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Coping with Continuous Change – The Transformation of the Electricity Market in Finland and Estonia

The past year has brought unprecedented changes to the energy market, including significant price increases, the introduction of Datahub and the threat of electricity shortages. The war in Ukraine, the increase in consumption following the corona epidemic and the dry weather have pushed up prices, which has increased the interest of end customers to tender the electricity contracts. Government measures to control consumer prices and the introduction of Datahub will benefit end users, but the changes they bring to energy companies will be challenging and will require a lot of resources, as companies will have to make significant changes to their contract and billing solutions.

Survival strategy

Coping with the changes puts a lot of pressure on energy companies, regardless of whether the company is big or small – all energy companies must respond to the required changes quickly and cost-effectively. In a hectic market, a knowledgeable partner is able to respond flexibly and rapidly to any changes decided by states and energy companies, so that the customer does not have to worry about changes in billing and customer data systems. During the changes, a reliable, agile and value-added partner is indispensable to the energy company.

Changes in the Finnish Electricity Market

Parliament decided to reduce the VAT on electricity from 24% to 10% from the beginning of December to the end of April 2023, which will cause major changes in the invoicing of energy companies and the products to be invoiced. The increase in energy prices which began at the end of last year, has kept prices at a high level, although the latest forecasts suggest that prices will fall. However, strong price fluctuations in the energy markets appear to have come to stay. Large fluctuations in energy prices encourage the end customer to change their consumption behaviour and concentrate their energy consumption at times when the price of electricity on the exchange is lower. The consumer will be always informed the previous afternoon for the Spot-prices for the electricity for the following day, when these are published, e.g., in Fingrid’s Hourly rate mobile app and on the websites of most electricity companies.

The implementation of Datahub, the centralised information exchange system for the electricity retail market, is another major change in the Finnish electricity market. And the introduction of its next version at the beginning of next year will bring more for change. Datahub 2.0 enables the expansion of energy communities and the harmonisation of billing. On the other hand, Datahub 2.0 almost forces the small producer to net and profit, so that the energy community, which is also a consumer and a producer, cannot take advantage of its own fixed-term electricity sales contract and the fluctuation of the spot price. Control of consumption, energy storage and the transition to spot pricing are the only opportunities for energy communities to benefit significantly from their own production. All of this, however, requires investment, which increases the payback period. The introduction of Datahub 2.0 calls for significant changes to the energy companies’ back-end systems in order to support, for example, 15-minute metering and energy communities. Datahub 2.0 enables the development of completely new kinds of services for end customers. With the help of an expert partner, energy companies can start to develop new business models dexterously in a changing market situation.

Situation in Estonia

When Finland decided to support final consumers by lowering the VAT on electricity, Estonia came up with a different solution. In Estonia, the state will reimburse private households up to 5 cents per kilowatt-hour of the average monthly price of electricity, excluding VAT, for the amount exceeding 8 cents per kilowatt-hour. This is estimated to reduce the price of electricity paid by the consumer by about 21%. This change is also temporary and valid from October to the end of March 2023. For energy companies, this means significant changes in billing and contract solutions.

Another means of curbing the rise in electricity prices introduced in Estonia is the establishment of a universal service by the Estonian state, which will allow the purchase of electricity at a regulated price for the next four years. The service is made possible by the electricity market reform, whereby the state obliged Eesti Energia to sell electricity as a universal service to Estonian households, to some business customers and to all electricity distributors from the autumn onwards. Other electricity sellers can also offer their customers a universal service, in which case they have the right to buy the electricity they need from the State-owned electricity producer. The universal service is basically an electricity package joining to which is optional. The price of electricity to the end user is based on the production price agreed with the Estonian Competition Authority, to which the reasonable profit of the electricity producer and the sales costs of the electricity seller are added. For the end customer, the change is easy, but energy companies must again make changes to their contract and billing solutions, because, for example, if the customer’s current electricity contract is more expensive than the universal service, the energy company will automatically change the customer’s contract to a cheaper option.

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