Can Finland`s competitive, decentralized power supply system be copied by other countries?

Douglas J. Smith

Managing Editor

Although Finland has little indigenous fuels and an energy-intensive industry, the country`s energy costs are below those of its European colleagues. Today, in real terms, the prices for electricity are half of what they were in the early 1970s. Because Finland`s energy market is so important, no one electric power supply company has been allowed to gain a monopoly.

State-owned power companies and industrial companies are the major generators of electricity in Finland. Currently, there are approximately 370 power stations owned by 130 generating companies and electric utilities. Finland has 120 distribution companies, two-thirds of which are owned by municipalities. The rest are owned by industrial companies or private individuals. Unlike other state-owned utilities, Finland`s state-owned electric power companies are given no special privileges, rights or benefits and must compete equally with the private sector.

In addition to owning and operating their own cogeneration plants, Finnish industrial companies have also established separate electric power companies that have built and are operating large fossil and nuclear power plants. Finland`s manufacturing companies supply 70 percent of their own electricity needs.

A unique feature of the Finnish electricity system is that electricity prices are not regulated. Each electric utility company sets its own prices independently, and all electric sales tariffs are made public. Electric supply companies are also responsible for their own economic well-being. However, none of the companies are responsible for the adequacy of Finland`s electric system. Any of the country`s electric power companies can construct a new power plant of less than 250 MW, or a transmission line, once the company shows it is technically qualified.

All are interconnected, regardless of who owns the generation, transmission or distribution equipment and lines. All generating companies have the right to use the county`s electric network system. These rights are specified in bilateral contracts between the transmission and generating companies. Like the sales tariffs, the service tariffs, are also public and are set individually by the transmission companies. However, the transmission companies have no franchise areas, and, in some instances, an area is served by more than one transmission line.

Naturally, in this type of competitive environment, companies must operate efficiently and reliably; otherwise, they will be out of business in no time. Load factors for Finland`s nuclear power plants are among the highest in the world, and the availabilities of their coal- and gas-fired plants are some of the world`s best, so the system must be working. By challenging companies to come up with innovative solutions, the Finnish system has not only benefited the consumers, but it has also allowed the companies to be profitable.

Can other countries do the same as Finland? I think so, but only if government and the private sector cooperate fully.