An integrated Nordic retail market for electricity

11/1/2010 9:00:00

A competitive and properly functioning electricity market is a source of efficiency gains, competitive prices and higher standards of service for electricity customers. It is also essential for achieving the ambitious environmental and security of supply goals in the most efficient way, i.e. at the lowest cost to society.

The true regional wholesale electricity market that has evolved in the Nordic countries would provide a good basis also for a Nordic retail electricity market. When making decisions that aim to further improve the Nordic wholesale market, the implications on a retail market must be kept in mind. For example, dividing the Nordic wholesale electricity market into several price and/or bidding areas would increase hedging costs, discourage retailers' interest in acting outside their local market areas and thereby decrease the level of competition.

Already now, a significant share of customers is actively taking the opportunity to make conscious choices between electricity suppliers and/or products in the market. Regional integration of retail electricity markets accompanied with remote metering and hourly pricing would, however, fulfil customers’ expectations with regard to service and price levels of their electricity supply even more thoroughly.

Fortum is of the opinion that:

A Nordic retail electricity market

Requires a functioning wholesale electricity market as a basis. A larger number of price and/or bid areas would discourage retailers to act outside their local market areas, which limits competition.

Brings more competition, better service levels and competitive prices. The retail electricity market should reflect the price signals from the wholesale electricity market. This would promote efficiency and sound competition leading to better service and more competitive prices for customers as well as to the lowest overall costs for society.

Provides more tools for consumers to manage their electricity consumption and cost. Customer interest in and ability to affect their electricity consumption and costs is dependent on the access to frequent and detailed consumption data. Remote metering, together with more efficient market mechanisms for hourly pricing with adequate standardisation, would considerably promote energy efficiency benefiting individual customers as well as the society as a whole.

Requires strong political commitment and co-operation by different stakeholders. NordREG's (the association of Nordic regulators) report "Implementation Plan for a Common Nordic Retail Market" provides a good basis for the further work.   Some further assessment of the feasibility and cost efficiency is though still needed. E.g. the proposed supplier centric customer interface model is supported as a working assumption but further clarification is still needed.

The Nordic retail electricity market could act as a forerunner towards a European retail market.