Press release

Dividing Sweden into several price areas harmful to the functionality of the Nordic electricity market

05 November 2009, 14:41 EET

Fortum Corporation Press release 5 November 2009

Dividing Sweden into several price areas harmful to the functionality of the  
Nordic electricity market                                                       

Svenska Kraftnät, the Swedish transmission system operator, proposes that
Sweden is to be divided into four separate price areas in the Nordic physical
electricity market in order to manage congestion caused by limited transmission
capacity in the country. The proposal distorts competition and contradicts with
the goal to create a common European wholesale market and a common Nordic
retail market. 

The Danish electricity supply organisation complained in 2006 to the European   
Commission that Svenska Karftnät's management of internal congestion in the     
Swedish transmission system may have infringed the EU competition law. The      
Commission, in its preliminary assessment from June 2009, concluded that Svenska
Krafnät indeed may have abused its dominant position when it has anticipated    
internal congestion within the Swedish transmission systems by reducing         
interconnection capacity between Sweden and neighboring member states. Svenska  
Kraftnät has made a proposal to divide Sweden into several price areas in     
order to meet the Commission's concerns.                                        

New price areas discourage grid investments                                     

The plan to introduce additional price areas is in contradiction with EU's 
ambition to create a common European wholesale market. Furthermore, it would    
hinder the creation of a common Nordic retail market. In Fortum's opinion,      
larger price areas that spread even beyond national borders will best facilitate
the further development of a common and efficient Nordic wholesale and retail   
market. The goal should be a level playing field with efficient transmission and
a common price for the whole market area.                                       

"We believe that fostering the necessary grid investments should remain in      
centre of attention - the only sustainable way to eliminate congestion is to    
dimension the transmission capacity according to market needs. The already      
agreed grid investments, in particular the South-West Link that will connect    
central-Sweden and southern-Norway to the southern-most part of Sweden, should  
be speeded up as a part of economic stimulation," says Per Langer, Fortum's     
Executive Vice President responsible for Swedish operations.                    

"In the short-term, until the necessary grid investments have been made,        
congestion management challenges could be alleviated by counter-trading. The    
introduction of new price areas is counter-productive as it removes the         
immediate incentive for the TSOs to invest in needed capacity," he summarises.  

New price areas distort competition and increase retail prices                  

Introducing additional price areas would also decrease transparency on the      
retail market and raise hedging costs. This in turn, would increase the         
volatility of consumer prices and might even decrease competition as electricity
retailers would not find all areas equally attractive. An increased number of   
area prices would also make price formation more complex and less transparent   
for the end-customers.                                                          

"Just last month, the Nordic energy ministers voiced their shared ambition to   
create a well-functioning Nordic retail market where consumers could choose     
their electricity supplier across national boarders. We at Fortum fear that     
dividing the already restricted national price areas into several smaller areas 
would be a giant leap backwards in this respect," Per Langer concludes.         

Fortum Corporation                                                              
Corporate Communications                                                        

Fortum's response to the European Commission Directorate-Competition:;14024;14026;14043;14070;14071;4329

Further information:                                                            
Esa Hyvärinen, Vice President, Public Affairs, tel. +358 40 826 2646