Fortum is the third largest power generator and the largest electricity retailer in the Nordic countries. Fortum has district heating generation in Finland and Poland.

Read more in Fortum CEO's Business Review 2022

Year 2022 goes down in history marked by Russia’s brutal attack on Ukraine. As one of the consequences of the war, European energy markets faced a shock that compares with the oil crises in the 1970s. Some 30% of European gas supply was lost during last year, leading to a harsh situation where European energy supply and energy markets have been testing their limits.

As Russian gas flows to Europe through Nord Stream 1 were gradually completely cut off the physical gas and power markets became dramatically tight during last summer, and the fear over winter supply constraints characterised the futures markets. Soaring energy prices in the derivatives markets led to previously unforeseen collateral requirements, reducing the willingness and capability for many participants to continue their hedging activity. This in turn reduced financial market liquidity and further escalated the price hikes. As a consequence, hedging shifted to a very large part from Nasdaq OMX to bilateral agreements between large customers and power generators.

By the end of 2022, the markets calmed notably from the highest price levels witnessed in August. In 2022, the average gas price (European TTF hub) was close to 130 EUR/MWh, peaking at 340 EUR/MWh in August. Gas has recently been trading at approximately 55 EUR/MWh, which is clearly below the price level seen before Russia’s invasion on Ukraine. The carbon price (EUA) increased from 54 EUR/t average in 2021 to an average of 81 EUR/t in 2022. The German power spot price, increasing from an average of 97 EUR/MWh in 2021 to an average of 235 EUR/MWh in 2022.

Looking back at last year, one can conclude that Europe could not have handled the shock of eventually losing almost all of the Russian pipeline gas without renewable wind and solar and liquified natural gas (LNG). These energy forms have properly emerged in the European energy landscape only during the last decade and have now become crucial in providing Europe a path to end its dependence on Russian fossil fuels. While rapid deployment of renewables accelerates Europe’s energy independence, LNG will continue to have a strong role in European energy supply for years to come. With LNG, European gas and power prices will be linked to global energy fundamentals also in future. Needless to say, an eventual shift to carbon free electricity is a necessity in order to protect our planet.
Even though the sharp decline in Russian pipeline gas flows was the main cause for the extremely high European gas and power prices in 2022, it was not the only contributor driving prices. The French nuclear fleet suffered from low availability due to corrosion issues while German nuclear based power generation was reduced by the permanent phase-out. In addition, practically the whole of Europe suffered from massive drought in the summer, having a severe impact on hydro power generation across the Continent. In southern Norway low inflow and seasonally low hydro reservoirs led to a situation where a large share of hydro power was priced at Continental European price levels. In other words, soaring power prices in central and western Europe were transmitted to Nordic price areas. The Nordic system price increased from an average of 62 EUR/MWh in 2021 to 136 EUR/MWh in 2022. In the fourth quarter of 2022 the price was similarly 136 EUR/MWh.

In the Nordics in 2022, there were not only high prices in most areas, but also continued significant internal price differences. While prices in the southern Swedish price areas and Finland realised close to or above the system price, the northern Swedish price areas saw a significantly lower level. An adequate attention should be paid to securing the highest possible availability of the transmission capacity within the Nordic region. It is important that the TSOs pursue with the planned investment programmes into transmission infrastructure while openly seeking and testing other means to enhance the performance of the existing infrastructure.

The year 2022 was extremely difficult and challenging for the European energy markets. The European politicians reacted to the situation firmly by introducing various regulatory changes, including targets for energy savings and gas storages, various price control mechanisms and support for households. While crisis measures that help customers deal with soaring energy prices are undoubtedly necessary, it is crucial to implement them in a manner that does not interfere with the market mechanisms of well-working and established spot market for both power and gas or would lead to exclusion of capacity from the market. Despite the clear need for continuous improvements, it is the well-functioning spot market that is our most important guarantee for reliable and affordable energy.

Electricity market prices

Energy market data