ELECTRICITY MARKET OPEN UP

Electricity is one of the few commodities that does not move freely from one country to another within the EU − yet.

If electricity could be stored and transported by rail or sea, for example, Europe would have already had a common free electricity market for years. Electricity nevertheless has to be transferred from one place to another via transmission networks, and the scarcity of transmission capacity restricts the free movement of the commodity.

Now European electricity markets are integrating and opening up to competition. Two things are needed for this: strong cross-border transmission networks and common rules for trading. And, of course, political will within the EU.

Building transmission networks is expensive, but money is not the biggest bottleneck. European network companies are ready to build, provided that they obtain the necessary licences. “Licences are really hard to get, as the public strongly objects to the construction of transmission networks. This is a NIMBY phenomenon, i.e. Not In My Backyard,” says Jukka Ruusunen, President & CEO of Fingrid Oyj, the owner of Finland’s main grid system.

Jukka Ruusunen surmises that integration of the joint Nordic and the Central Western European electricity markets could happen soon, too – in 2010.

The Nordic countries have been pioneers in international electricity trading − by global standards too. “Experience of co-operation between power companies has already accumulated for more than 40 years, and the Nordic electricity markets began to open up in the early 1990s,” Ruusunen says.

In continental Europe, opening up of the markets has started with Central Western Europe − the region comprising Germany, France and the Benelux countries. “They are working in more or less the same way as we did here in the north and, at the same time, they are discussing how to bring the Nordic countries into these markets.”

Ruusunen surmises that integration of the joint Nordic and the Central Western European electricity markets could happen soon, too – in 2010. “The rules for electricity trading are being finalised, and next year they should be ready. Transmission interconnections will naturally be needed − it is largely a question of how strong the interconnections between the Nordic countries and continental Europe will be.”

The size of the resultant electricity market would be 1,500 TWh, whereas the size of the whole European electricity market is 3,000 TWh. In comparison, electricity consumption in Finland amounts to 90 TWh and 400 TWh in the Nordic countries.

Security of supply is better in a larger system. If there is a shortage in one country, electricity is imported via transmission lines from another.

In Ruusunen’s view, open electricity markets also constitute a method of implementing the EU’s joint climate policy, which would be difficult without a uniform infrastructure. “A larger system means that it is easier to introduce renewable energy into it. Wind power is generally used as an example. Countries with a lot of wind power may run into problems without the additional capacity provided by interconnections.”

Overall, security of supply is better in a larger system. For consumers, a common electricity market means that the lights will not go out. If there is a shortage in one country, electricity is imported via transmission lines from another one. In the long term, electricity prices in Europe will harmonise too, Ruusunen believes.

For the individual seller of market electricity such as UPM, among others, this opening up means bigger markets and opportunities to invest in other countries since the rules and operating practices will be the same.