Finland’s electricity pricing system led to consumers paying more than they should have during the second half of 2022, according to an Aalto University professor.
The energy crisis cost Finnish households an additional five billion euros, according to a study by Yle’s investigative journalism unit MOT.
Between July and December 2022, electricity providers charged consumers some 25 cents per KwH on average. In comparison, the average price in 2020 was 3.5 cents per KwH.
The rise in electricity prices has generally been attributed to Russia’s invasion of Ukraine and the subsequent disruption to supplies of Russian oil and gas.
Considering that electricity production costs have remained more or less the same, Aalto University engineering physics professor Peter Lund told Yle that the bill footed by consumers may have been unjustifiably large.
“Electricity generation costs are roughly the same as before the energy crisis. Clean energy producers stand to benefit enormously from this situation. The energy crisis is actually an energy producer’s paradise,” he said.
EU-wide energy market largely to blame, professor says
Lund explained that energy companies, such as Fortum and UPM, have largely benefited from the electricity market system and its marginal pricing practices, according to which electricity prices are determined by the most expensive energy source.
By equalising the electricity prices of different sources across the EU, marginal pricing encourages moderate energy consumption and efficient electricity production.
Fossil fuel power is expensive to produce, and therefore marginal pricing in theory also encourages firms to invest in cheaper and cleaner energy such as wind and solar.
This is why energy company Fortum and forestry firm UPM, for example, have doubled their profits during the energy crisis, due to the rise in prices while their production costs have stayed low.
Professor Lund is critical of the system, saying that Finland is among the ‘losers’ in the EU-wide energy market deal, as Central Europe’s fossil fuel-powered energy also pushes Finnish electricity prices up.
“Consumers currently don’t get to enjoy that really cheap solar, wind, and hydropower, there’s no benefit for us. And that’s the fault of the market,” he said.
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