Exceptional early part of 2012 in the electricity market
There has been abundant supply of hydropower from the other Nordic countries to Finland within the Nordic electricity market. However, it has not been possible to transmit as much inexpensive electricity to Finland as what the demand would have been. Despite significant upgrades made, the electricity transmission capacity between Finland and Sweden has not been sufficient to offset the record-high need for electricity transmissions between the two countries. The need to transmit electricity from Sweden to Finland has been boosted by the collapse in electricity imports from Russia. The major changes in the electricity market are also reflected in Fingrid’s finances.Due to the good water reservoir situation, the price of electricity in the Nordic electricity exchange has been significantly lower this year than during the corresponding period in 2011. Between January and August, the average price in the Nordic spot market was approx. 30 euros per megawatt hour, and the area price for Finland was approx. 35 euros per megawatt hour. The extraordinary market situation and restrictions encountered in electricity transmissions between Finland and Sweden have created area price differences in the market.
A new phenomenon in the electricity market is that electricity imports from Russia have come down rapidly. The reasons for this are the elevated price level of electricity in Russia, especially due to the capacity fees imposed on electricity exports from Russia, and the low price level in the Nordic countries resulting from the good water reservoir situation. Electricity has been imported from Russia to Finland mainly at night and on weekends. At other times, electricity has been more expensive in Russia, so it has not been lucrative to export it to Finland. The collapse in the imports of electricity from Russia to Finland has increased the need for transmissions from the other Nordic countries, where much inexpensive electricity has been available due to the good water reservoir situation.
Extraordinary electricity market situationreflected in Fingrid’s finances
Fingrid’s income related to the cross-border transmissions of electricity from Russia has decreased significantly, but at the same time the company has received more congestion income accrued on electricity transmissions between Finland and Sweden.
A new phenomenon in the electricity market is that electricity imports from Russia have come down rapidly. The reasons for this are the elevated price level of electricity in Russia, especially due to the capacity fees imposed on electricity exports from Russia, and the low price level in the Nordic countries resulting from the good water reservoir situation. Electricity has been imported from Russia to Finland mainly at night and on weekends. At other times, electricity has been more expensive in Russia, so it has not been lucrative to export it to Finland. The collapse in the imports of electricity from Russia to Finland has increased the need for transmissions from the other Nordic countries, where much inexpensive electricity has been available due to the good water reservoir situation.
Extraordinary electricity market situationreflected in Fingrid’s finances
Fingrid’s income related to the cross-border transmissions of electricity from Russia has decreased significantly, but at the same time the company has received more congestion income accrued on electricity transmissions between Finland and Sweden.
“A decrease in electricity consumption in Finland, smaller cross-border transmission income and inter-TSO compensations, an increase in reserve costs as well as the repair costs of the Fenno-Skan 2 submarine cable connection have rendered Fingrid’s finances more stringent. On the other hand, the increased congestion income on the border between Finland and Sweden has facilitated the finances. This year is characterised by drastic variations in market-based revenues and expenses. Fingrid’s financial result for the entire year is expected to improve, but the uncertainty involved in congestion income and in cross-border income on the interconnections from Russia makes it difficult to anticipate the future. Despite the rise in earnings, Fingrid is still not making as much profit as what the regulation model of the relevant authority would permit,” said Fingrid Oyj’s President and CEO Jukka Ruusunen in a press conference today.
Fingrid is making capital investments of 1.7 billion euros in the electricity transmission system in this decade so that Finland can achieve the objectives based on its climate and energy strategy, concerning electricity production self-sufficiency, reduced carbon dioxide emissions and increased use of renewable energy. Moreover, the capital investments will contribute to reliable electricity transmissions in Finland well into the future. The cross-border transmission facilities must also be upgraded so that electricity can flow freely in the electricity market in the Baltic Sea region from one country to another, thus enhancing the functioning of the electricity market and improving the electricity supply security in Finland. Most recently, the transmission grid in Finland was upgraded in this scale in the 1970s, when industrial consumption grew rapidly and large nuclear and coal power plants were constructed in Finland.
The major capital investment programme is financed through additional borrowing and internal financing. For several years now, Fingrid has been communicating the need to increase the grid tariffs. At the beginning of this year, the grid tariffs levied from industrial and energy companies were raised by an average of 30 per cent, and there will be another increase of 15 per cent at the beginning of next year. The change is not that significant in the price of electricity for ordinary consumers, because at present grid transmission only accounts for about 2 per cent of the consumers’ electricity bills.
Fingrid is making capital investments of 1.7 billion euros in the electricity transmission system in this decade so that Finland can achieve the objectives based on its climate and energy strategy, concerning electricity production self-sufficiency, reduced carbon dioxide emissions and increased use of renewable energy. Moreover, the capital investments will contribute to reliable electricity transmissions in Finland well into the future. The cross-border transmission facilities must also be upgraded so that electricity can flow freely in the electricity market in the Baltic Sea region from one country to another, thus enhancing the functioning of the electricity market and improving the electricity supply security in Finland. Most recently, the transmission grid in Finland was upgraded in this scale in the 1970s, when industrial consumption grew rapidly and large nuclear and coal power plants were constructed in Finland.
The major capital investment programme is financed through additional borrowing and internal financing. For several years now, Fingrid has been communicating the need to increase the grid tariffs. At the beginning of this year, the grid tariffs levied from industrial and energy companies were raised by an average of 30 per cent, and there will be another increase of 15 per cent at the beginning of next year. The change is not that significant in the price of electricity for ordinary consumers, because at present grid transmission only accounts for about 2 per cent of the consumers’ electricity bills.
Fingrid’s capital investment programme will increase the reliability of electricity supply to households and industries. At the same time, the key infrastructure in the Finnish society will be upgraded to a level required by the Finnish climate and energy strategy.
“Despite the tariff increases, Fingrid endeavours to maintain competitive tariffs on a European scale. Our tariffs will continue to be among the lowest in Europe. This is based on Fingrid’s excellent cost efficiency, which will continue to play a key role in the further development of the company,” Jukka Ruusunen said.
Fingrid’s transmission grid is an integral part of the power system in Finland. The nation-wide grid is the main network for electricity transmission, to which the major power plants, industrial plants and regional distribution networks are connected. Fingrid makes sure that Finland obtains electricity without disturbance.
Fingrid is arranging a seminar for its stakeholders in Helsinki today. The seminar deals with the future grid tariffs and contract structures as well as the progress of the company’s capital investment programme. The presentations given in the seminar can be viewed as a live webcasting on the Internet and afterwards as recordings.
Link to the live webcasting:
http://qsb.webcast.fi/f/fingrid/fingrid_2012_0906_kantaverkkopaiva/index.php?set=true#/stream
http://qsb.webcast.fi/f/fingrid/fingrid_2012_0906_kantaverkkopaiva/index.php?set=true#/stream
Further information:
Jukka Ruusunen, President & CEO, tel. +358 (0)40 593 8428