Finland’s electricity market was gradually opened to competition after the passing of the Electricity Market Act (386/1995) in 1995. Since late 1998, all electricity users, including private households, have been able to choose their preferred electricity supplier.
The purpose of the electricity market reform was to increase the efficiency of operations and to integrate Finland’s electricity market into the Nordic market. These liberalisation and integration actions increased productivity and environmental efficiency, as the Nordic hydropower capacity can now be utilised efficiently and the market allows for trading in “green” energy.
The liberalisation of the market had a strong impact on the electricity trade. Before it, electrical distribution installations and large-scale consumers made long-term delivery contracts for wholesale electricity with electricity producers. Today, a major part of the wholesale trade in electricity takes place in the Nord Pool Nordic Power Exchange, whose ELSPOT market sets the market price for electricity in the Nordic countries. Besides the exchange, electricity is traded on the OTC market and directly between buyers and sellers. Development of the forms of electricity trading has resulted in fluctuations in the price of electricity on the Nordic electricity market, depending for instance on hydropower production capacity due to rain, and on electricity consumption.
In addition to physical electricity trading, it is possible to trade in other electricity-related contracts in the Nord Pool. These contracts are used for example for managing the risks of the electricity trade, which allows electricity retailers and large-scale consumers to hedge against electricity price fluctuations.
Smaller-scale electricity consumers connected to distribution networks, such as small enterprises and households, buy their electricity from retailers. The majority of retailers also act as local distributors, but the buyers are not bound to a local seller and can buy their electricity from any preferred supplier.
Electricity network operations
Electricity network operations in Finland are run as a monopoly and require a grid permit from the Energy Market Authority. The Electricity Market Act contains equality and fairness stipulations applicable to grid operators. Since 2005, monitoring has been carried out in four-year terms, for which the Energy Market Authority sets tariff parameters. Since then, the appeals process against the authority’s decisions has also been two-tiered.
Fingrid Oyj is the national grid operator in Finland. The Energy Market Authority controlling the Finnish electricity market has imposed system operator responsibility on Fingrid. Fingrid’s task is to maintain national power balance management and to ensure that the Finnish electricity system is maintained and used in a technically appropriate manner. Fingrid is also responsible, together with the other Nordic grid operators, for safeguarding the necessary reserves for the operation of the electricity system.
Around one hundred regional distributors are engaged in electricity transmission in the distribution networks. Since early 2007, the largest companies have had to divide their network operations and electricity sales into separate companies.
The Ministry of Employment and the Economy handles the redemption permit applications concerning power lines, and the Government grants the permits. The Ministry of Employment and the Economy is also the authority that issues statements on related land use and planning matters.
EU’s internal electricity market
The European Union aims to create an internal European electricity market. The current Internal Market in Electricity Directive, in force since 1997, only requires Member States to liberalise 35% of their electricity markets. A prior directive from 2003 demanded that the electricity market be liberalised for all consumers by 1 July 2007. A directive approved in 2009 brought a number of new changes to the electricity market concerning grid ownership, electricity market surveillance, measurements, etc.