Performance of electricity wholesale and retail markets. Report by Matti Purasjoki, Administrator

The purpose of the report was to examine the performance of electricity wholesale and retail markets in Finland and the Nordic countries. The Administrator found that the electricity market has attracted wide international attention recently, apparently due to concerns over losing the benefits gained when market deregulation took place. The wholesale price of electricity has increased relatively steeply in the last couple of years, as consequence of rapid increases in raw material prices, emissions trading and increasing market power due to scarcity of electricity production capacity. In the European market, the electricity production market structure is oligopolistic, which means that a few large producers control production. In addition to these, there are several smaller, often local market players. Price formation in the Nordic electricity market takes place at the Nordic Power Exchange, the operating model of which is theoretically correct - provided producers engaged in trading do not establish supply models of a questionable nature as regards competition law. An extensive consultation round with electricity industry operators formed the basis for the report, clearly revealing the characteristics and defects of competition in the industry. Based on this, the Administrator prepared proposals with the aim of enhancing the performance of the electricity market. These can be grouped into four basic tasks, each of which is political, thus requiring a great deal of political willingness with respect to cooperation, both in Finland and other Nordic countries. The key basic task is to ensure the supply of electricity. This calls for major investments and the ability to take risks, thus putting public authorities in a highly significant role. The second basic task is to control the market power of Fortum, a state-owned listed company. The third aim must be to attempt to balance the ownership of the Nordic Power Exchange, to establish a shared Nordic transmission system operator, and to balance the ownership basis of Finland's national transmission system operator. The fourth is to enhance the operating preconditions of supervisory authorities, by specifying the duties of the Energy Market Authority and strengthening the national Competition Authority's supervisory instrument, competition law. No new regulatory tasks are proposed. (orig.)