Room for improvement in electricity transmission and taxation that distorts competition
We are moving towards a harmonised European energy market through regionally liberalised markets. This is what the European Commission assessed in its recent energy strategy. Mikael Lilius, Fortum’s President and CEO, referred to this in the Energy Forum in Helsinki on Wednesday, 19 November, and told that the Nordic countries have become an excellent example of energy market liberalisation to the entire continent.
At the same time as the EU is making improvements in the prerequisites of competition, some interest groups, especially in Central and Southern Europe, would like to slow them down. Also, strict and restricting regulations, seeking basis from environmental arguments, are under preparation. Environmental protection is a key issue in Fortum’s strategy, but we are very dubious about regulations, which increase bureaucracy and distort competition, but do not promote environmental responsibility and sustainable development.
Bottlenecks of electricity transmission
Although the Nordic countries are in the vanguard of the EU countries, there is still room for improvement in our energy market, too. The occasional bottlenecks in electricity transmission restrict trading in electricity. In a recent meeting of the Nordic energy ministers, Finland proposed a common Nordic main grid and improving the efficiency of electricity transmission. As the first step, co-operation between the Nordic national grid operators should be tightened. Fortum regards this initiative as very important, because it increases true competition. The aim should be a pan-Nordic grid company.
The Nordic competition authorities have also paid attention to transmission bottlenecks. In their recent report, they considered the market too concentrated. In fact, there are essentially more players in the Nordic electricity market than elsewhere in Europe, and the Nordic energy marketplace, Nord Pool, is the most efficient electricity exchange in Europe. Indeed, a closer analysis is necessary in respect of some conclusions in the report, which has some good observations as such, Lilius pointed out.
He said that in respect of their position, transmission and distribution network companies are so-called natural monopolies and that their regulation is quite acceptable. However, the benefit for the consumer and the healthy profitability of the industry must be kept in mind. Freely moving capital seeks areas in which the profit and risks are in balance. Network improvements and the readiness to react to problem situations must be secured with sufficient, controlled profitability of the transmission and distribution operations.
Taxation distorts competition
In Finland, the taxation of energy establishments varies according to their legal form. Municipal energy utilities are exempt of tax, and this distorts competition because energy companies and municipal utilities compete for customers, whether they pay tax or not. Therefore, Lilius expressed a wish that the state would use other means of supporting municipal finances.