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Is Finland a piece of driftwood on the world market?

Is Finland a piece of driftwood on the world market?

Why does a Finnish electricity user rejoice over the Norwegian and Swedish rains? And, how do the floods taking place on the other side of the world affect us? What is the importance the climate attitudes of international politicians for Finnish electricity prices?

Almost all the Norway's electricity is generated by hydropower, and, in the share of hydropower is very high. Electricity travels from a cheaper area to a ​​more expensive one along transmission links. After normal rainy periods, the cheap hydropower of Norway and Sweden also reduces the Finnish price. The wind also has an increasingly important role in the formation of electricity prices. In Sweden, wind power already produces far more electricity than the Olkiluoto 3 nuclear power plant will produce once it is completed. Very windy or windless days in Sweden are also reflected in the prices of Finland through transmission links.

In Finland, coal production costs have a significant role in determining the price of electricity. Coal prices are also determined by global factors. For example, when there is a flood in the Australian coal production areas, it is also reflected in an increase in the price of coal on the Finnish prices of the electricity user.

International climate policy and the climate objectives linked to the EU guide investments and support policy in Finland. For example, the ongoing political changes at the EU-level emission allowance market have shaken the Finnish electricity price briskly during the current years. Also, Russia's decisions on changes to the market mechanism have reduced  fairly the import of electricity from Russia to Finland in recent years. The Finnish electricity prices are therefore very dependent on global political decisions. Finland has, of course, a say in international affairs, but we do not have a major role in the decisions.

It is clear that the price of electricity in Finland is very much linked to world events and decisions. We are largely a piece of driftwood floating along in the changing world market. The increasing transmission capacity in Central Europe, the increase in renewable energy globally, international investments are driven by climate decisions and global economic development will further increase their  role in setting the price of electricity in Finland. For a single user of electricity, it is more difficult to keep track of the various factors affecting the price of electricity, so the assistance of professionals has been put in place in the ever-changing electricity market.

Portfolio Manager, SME Portfolios