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: http://www.fortum.com/document.asp?path=14022;14024;14026;14043;14070;14071;4329 5;43957;50109&level=4 Further information: Esa Hyvärinen, Vice President, Public Affairs, tel. +358 40 826 2646