, which were up at the same time as the mFFR (manual Frequency Restoration Reserve) price was €11,999 per MWh, were not accepted by the system operators. This raises the question, since we cannot see what is going on there, of why these choices are being made. It simply sows mistrust, because it is not logically understandable how these kinds of prices can arise," said Hääl.

"As someone who works in this field, I cannot understand how the cost of uploading one megawatt-hour of mFRR, which is essentially the cost of electricity-driven production or battery storage, can be €12,000. I am not aware of any technology where one megawatt-hour would cost €12,000," added Hääl.

Lack of transparency creates mistrust, and mistrust disrupts the functioning of the market.

Last Tuesday, Baltic regulators sent an official letter to 141 market participants emphasizing the importance of submitting responsible bids. The letter, which was seen by ERR, warns market participants that the supervisory authorities of the three Baltic countries – in Estonia's case the Competition Authority – will closely monitor the frequency market and investigate any suspicious bids, both by these authorities and by the Baltic system operators. If a violation is found, sanctions may be imposed on the market participant.

Hääl pointed out that the regulation has been in place for as long as the market has operated, and market participants were aware from the outset that the rules cannot be broken.

"The question is not whether market participants knew the rules, but whether anyone broke the rules, and if so, who and what will happen as a result – what will the conclusion be? Whether the rules are for everyone to follow or only for those who follow them voluntarily – that is the question," said Hääl.

The fact that the system operators' letter to market participants warned that bids would be closely monitored raises the question of whether that has or has not been the case from the outset, Hääl said.

"I really hope that what is happening on the market has been monitored closely from day one. The reason why there are no or very few anomalies of this kind on the securities market is that trading is suspended until it is clear whether any manipulation has taken place. But if, instead, a press release is issued, letters of notice are sent, and a neighboring country is asked to launch a month-long investigation, then I do not think that this is a very effective form of market supervision," he continued.

When there are such anomalies in the market, it does not function, as participants lack confidence in the market due to a lack of necessary information. And the real loser in a dysfunctional market is the consumer, said Hääl.

For example, Haal still does not know whether one individual Latvian provider is actually responsible for the price rises. "My answer is that I cannot say whether the problem even lies in Latvia, because we cannot see it. So, I don't know where the problem is," Hääl said.

Due to the lack of transparency in the frequency market, Hääl used the term "black box" to describe it in a social media post.

"And if it turns out later that there was some manipulation, none of the market participants who suffered losses as a result will receive any compensation. They will just shrug their shoulders and life will go on," said Hääl.

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