During 1995-2005 the Nordic energy system has experienced
two major changes, the opening of the electricity market
for competition and emissions trading within the EU. The
European Union's emissions trading scheme (EU ETS) that
began operating at the beginning of 2005 has weakened the
competitiveness of Finnish electricity production and
raised electricity prices. Most electricity producers
have accumulated large profits thanks to higher prices.
The payers have been nearly all electricity users. This
report studies the effects of emissions trading on the
electricity market and the functionality of the power
Very little investment has been made in power production
capacity in the Nordic countries over the past ten years.
Considerable increases have mainly been made in Danish
wind power capacity. Simultaneously, the total
consumption of electricity and maximum system load have
increased more than installed capacity has grown. In the
next few years the power and energy balances may be
In previous years, Finland has often been separated as
its own market price area on the Nordic power exchange.
The formation of price areas has been affected by the
limited capacity in transmission interconnectors, network
reparation work and the operating method of the Swedish
national system operator, Svenska Kraftnät (transferring
domestic bottlenecks to the borders). This study reviews
the scale of price differences and the effect on market
On the common Nordic electricity market, Finnish coal and
peat condensing power capacity is mainly used during poor
precipitation years. These plants were once built for
base load production. Carbon dioxide emissions trading
has further weakened the competitiveness of these plants.
The biggest problem for the Nordic power exchange, Nord
Pool, is regarded to be that market concentration in
electricity production is high. Market concentration
decreases the investment willingness of existing players
as new power production capacity would lower electricity
prices. There are also high barriers for market entry.
Due to emissions trading and the good precipitation
situation in the Nordic countries, a record level of
electricity was imported to Finland in 2005,
approximately one-fifth of electricity consumption.
Approximately two-thirds of the imports came from Russia.
This study makes several improvement suggestions that
would affect market activities. These include clearer
financing principles for building new transmission lines,
increased Nordic cooperation in power exchange
surveillance and restraining the growth in electricity
imports. The study also suggests that players who gain
windfall profits should be obliged to maintain otherwise
possibly unproductive condensing power plants in reserve.
|Place of Publication||Espoo|
|Publisher||VTT Technical Research Centre of Finland|
|Number of pages||109|
|Publication status||Published - 2006|
|MoE publication type||Not Eligible|
|Series||VTT Tiedotteita - Meddelanden - Research Notes|
- electric power
- emission allowances
- emissions trade
- Nordic Countries
- electricity markets
- self sufficiency