Electricity Stakeholders Do Not Benefit from Significant Price Fluctuations

The CEO of energy firm Fortum, Markus Rauramo, has announced that the company has no current plans to invest in new energy production in the Nordic countries. He made this statement during Fortum’s recent earnings call.

Rauramo explained that the current market for electricity in the Nordic region is oversupplied, therefore there is no immediate need for new power generation capacity. This situation is reflected in the present Nordic futures prices, which stand at around 40 euros per megawatt hour.

Rauramo also noted that the production of wind and solar power is not currently profitable due to the fact that they are not fetching returns at their full market price.

According to the CEO, the Nordic electricity market is functioning as intended. He stated that the extreme price fluctuations are not due to a dysfunctional market, but rather a result of an imbalance in supply and demand, as well as insufficient capacity, particularly during peak price periods. He attributed this to an increased reliance on inconsistent wind power and a decrease in steady and flexible production. This has led to extreme price fluctuations, even resulting in negative prices on windy days and occasional production stops.

Rauramo further highlighted that wind power production is not always reliable as it is dependent on the presence of wind. He referred to recent instances where electricity prices on the stock exchange were extremely high, amounting to an average of 900 euros per megawatt hour.

In relation to the current market situation, Rauramo stated, “At this time, there is no need for additional capacity. However, the current strong price fluctuation does not benefit electricity producers, sellers, or consumers.”

He suggested that as more sectors such as heating, transport, and industrial companies look to reduce emissions through electrification, there will be an increased demand for electricity. This would require a re-evaluation of the current market model and a societal discussion on creating incentives for basic and flexible electricity production investments to ensure a balanced energy system.

Planning for an 800-megawatt investment pipeline

Despite not planning any immediate investments, Rauramo revealed that Fortum is preparing a pipeline of new production investments for future implementation in response to anticipated increased electricity consumption due to electrification. The company aims to establish an investment pipeline capable of producing over 800 megawatts by the end of 2026. This pipeline will primarily consist of renewable energy production, specifically onshore wind power and solar power.

In terms of steady or flexible electricity production investments, Rauramo called for a broader societal conversation beyond Fortum’s operations in Finland and Sweden. He cited Fortum’s minority-owned Kemijoki’s plan for a new pumped-storage power plant as an example.

Rauramo also revealed that Fortum is conducting a two-year research project into the potential of developing new nuclear power in Finland and Sweden, which began in the fall of 2022. The company plans to form its stance on the matter upon the study’s completion.

On Wednesday, Fortum released its financial statements and results for the period of October to December of the previous year. The company’s comparable results were weaker than analysts had projected, largely due to lower electricity prices compared to the same period in the previous year and a loss in district heating production and the Meri-Pori condensing power plant.

Following the announcement, Fortum’s shares saw a significant decline on the Helsinki Stock Exchange on Wednesday.