Finland Needs 64% Power Price Jump to Secure Russia Imports

Finnish electricity prices need to rise by 64 percent from last year’s average to attract imports from Russia after flows into the Nordic country slumped to the lowest level since 1997, an academic said.

Prices above 60 euros ($78) a megawatt-hour for a period of at least four hours would encourage flows from Finland’s eastern neighbor, Satu Viljainen, a professor of power markets at Lappeenranta University of Technology, said on March 22 in a phone interview from Lappeenranta, Finland. Wholesale prices averaged 36.64 euros a megawatt-hour last year on the Nord Pool Spot AS exchange in Oslo and delivery for tomorrow settled at 45.47 euros.

Finland is a net importer of electricity and foreign purchases surged 25 percent last year to a record 21 percent of demand, according to data from the country’s Energy Industries Association. Imports via cables from the west fluctuate as Sweden and Norway’s output from hydro power plants, which accounts for more than half of the region’s supply, is intermittent.

“Traders should prepare for low power shipments from Russia into Finland in the future, except for periods when the Finnish power price really soars,” Viljainen said. “Nothing indicates a return to the situation from 1981 through 2011, when Finland bought large baseload electricity volumes from Russia, both night and day.”

Power imports from Russia dropped 59 percent last year to 4.4 terawatt-hours from a year earlier, the lowest since 1997, according to data from the energy association.

Capacity Tariff

High-voltage links were from 1981 through 2011 used to ship as much as 1,400 megawatts of power around the clock from Russia to Finland, according to data from Fingrid Oyj, the nation’s network manager, based in Helsinki.

Russia levies a capacity tariff of about 25 euros a megawatt-hour on power exports at times of peak demand, according to an estimate by Lappeenranta University, the only Finnish research institute to publish an estimate for the charge.

The levy was introduced in 2006 to secure revenues for owners and builders of power-plants. It’s hurting Russian power export monopoly OAO Inter Rao UES (IRAO)’s ability to compete with Nordic generators as shipping power abroad gets more expensive.

“The Russian government’s power-plant investment plan means new stations will supersede old units and get even higher payments, pushing the capacity tariff up to 34 euros a megawatt- hour by 2015 according to our estimate,” Viljainen said. “This will further severely restrict Finnish power imports from Russia, with no end in sight.”

Viacheslav Leonov, a spokesman at Inter Rao in Moscow, wasn’t available to comment on March 22.

To contact the reporter on this story: Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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