Finland: Legislative amendments curbing electricity distribution prices to take effect in early August

NordenBladet — On 15 July 2021, the President of the Republic approved legislation to curb rises in electricity distribution prices and cut the profits of distribution companies by amending the Electricity Market Act and the Act on the Supervision of the Electricity and Natural Gas Market. The Acts enter into force on 1 August 2021.

‘The legislative amendments will address distribution prices on a short notice.  Simultaneously, a reliable electricity system is secured. Reasonable electricity prices and good grid reliability must be balanced. It is important for citizens that the changes in distribution tariffs start to be apparent as early as next year,’ says Mika Lintilä, Minister of Economic Affairs. The amendment will cut the maximum permitted profit of distribution companies and limit the scale of price increases. Distribution companies’ reasonable rate of return on capital will be lowered to 4 per cent next year, from 5.73 per cent in 2020.

The Finnish Energy Authority has announced that it will begin reviewing regulation methods as soon as the law enters into force and aims to make the adjustments to the methodology for calculating network operators’ tariffs as early as the start of next year. ‘The Ministry estimates that distribution companies’ permitted profits will decrease by about 40 per cent from 2020 levels in 2022 to their lowest level ever. As early as next year, companies will be able to charge customers about 350 million euros less in tariffs than the previous year. This will be reflected in the prices to customers,” Minister Lintilä states.

The annual ceiling for increases to tariffs is nearly halved from 15 per cent to 8 per cent. This limits the scale of one-off price increases for customers. These legislative changes have been prepared with particular care to ensure that the requirements of national and EU legislation are met. The new regulation have a sustained and robust legal basis. The remedial measures can be enforced quickly.

Improved cost-effectiveness of distribution network development with supervised plans
Besides keeping prices under control, the Government seeks to ensure good security of supply of electricity networks and the development of an energy system that serves the needs of the future.From now on, network operators must plan, build and maintain their grids in a way which ensures that the company delivers its service cost-effectively. Operators must compare alternative investments and consult customers during planning. The Energy Authority may order an operator to adjust its plans if the measures are not cost-effective. The legislative amendment seeks to ensure that, in addition to underground cabling, operators take all existing measures for upgrading networks, expanding capacity and improving security of supply into consideration more comprehensively.

Deadline for meeting requirements for security of supply extended until the end of 2036
The period for implementing the requirements on security of supply in electricity distribution is extended by eight years until the end of 2036, mainly for network operators in sparsely populated areas that are required to make major changes to their network structure in the 2020s. The change will effectively curb the need for price increases among 75% of all network companies with a total of 1.8 million customers. In exchange for delays in the service level, network customers receive better compensation for long blackouts.

Extending the deadline will enable the Energy Authority to begin examining the investment incentives of the regulation methods already during the current regulatory period. This also helps avoid premature investments in peripheral networks that would later prove unnecessary as alternatives to underground cabling currently under development become available for use in upgrading networks.

In addition, the legislative amendment gives consumers and energy communities the right to build direct lines across property borders to connect small-scale electricity generation to consumption point or the property’s network, without requiring the permission of the distribution network operator.

 


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