Finland is a geographically large country with cold winters and a sizeable industrial sector. This effects in our need for energy. About 80 per cent of Finland’s electricity consumption is covered by own production and the remainder is imported from other countries. Mostly from Sweden.
Finland is part of the pan-Nordic electricity market. The physical wholesale of electricity takes place at the Nord Pool Spot electricity exchange located in Norway. Nord Pool Spot is owned by Euronext and the Nordic and Baltic grid companies. Nord Pool Spot’s electricity exchange covers the Nordic countries, the Baltic countries, the Benelux countries, Germany, Austria and France.
Industry uses just under half of Finland’s annual electricity consumption, households use a quarter, and services use a fifth. The rest is consumed in agriculture, transport and transmission losses.
Our country’s electricity generation is quite decentralized compared to many other European countries. The Finnish electricity grid is also highly fragmented, consisting of 77 distribution network companies, 13 regional network companies, two closed industrial network companies and Fingrid, which manages the transmission grid.
There are about 120 electricity generating companies and about 400 power plants in Finland, more than half of which are hydropower plants.
Mankala company is like a cooperative
Many Finnish electricity companies operate according to the so called Mankala principle* in which several companies jointly set up a non-profit limited liability company. Mankala companies aim to generate electricity for the shareholders at production cost instead of making profit and paying dividends. In doing so, they operate like cooperatives.
Cooperatives play a minor role in the Finnish electricity market
There are only seven cooperatively owned electricity companies in Finland. Central Cooperative Oulu Region Electricity in Northern Finland is the largest and consist of 12 energy cooperatives. Much of cooperatives’ operations take place in their subsidiaries and associated companies, such as Mankala companies.
The aim of electricity co-operatives is to have stable energy prices for members. Customer prices that include member discounts are quite competitive. However, the importance of regional presence of cooperatives cannot be underestimated: the commitment of the cooperative to serve its dispersed member community is appreciated in the local community.
Cooperatives’ financial position stable
The financial position of the cooperatives can be considered good given the competition in the sector and the changing business environment. Especially Oulu Region Electricity and Jylhä Energy Cooperative’s growth and operating profit level and development have been excellent.
The equity ratio of all cooperatives is at least 50%, for some clearly above. This is good for the future of energy cooperatives. The question arises as to the level of performance: does everyone have enough self-financing for future investments? The industry cannot survive unless it invests. For instance, law requires weather-proof electricity networks, and building them is costly.
Oulu region has sought new businesses: fiber optic networks are being built and the sale of solar power started off well. In Southern Ostrobothnia they are pursuing CO2-free energy with wind power.
Cooperatives have mostly had a good year in 2021
The previous year’s record-low electricity price was followed by a record-high price spike in 2021. The market roller coaster was predictable, but few expected it to be this drastic. Many cooperatives benefited from the price increase, but losses were also seen.
Electric cooperatives are different in size and nature, and so are their strategies. Oulun Seudun Sähkö offers its members the whole package from transmission and sales to district heating and fiber optics. Small cooperatives often focus on electricity transmission.
Corporate reorganizations have become more common in the industry due to the tightening of competition and big risks. For example, Muonio Electricity Cooperative sold its electricity sales business to Suur-Savo Electricity. It is not difficult to predict that acquisitions and other arrangements will continue. Weather-proof networks require capital, the unpredictable energy market requires hard know-how.
The combined turnover of energy cooperatives grew by as much as 34 percent in 2021. The increase was explained by the increase in the market price of electricity and fuel. The operating profit also increased, but only by 4 percent, because the purchased raw material also became more expensive. The year 2021 showed that electricity price fluctuations in the free market can be drastic. Electricity can hardly be stored. Natural disasters and political uncertainty exacerbate the situation, as has been seen. Electricity companies try to protect themselves from risks with market instruments. The energy cooperatives show that others did it better and benefited from the increase in sales prices.
In the case of Ålands Electricity Cooperative, the increased purchase costs of raw materials ate into the result, and the equity ratio fell for the second year in a row. The level is not alarming yet, but the repair should be done soon.
The wise prepare
The failure of Fennovoima’s Pyhäjoki nuclear power plant project can be a bitter blow for Jylhä Electricity Cooperative, which has millions of investments in the project. The balance sheet holds up, but the political risk is about to be triggered. Haukiputaa Electricity Cooperative already drew conclusions on the matter by writing down almost one million euros.
Renewal is necessary. Cooperatives are eager to participate in wind power investments. In heat production, wood residues and other biomass are included. On the other hand, nobody seems to trust peat. The future of electric cooperatives is decided by the modern consumer. You must be carbon-neutral and cost-effective. Local cooperatives have another strength: they themselves decide how to use their profits.
Who owns the Finnish energy sector?
Citizens are largely excluded from Finland’s energy policy and there is a strong culture of concentration, but consumer involvement and investment are on the increase. Fingrid that operates the national transmission grid is owned by the state. The two largest energy companies Caruna and Elenia are owned by foreign investment companies. However, most electricity companies in Finland are owned by cities or municipalities and most have their own district heating plants.
The larger power plants are Mankala companies owned by several energy companies. Large pulp mills and saw mills always have their own power plants and they get all the electricity and heat needed from their own production. Most often also the district heating company gets its electricity and heat from the near-by factory.
Finland is a pioneer in combined heat and power production
Electricity is produced in Finland in a variety of energy sources and forms of production. The main sources of energy for electricity production are nuclear power, hydropower, coal, natural gas and wood fuels. The share of wind power is still quite small, but it has grown significantly in recent years.
Almost one third of our electricity is cogenerated in heat production, whereby the energy content of the fuel is used as precisely as possible. In no other country does cogeneration have such a large market share.
Here, urban areas and industries have for decades used energy efficiently. Combined heat and power production is considered to be the single most important mean of reducing greenhouse gas emissions in the EU.
Electricity prices in Finland
Electricity prices in Finland have been low compared to other EU countries. In the first half of 2017, the price of electricity per household in Finland, according to Eurostat, was the lowest in the EU. It was highest in Germany. Now in 2022, the electricity price has been significantly more expensive. The average price in 2021 was 7.2 cents/kWh, in 2020 only 2.8 cent/kWh. The average price for the first seven months of 2022 is about 11.6 cents/kWh.
The price of electricity consists of the electricity transmission fee, the price of energy, electricity tax and maintenance security fee, as well as the value added tax calculated on top of these. In Finland, taxes account for about 34 percent of the price of electricity. The proportion has been around the same for a long time. The average share of taxes and subsidies in total electricity prices in the EU is well over one third.
In Finland, there is a need for incentives for consumers to invest in clean energy solutions as well as easy access to the energy market. More and more people are purchasing part of their needed electricity from small-scale production, for example from their own solar panels, which are located on rooftops. Small-scale production equipment can be the user’s own, jointly owned by several users, or rented from a service provider.
Finland has all the prerequisites to become a model country for the energy internet and the bi-directional electricity market.
Text:
HANNA MUUKKA
KARI HUHTALA
*Mankala principle in brief (Ministry of economic affairs and employment, 2018)
Mankala enables investors and companies to invest in energy production.
Applied widely in Finland in power and thermal energy production
- Around 2/5 of electricity produced based on Mankala principle
- Around 2/3 of nuclear power produced based on Mankala principle
- Very important for hydro and wind power investments, also cases of thermal power
A solution to
- Enhance availablility of capital for large energy investments
- Enable different sized utilities and industrial companies to take part in various energy production investments
- Share risks of energy investments between a group of companies
- Enable stable electricity price for industrial users
- Quarantee for the process and metal industries for the availability of electricity
Mankala principle is not tax evasion or disguised dividend and it does not constitute state aid
The concept was named in the 1960’s
- Mankala hydro power plant (25 MW) in southeastern Finland
- A company called Oy Mankala Ab still exists in Finland