Hedging protects against electricity price volatility and tomorrow’s risk scenarios

Meeting tomorrow’s demand: new generation and flexibility

The scale of planned investments raises a genuine question: will there be enough electricity—and at what price? In conversations with our customers, this concern comes up repeatedly. Finland is currently Europe’s lowest-cost electricity market, but will it still be ten years from now?

Today, the Nordics have an electricity surplus of roughly 40 TWh a year. If industrial investments materialise even partly as planned, the balance could shift quickly—meaning more generation will be needed.

At Fortum, we currently have around 8 GW of wind and solar development projects in the Nordics in permitting phase. This gives us the capability to gradually add new generation as demand grows. Alongside new renewable generation, we are also developing flexibility solutions—such as demand response and battery energy storage—to keep the power system balanced as consumption increases. As a longer-term option, Fortum is also assessing the case for new nuclear power.

Long-term electricity price hedging with PPAs*

Businesses value predictability—and the same applies to electricity prices. In manufacturing, electricity consumption is high, and price fluctuations make it increasingly difficult to forecast production costs. That naturally affects business planning. If major new investments go ahead and demand increases, the average electricity price likely rises over time. Hedging helps companies reduce risk and assess performance and profitability more accurately. For the same reason, Fortum hedges the majority of its own power generation in advance.

Put simply, hedging is an agreement that locks in a price level for electricity for a chosen period. Many industrial companies hedge most of their electricity procurement because exposure to major price swings is often an unnecessary business risk. Prices can dip and electricity may be cheap for a moment—but any savings must be weighed against the unpredictability of spot exposure and the possibility of a higher price level over time. In traditional industry, processes are typically designed for continuous production, so flexibility is limited. In newer sectors—such as hydrogen and the electrification of district heating—flexibility can often be built into the business model: consumption is shifted to low-price hours and reduced during high-price hours.

*PPA (Power Purchase Agreement) refers to a long-term electricity purchase agreement—typically longer than five years—that serves as one tool for companies’ long-term risk management.

Different options for different needs

There’s no one-size-fits-all approach to electricity procurement. The right solution depends on your business model, risk appetite, and how predictable your consumption is. In steel, for example, companies compete in global markets where long-term hedging is often standard practice—because a competitive electricity price is part of the cost base. Data centres, in turn, typically need a stable power supply, which makes a PPA a natural choice for many. Hedging can be tailored to your strategy—for example in terms of contract duration, profile matching, environmental values, and flexibility services. And if you expect a clear consumption peak at a specific time, you can prepare for it by locking in the price for that period.

For some industries, renewable electricity is a strategic choice. That means finding ways to work with the variability of wind and solar generation. Hydrogen and its derivatives are a good example: they can often benefit from price volatility, which also allows the PPA to be structured more flexibly—for instance, linked to wind output. You can read more in Fortum’s earlier blog post “Recipe for successful PPA, with wind and solar power as ingredients”.

If your production outlook only extends a few years ahead, committing to a very long contract may not be realistic. In that case, hedging can be built from shorter periods and then supplemented over time based on market conditions and the company’s growth.

Hedging is sensible risk management

Data centres are already major electricity users with investment capacity and a proven business model—and Finland is an attractive destination for many reasons. If a large share of the planned investments materialise and demand tightens, the overall price level may rise. Long-term price hedging helps protect competitiveness by making costs more predictable even when the market changes rapidly.

We’re also operating in a period of heightened geopolitical uncertainty. While Nordic electricity prices are not directly set by gas, events that move global energy markets can still affect the Nordic market through broader European price formation, interconnectors and demand sentiment. Higher interest rates and inflation increase financing costs and can dampen investment appetite—making cost predictability and risk management even more important. In this environment, hedging is more than a “just in case” measure; for many industrial companies, it’s a practical way to limit risk and protect competitiveness.

Hedging also supports long-term investment from the producer’s perspective. Building and operating power generation requires significant capital, and leaving all output exposed to short-term price swings would be risky. That’s why producers often look for forward visibility: a price level that enables investment decisions and the long-term development of generation.

Volatility may be a permanent feature of the energy market—but it doesn’t have to dictate your costs. With the right mix of price hedging and PPA structures, companies can turn uncertainty into predictability, support investment decisions, and strengthen competitiveness. In many cases, these agreements can also help bring new renewable generation to the market.

Want to explore what kind of hedging or PPA solution would best fit your consumption profile and risk appetite? Get in touch—we can review your consumption profile, objectives (price, flexibility, renewables), and suitable contract structures, and then build a solution that matches your needs.