The price of electricity is set in a power exchange where electricity producers and suppliers place their bids based on forecasts. When supply and demand bids meet, it creates the market price or so-called spot price for electricity, which varies hourly based on supply and demand.
Consumers in Finland can shop around for lower electrical energy rates, which make up about a third of the electricity bill.
Consumers pay local distribution companies for grid use
The so-called electricity network service fee covers costs associated with grid maintenance, repair, and modernisation, and the construction of new network infrastructure. An electricity network is a system that transmits and distributes electrical energy from suppliers to consumers.
Finnish consumers cannot choose the network service rate they pay; they must buy the service from the local distribution company. The network service fee makes up a third of the overall price of electricity.
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Electricity tax consists of energy tax and strategic stockpile fee
The electricity tax covers the remaining third of the electricity bill. It consists of an energy tax and a strategic stockpile fee that enables keeping the National Emergency Supply Agency operational. The agency is tasked with guaranteeing the availability of electricity during disruptions and emergencies. In addition to the electricity tax, a value-added tax of 25.5 per cent is levied on the total price of electricity.
The electricity tax is divided into two categories. The higher tax category I is for households, agriculture, the public sector, and service providers such as retail stores, hotels, and restaurants. The lower, state-subsidised category II is for industry, data centres, professional greenhouse cultivation, mining, heat pumps and electric boilers that generate heat for the district heating network, and circulating pumps of geothermal heating plants.
Solar and wind power may lower electricity prices permanently
The most significant reason for electricity price fluctuations is an imbalance between supply and demand. Consumption peaks usually occur in the morning and early evening, and that is when electricity is at its most expensive. In contrast, at night and on weekends, the price of electricity decreases along with consumption.
The availability of renewable electricity varies depending on weather conditions. Long-term storage technologies for electricity are in the works in order to even out price fluctuations. Consumption peaks currently require relying on more expensive forms of energy generation, such as fossil fuels, which raises the price of electricity.
Electricity produced with renewable energy, such as solar and wind power, may lower the price of electricity permanently in the future. This hinges on more advanced and less costly storage technologies for weather-dependent energy sources, making them more appealing to investors.
LUT University provides research-based information on energy
- LUT is a leading university in energy research. Every other year, it publishes a report called the LUT Energy Outlook. The first one was published in 2022 and the second one in 2024.
- The LUT Energy Outlook is based on scientific research and provides reliable information on the state and development trends of the energy system. In addition, the report describes different energy production methods.
- The authors of the report are energy system researchers at LUT University.
- The LUT Energy Outlook is targeted for experts and decision-makers as well as regular citizens.
Low-cost renewable electricity provides the Nordics a competitive edge
Finland is part of the common European electricity market and has excellent transmission connections to the other Nordic countries and to the Baltic states. This affects the electricity price by enabling the unlimited cross-border transmission of electricity, increasing competition, and helping balance demand and supply.
Finland was long dependent on imported electricity, but the increase of nuclear and wind power in recent years has made the country self-sufficient in this respect.
Electrification and electricity consumption in society will increase in the future. Electrification provides Finland a competitive edge, because sustainability and supply security are at a high level in Finnish electricity generation.
Finland's geographic location is advantageous for producing low-cost renewable electricity and creating competitive industry around it.
