Finnish Energy Industry together with other partners1 recently published a new Vision for European Electricity Markets in 2030, presenting a common view of market parties on the prerequisites of a functioning electricity market in the coming decades. The Vision states that a strong transmission network and large price areas are essential in order to take full advantage of all electricity production and enable customers to be more active in the market. Fortum warmly welcomes the Vision and regards it as a positive sign of a broad commitment to the development of a competitive pan-European electricity market.
1) The Finnish Electricity Research Pool, Suomen ElFi Oy, the Finnish Forest Industries Federation, the Federation of Finnish Technology Industries and Nord Pool Spot AS
Competition ensures investments
According to the Vision, market-driven competition is needed for example to ensure efficient use of resources and balance demand and supply. Fortum fully shares this view and also highlights that competition is the most effective way to guarantee sufficient investments both in electricity generation and transmission networks. Incentives for investments are best ensured when price formation is not artificially regulated. This can also be seen in the history of market liberalisation: one of the key drivers for market liberalisation in different countries, including Russia, has been the need to guarantee private investments in new generation.
Sufficient network capacity essential
Rapid increase of intermittent renewable electricity in the coming years will pose a major challenge to the electricity network development. Therefore the Vision rightly points out the critical role of sufficient transmission network capacity in the success of electricity market integration. Fortum sees that a strong commitment to deliver the existing network development plan is needed. It is also important that national regulation schemes give right incentives for investments in the development of transmission and distribution networks inside and between the countries. Substantial network investments and development of smart grids is essential for the fulfillment of the targets for increasing the share of renewable energy.
Renewable energy production requires harmonisation of energy policies
The Vision states that a common European approach is the best way to reach EU’s energy policy targets. Fortum shares this view and calls for a gradual harmonisation of national energy policies as a necessary continuation of market integration. A common market should be based on the harmonised set of rules. This is particularly important in relation to renewable energy production: national subsidy schemes will burden national budgets and will easily lead to distortions of competition. Harmonised subsidy schemes combined with market-based trading of green values would best guarantee the optimal production of renewable energy with lowest possible costs to the society.
Fortum also calls for a European perspective and equal rules when it comes to market regulation. Moving towards a more centralised institutional framework for electricity market, i.e., a single European TSO and a strong European energy market regulator, would be a logical step to take as the European market integration proceeds.
Harmonisation of retail electricity market benefits customers
Fortum sees that also the harmonisation of retail electricity market would be a natural way forward, following the wholesale electricity market development. The retail market should be developed in cooperation with other countries to better ensure customers’ freedom of choice in the market, as the smart electricity grids and smart meters enable better control of electricity consumption, costs and environmental footprint. The Nordic market could be the forerunner in this development too.