Finland: Investments and Western markets replaced Russian energy, prices reflect new reality
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In the spring, Europe's largest nuclear power plant unit, the 1,600 megawatt Olkiluoto 3, was put into commercial use. Last year, the capacity of onshore wind power increased by no less than 2,400 megawatts.
Construction continues briskly and by the end of the year, the production capacity of our country's wind power is expected to increase to 7,200 megawatts - production will therefore double in less than two years. Solar power investments are also growing rapidly.
"Thanks to investments of billions of euros, we are already close to annual self-sufficiency, and at the same time we have suffered well over 90 percent of the market share of non-fossil electricity," Riku Huttunen, CEO, Head of the Energy Department of TEM said.
"This in no way removes the need to strengthen the electricity grid and connections to our western and southern neighbors.
"The growth of production, which varies according to the weather, emphasizes the importance of cross-border trade as an equalizer of supply and demand now that Russian imports, which played a significant role, have ended.
"Regarding electricity, it should also be noted that a replacement western supply chain has already been found for the Russian nuclear fuel used in Loviisa.
"Before the war of aggression, about 80 percent of the crude oil imported to Finland was from Russia, and the annual value of imports was about three billion euros. During the spring and summer of 2022, imports were quickly stopped and switched to other oil grades."
According to trade statistics from the beginning of this year, the main importing countries are Norway, the United States and the United Kingdom.
The market situation changed even more dramatically for natural gas. Due to ruble trading requirements, Gazprom's pipeline gas imports ended like a wall in May 2022.
Just before the war, Russian imports covered two-thirds of Finland's consumption, and a few years ago practically the entire amount used.
The only import route for piped gas remained the Balticconnector between Estonia and Finland, which was completed in 2020, and whose importance for supply and maintenance security is obvious.
However, the transmission capacity of the Balticconnector pipe is not sufficient in all situations, especially during peak demand in winter. For this reason, state-owned Gasgrid Finland acquired and commissioned a large floating liquefied natural gas (LNG) terminal in Inkoo.
The project was carried out in a completely exceptional schedule, both in terms of the company and the authorities' decisions. Readiness for LNG import was still achieved during 2022.
Only non-Russian gas can be imported into Inkoo, but it is also allowed to import it to smaller LNG terminals in our country, at least for the time being.
Although the import of Russian gas to Europe has collapsed, it is not a product subject to EU sanctions for the time being. The legislation (the so-called gas package) that is nearing the end of the Union's decision-making process enables a member state to "temporarily" limit the import of gas to its territory from Russia or Belarus.
This possibility will soon be available in Finland as well, and the Orpo board can outline it.
In any case, the overall picture is that our common market area with Finland and the Baltic countries has switched to using western gas. Markets and operators determine where LNG is ultimately purchased. At the beginning of the year, it was imported significantly at least from the United States and Norway.
Coal consumption is rapidly decreasing in Finland due to climate and price reasons. From the summer of 2022, comprehensive Russian imports have been replaced by, for example, Australian and North American coal.
From the point of view of Lämpöhuolto, the most important challenge is the end of wood trade with Russia. The share of inexpensive Russian wood chips in all our energy wood was about a fifth before the mutual sanctions.
Replacement energy can be found in many sources: other fuels - at least temporarily also fuel peat - and new solutions such as the utilization of waste heat and heat storage. However, the regional and local differences in the situation and possible solutions are large.
"Security of supply looks good at the moment, but the energy war started by Russia was reflected in high prices in the fall and winter, and the effects will not be completely over next winter either."
In the electricity market, imports from Russia previously smoothed price spikes, especially during the winter.
Domestic wind power lowers prices on average, of course, but it also leads to an increase in price fluctuations. In the winter time, therefore, temporarily quite high prices can be expected, which emphasizes the importance of time allocation of demand, energy saving and storage.
"Last winter, we managed to greatly rationalize energy use, which is justified to continue with the actions of both companies and consumers and, among other things, with the help of smart flexibility solutions."
The price of natural gas also strongly determines the price of electricity in Europe. Short-term forecasts indicate a fairly low price for gas, i.e. around 30 euros/MWh. At the same time, the filling rate of the EU's gas storages is excellent, now even in the middle of summer, around 80 percent.
Uncertainty for the coming winter in Europe - along with its possible severity - is brought by the economic development in China, which is swinging the price of LNG, limited global production capacity and the shrunken but existing imports from Russia.
In any case, the essential change is the transition from long-term pipeline gas contracts to LNG trade and to a price determined nimbly by the market.
The world crude oil market is divided due to sanctions imposed by Western countries.
The G7, the EU and Australia have banned shipping and insurance services for Russian crude oil whose price exceeds USD 60 per barrel (refined oil products have similar price limits). In any case, it has found its market in third countries such as India and Turkey.
The free market price is higher, above 80 USD per barrel, but far from the most expensive prices in history. Saudi Arabia continues to play a key role in determining OPEC's supply and thereby the global price level.
"All in all, we can be calm about the energy supply for the coming winter. However, the end of Russian imports has permanently changed the market for energy products, for example in terms of determining prices.
"Finland has adapted to the situation, which has changed exceptionally quickly, even from a European perspective. An energy policy based on competitive markets and comprehensive preparation for a bad day have helped here," Huttunen concluded. ■