Finland is undergoing a revolution in electricity production as society strives towards renewable and low-emission energy production.
Traditional fossil fuel power plants are closing in the south of Finland, while an increasing share of electricity is produced by wind power, mainly on the west coast and in the north. However, most of the country’s electricity demand has remained in the growth centres in the south, so electricity needs to be
transmitted over long distances. This is piling the pressure on the power transmission grid.
“The power system has undergone a rapid transformation, and the grid cannot keep up unless we take action,” says Petri Parviainen, Unit Manager, Main Grid Services, at Fingrid.
New wind power is growing at a rate of more than 1,000 megawatts per year, which is a significant addition to a system the size of Finland’s. Fingrid is building and reinforcing the transmission network: investments of EUR 4 billion are already planned.
But other methods are needed. Therefore, Fingrid is planning changes to connection fees and main grid service fees collected from network users in the hope of utilising the network more efficiently.
In addition to the fee for direct connections to the main grid, a regional power-based tariff is planned to be introduced on the “user pays” principle. In other words, there would be an additional charge for increasing the production in a production-heavy region or increasing consumption in a consumption-heavy region.
Fee depends on the location of production and consumption
Parviainen emphasises that the primary objective of the reform is to allocate the power-based tariff on the “user pays” principle to the new customers whose connections increase costs and the pressure for investments in the main grid.
“In addition, the reform could influence the choice of connection point for those customers who have more leeway in choosing a connection point,” he adds.
The primary objective of the reform is to allocate the power-based tariff on the “user pays” principle to the new customers whose connections increase costs and the pressure for investments in the main grid.
Another proposed reform is the introduction of a flexible main grid service. The reformed model is intended for existing customers and new customers who can be flexible in pre-agreed circumstances. It would thereby support transmission management in the main grid.
“A fixed rebate will be paid in return for being flexible. The rebate will be linked to the customer’s consumption fee or the power plant’s power-based fee. The flexible main grid service would be well suited to facilities such as electric boilers, which are rapidly becoming more common,” says Laura Ihamäki, Customer Manager at Fingrid.
As a third reform, Fingrid proposes implementing flexible connections also as a permanent solution. Temporary flexible connections are already in use, but the proposal calls for them to be permanently available in return for financial remuneration.
The above proposals are still in the preparation stage. Fingrid is conducting an impact assessment on the connection fee reform, with the results to be presented at a stakeholder event in December.
In addition, Fingrid has decided to introduce a power-based fee for grid energy storage systems in the middle of next year. The Energy Authority’s approval is required before this fee can be introduced.
Concerns about transmission network congestion bring people together
EPV Energy produces, sources, and transmits electrical energy. It operates Finland’s largest regional high-voltage network and is the third largest wind power producer in the country.
EPV is concerned about the rapid change in the power system’s operating environment and congestion in electricity transmission.
“Wind power and renewable hydro power are isolated in areas where the natural conditions enable production. Conversely, consumption is focused on urban centres,” says Pia Oesch, Public Relations Manager at EPV.
“It is good that the transmission system operator is considering how to manage electricity transmission as the circumstances change and how to develop transmission capabilities. We consider this very necessary and important.”
EPV is concerned that the planned actions will not be enough to resolve the challenges. For large projects, the megawatt investment costs can be around EUR 1 million, and an additional surcharge of EUR 20,000 is a drop in the ocean against the total cost of ownership.
“However, the reform of the grid service fees can be a partial solution under which the costs of system reinforcement are collected on the ‘user pays’ principle,” Oesch says.
EPV estimates that the connection surcharge for renewable electricity production will dent the profitability of smaller projects and, in the worst cases, slow a positive trend in energy production.
Flexible main grid service is an interesting opportunity
Metsä Group has several production plants throughout Finland that consume and produce energy.
“Consumption and production are always linked, and we cannot influence the fees levied on us,” says Pirita Mikkanen, Vice President, Energy at Metsä Group.
Metsä Group’s views align with EPV: both agree that the connection fee reform is likely to have a very small steering effect in relation to the high costs of the hydrogen economy.
“The ‘user pays’ principle makes sense. For a company like Metsä Group, the reform will hopefully have only a minor effect,” Mikkanen says.
Metsä Group is interested in the possibility of supporting the power system in pre-agreed circumstances by being flexible with its electricity consumption. Under the proposed model, a fixed rebate will be paid in return for flexibility. The rebate will be linked to the customer’s consumption fee or power-based tariff.
“Many of our electrical loads are too slow for the reserve market. However, if we receive notice of the need for flexibility in advance, we can organise our production activities and reduce consumption, for example, when there is shortage of electricity production in the grid and temperatures are very low,” Mikkanen explains.
Tariff reforms implemented in Denmark
The fees for connecting to Denmark’s power grid were reformed in January 2023. New producers were not previously charged connection fees. Instead, the costs were covered by general grid fees paid by consumers.
The new model includes two different connection fees. The first fee is a standard fee that covers the cost of the producer connecting to the grid. The second connection fee depends on the geographical location of the production plant, i.e., whether there is already a lot of production in the area.
“Connecting new production units to existing production surplus areas is expensive because it leads to major construction costs in the transmission network,” says David Hartz at Energinet,
Denmark’s transmission system operator. The developers of new production plants were naturally unhappy with the additional charges, although some admitted it was fair to introduce connection fees.
“Consumers, on the other hand, were happy with the fairer distribution of costs between the different user groups,” Hartz mentions.
He notes that it is still too early to draw conclusions on whether the geographical incentive will encourage new production plants to locate in consumption areas. Many other factors influence producers’ business decisions, such as land prices and planning permits.
“In any case, the new connection fees will at least ensure that producers pay a larger share of the costs of expanding the transmission network,” says Hartz.
