Alternative Energy & Power 2019

Last Updated August 07, 2019

Finland

Law and Practice

Authors



HPP Attorneys Ltd is a leading independent Finnish corporate law firm advising domestic and international clients on their Finnish corporate legal issues. HPP is widely recognised as one of the leading Finnish law firms for advice to clients operating in the energy sector across all forms of generation, from nuclear to biomass, solar and wind. HPP’s energy & natural resources team is one of the largest in private practice in Finland. Through its extensive and regular involvement in a number of significant energy transactions, as well as its lawyers' experience of working in-house in relevant sectors, HPP’s energy team is well placed to identify the key issues – from a developer's, operator's, sponsor's or lender’s perspective – to evaluate and report on the level of risk and to propose risk mitigation solutions where possible. HPP’s energy team is complemented by lawyers from HPP’s other legal specialist teams, including M&A, banking and finance, competition, land use and regulatory, real estate and dispute resolution.

Overall responsibility for the preparation of energy regulation in Finland lies with the Ministry of Employment and the Economy, with specific authorities responsible for regulation of different parts of the energy industry.

The authorities responsible for monitoring the distribution of electricity and natural gas, and partly district heating, are as follows.

  • The Energy Authority (Act on the Energy Authority, 870/2013, https://www.finlex.fi/fi/laki/ajantasa/2013/20130870). The Energy Authority monitors compliance with the electricity market legislation and promotes the operation of competitive electricity and natural gas markets.
  • The Finnish Competition and Consumer Authority (Act on the Competition and Consumer Authority, 661/2012, https://www.finlex.fi/fi/laki/alkup/2012/20120661). The Finnish Competition and Consumer Authority (FCCA) is tasked with ensuring good and open markets and conduct in the energy markets. The Competition Division removes barriers to competition, ensuring that consumers are offered competitive alternatives.
  • The Finnish Nuclear Safety Authority (Act on the Radiation and Nuclear Safety Authority, 1069/1983, https://www.finlex.fi/fi/laki/ajantasa/1983/19831069). The Radiation and Nuclear Safety Authority (STUK) is a regulatory control authority. The supervision is based on legislation, safety regulations and guidelines related to radiation and nuclear safety.

Generation

The main sources of electricity generation are nuclear power, hydroelectric power, coal, natural gas and wood fuels. The proportion of wind power is still relatively small, but it has significantly increased in recent years.

Wind power

At the end of 2018, Finland's installed wind power capacity was 2,041 MW, which was slightly less than in 2017, as two turbines were dismantled and no new turbines were built in 2018, owing to the uncertain status of the replacement subsidy scheme to the previous Feed-in Tariff scheme. However, the production of wind power increased from 4.8 TWh to 5.8 TWh during 2018, thanks to the large amount of new capacity installed in 2017. In 2018, 7% of the energy consumption in Finland was covered by wind power. All in all, there was a total of 698 installed wind turbines in Finland at the end of 2018.

Nuclear power

There are four reactors in operation: two in southern Finland, in Loviisa, and two on the west coast, in Olkiluoto. A fifth reactor is under construction in Olkiluoto. In addition, Fennovoima is currently developing a nuclear power plant with planned capacity of 3,220 MW of thermal power and about 1,200 MW of electrical power. The plant will be built in Pyhäjoki in northern Finland and, according to the currently agreed schedule, the Hanhikivi 1 plant will enter commercial operation in 2028, although this is an amended schedule based on project delays.

Transmission

The Finnish national transmission grid is monitored and developed by Fingrid Oyj. Fingrid is responsible for system supervision, operation planning, balance service, grid maintenance, construction and development, and promotion of the electricity market. Fingrid also holds and manages most of the international connections of the national grid.

Following an ownership change, in spring 2011, the Finnish State currently owns about 53% of Fingrid and Ilmarinen Mutual Pension Insurance Company about 20%. The rest (approximately 27%) is distributed among other shareholders, which are mainly Finnish pension insurance and insurance companies.

A total of about 100 electricity grids are maintained by high-voltage distribution networks and distribution systems operators.

The transmission grid administered by Fingrid consists of approximately 14,600 km of transmission lines and nearly 120 substations.

Distribution

Finland's largest distribution system operators (DSOs) are Caruna Oy, Elenia Oy and Helen Sähköverkot Oy, which each operate within a defined regional area and are privately owned.

DSO operations are primarily regulated by the Electricity Market Act (EMA, 588/2013,  and the Finnish Electricity Market Decree (65/2009). The purpose of the EMA is to ensure the reliability of supply, competitive prices, and effective and equal service practices to end users in the electricity market. The EMA is complemented by various other sector-specific regulations. DSO-specific regulations largely derive from the relevant EU regulations, mainly the Electricity Directive (2009/72/EC).

DSO operations are supervised by the Energy Authority and require a DSO Licence issued by the EA. The licence sets out the geographical area of responsibility of the DSO and is non-transferable, although changes at the ownership level have no effect on the licence, although requiring notification of the change of control to the Energy Authority. The Energy Authority also issues interpretations and guidance if requested by the market operators or where it deems it necessary.

The Natural Gas Market Act (587/2017), which has been in force since the beginning of 2018, will open the natural gas market for competition as of the beginning of 2020. The Act also requires separation of the current monopoly Gasum Oy into companies with separate ownership bases for transmission and sales. The natural gas market is also supervised by the Energy Authority.

Supply

According to the EMA, a retailer with significant market power within the distribution system operator's responsibility must supply electricity at reasonable prices to consumers and other end users with a maximum of 3 x 63 amp, or up to 100,000 kWh, of electricity purchased per year in the electricity outlet (delivery obligation).

In line with the EU unbundling obligations, according to the EMA, any electricity company has to unbundle its grid and distribution activities from other elements of its business, such as generation and supply.

The system operator shall unbundle the following elements of the electricity grid business: (i) grid operation and distribution network activities, and (ii) distribution network activities carried out in geographically separate areas of responsibility with separate electricity distribution tariffs.

In generation, the main players are Fortum plc, a pan-Nordic producer; UPM Energy, a listed forestry company and energy producer; TVO, a public company that produces electricity at two units (OL1 and OL2) in the nuclear power plant in western Finland; and PVO, a regional electricity producer. In addition, there are a number of municipality-owned utilities that generate electricity in specific geographic regions.

At a national level, the Finnish electricity transmission grid is monitored, operated and developed by Fingrid Oyj, which is majority State-owned (see 1.1 Principal Laws Governing the Structure and Ownership of the Power Industry). The Finnish natural gas transmission grid is monitored, operated and developed by Gasum Oy.

Electricity distribution is organised on the basis of local distribution monopolies in respect of geographical areas defined by the Energy Authority. Finland's largest distribution companies are Caruna Oy, Elenia Oy, Helen Sähköverkot Oy and EPV Alueverkko Oy.

The largest electricity sales companies are Fortum Oyj, Helen Oy and Vattenfall Oy. The electricity supply market in Finland is somewhat fragmented due to the large number of municipality-owned utilities that supply electricity and heat to local end users. According to the Energy Authority’s National Report 2018 to the European Commission, most of the legally unbundled electricity retailers still belong to the same group of companies as a DSO or are owned by one or several DSOs. At the end of 2018, there were 11 fully independent electricity retailers serving about 35% of electricity retail customers in Finland.

In Finland, the Act on Monitoring of Foreigners' Corporate Acquisitions in Finland (172/2012) (the Act) provides for the monitoring of transactions and aims to restrict the transfer of influence to foreign owners in respect of key national interests. Foreigners are essentially companies or foundations domiciled outside the European Free Trade Association area (EFTA; ie, the EU member states plus Iceland, Norway, Switzerland and Liechtenstein). Indirect acquisitions via EFTA-domiciled acquisition vehicles are also potentially covered by the Act given that where a foreigner owns at least 10% of the voting rights in such EFTA-domiciled acquisition vehicle or exercises control over such EFTA-domiciled entity, the Act will apply.

Contemplated acquisitions that fall within the scope of the Act require the approval of the Ministry of Economic Affairs and Employment.

The Act applies to acquisitions of the following types of targets: (i) defence industry companies and (ii) other monitored entities, meaning companies and businesses that may be considered critical in terms of providing and maintaining functions fundamental to society due to their field of business, business operations or commitments.

The Act may therefore apply to a transaction involving grid and distribution assets. It is worth noting, however, that the guiding principle to the application of the Act is a positive one to foreign ownership. On that basis, no approval application has ever been denied and all requests for approval of foreign ownership have been granted since the initial implementation of the Act in 1992.

See 1.3 Foreign Investment Review Process. In respect of regulated distribution networks, any change of ownership in a company holding a licence from the Energy Authority needs to be notified to the Energy Authority but there is no effect on the licence holder itself.

The electricity market is regulated by the Electricity Market Act and government decrees based on the Electricity Market Act. The Energy Authority monitors compliance with the electricity market legislation and promotes the operation of competitive electricity and natural gas markets. In addition, the national transmission system operator (TSO), Fingrid, undertakes some supervisory function in terms of balancing responsibility.

Electricity network operations are a natural monopoly where the construction of competing electricity networks within a local geographic area is not commercially feasible. The Energy Authority handles applications for DSO licences, monitors compliance with DSO licences and is the supervising authority in relation to the administration of the DSO regulatory framework, including calculation of a reasonable rate of return for each DSO.

In addition to granting network licences, the task of the Energy Authority is to monitor compliance by DSOs with the obligations imposed on them by legislation and the Energy Authority’s own guidelines, such as the fulfilment of the obligation to connect qualifying generation units, reasonable pricing, ensuring that the DSO’s connection conditions and technical requirements are impartial and non-discriminatory, and that the conditions concerning the reliability and efficiency of the electricity system are being satisfied.

Under the Electricity Markets Act, the Energy Authority is responsible for monitoring DSO’s compliance with its obligation to maintain, operate and develop the DSO’s electricity system and the connections to other systems in accordance with the DSO’s customers' reasonable needs, and to secure the supply of sufficiently high-standard electricity to its customers (obligation to develop the electricity system). In addition, the Energy Authority ensures that DSOs are complying with the obligation to connect qualifying generation installations and that the connection conditions and technical requirements shall be impartial and non-discriminatory, and that they take note of the conditions concerning the reliability and efficiency of the electricity network (obligation to connect).

Premium System

On 25 June 2018, provisions on a new premium system based on a technology-neutral tender process were added to the Act on Subsidies for Electricity Produced from Renewable Energy Sources (1396/2010) (the Act). The entry into force of the new subsidy system was enacted through a ministerial decree.

The new support scheme comprises of a competitive auction process. Whilst, according to the Act, the new subsidy scheme applies to wind power, solar power, wave power, biogas and wood fuel power, the only applicants to the auction were wind power projects. Hydro power was explicitly excluded from the support scheme.

The auction process was carried out during November and December 2018 with one round, and the winners of the auction were announced in March 2019. Out of 26 bidders, seven bidders with the lowest offered premium were included in the premium scheme (as set out in the table below). The amount of support was determined for each bid separately (pay-as-bid). The average subsidy amount is EUR2.49/MWh, with the lowest approved amount being EUR1.27/MWh and the highest being EUR3.97/MWh.The winners of the auction and the offered subsidy prices are as follows (company, project, offer).

  • Kestilän Kokkonevan Tuulivoima Oy, Kestilän Kokkonevan Tuulivoima (Kestilä), EUR1.27/MWh.
  • CPC Finland Oy, Lakiakangas 3 (Isojoki and Kristiinankaupunki), EUR1.89/MWh.
  • Puhuri Oy, Parhalahti (Pyhäjoki), EUR1.89/MWh.
  • Puhuri Oy, Hankilanneva (Haapavesi), EUR2.62/MWh.
  • Kalax Vindkraft Ab/Oy, Kalax (Närpiö), EUR2.87/MWh.
  • Tuuliwatti Oy, Tuuliwatti Simo Leipiö III (Simo), EUR2.94/MWh.
  • Tuulipuisto Oy, Hirvinevan Hirvineva-Liminka (Liminka), EUR3.97/MWh.

Winners are paid the full subsidy amount if the three-month average price for electricity is below the reference price (EUR30/MWh). If the price of electricity exceeds the combined amount of the reference price and the subsidy, the approved energy producers are not paid any amount. The amount of paid subsidy varies linearly if the price of electricity is between the two aforementioned prices.

The maximum duration of the support granted to the project is 12 years. The approval into the scheme is transferrable to third parties in connection with the transfer of assets of the relevant project(s). The total annual production of the producers approved in the scheme will be 1.36 TWh if fully built out.

In line with other European markets, the relatively small capacity tendered under the premium scheme indicates that the legislative intention is that the Finnish wind industry transitions towards a market-based, subsidy-free sector that must make sense without government support. It is therefore not anticipated that any replacement subsidy scheme will be implemented for Finnish renewable energy. This is also reflected by the increasing visibility of large-scale power purchase agreements (PPAs) in the Finnish energy market.

Coal Ban

The Act on Prohibiting the use of Coal in Energy Production entered into force on 1 April 2019. According to Section 5 of the act, the use of coal as a source for electricity and heat production will be prohibited as of 1 May 2029. The act will naturally have a very significant impact on generation facilities as well as promote the growth of electricity renewable energy sources.

PPAs

Power purchase agreements have been an increasing feature of the energy sector internationally. However, they are relatively new in the Finnish market given that the renewable energy industry has been supported first by a Feed-in Tariff subsidy scheme and then a smaller premium auction scheme that was completed and announced in spring 2019. During 2018, PPAs have increased in visibility, with several announced PPAs.

In 2018, Google announced that it had entered three PPAs in respect of its Finnish data centre operations. The PPAs were made with Neoen, CPC Finland and Wpd Finland, all of which operate wind farms in Finland. The combined capacity of the new farms to be built based on Google’s PPAs is 190 MW, which will result in a 10% increase to the entire Finnish wind power capacity. The PPAs have been made for ten years, during which Google will purchase the entire production volume of the wind farms.

There are a number of ongoing PPA processes that are likely to result in further significant PPA announcements during 2019.

Government Programme

According to the government programme of the new government formed after the election of the Finnish Parliament in April 2019, which announced some ambitious intentions for acceleration of the transition to Finland becoming a clean energy market, whilst generally being relatively light on the details as to how this will be achieved in practice, did include the intention to draft a subsidy package for energy companies that abandon coal by 2025. See 1.6 Recent Material Changes in Law or Regulation regarding the coal ban.

Furthermore, the government’s intention is to end the use of oil in heat production by the beginning of 2030 and on State and municipality-owned properties by 2024. A separate package will be drafted in order to encourage the transition from oil heating to other heating methods on properties during the 2020s.

Natural Gas Market Act

The Natural Gas Market Act (587/2017) was recently reformed based on the EU’s natural gas regulation providing for the opening up of the Finnish wholesale and retail market for natural gas. Consequently, exceptions to the EU’s internal market regulation in relation to the natural gas market will no longer be applied in Finland.

The new act entered into force on 1 January 2018. However, provisions regarding the liberalisation of the natural gas market will enter into force in 2020. In Finland, Gasum Oy has the monopoly in natural gas importing, transfer and wholesale market. The new legislation requires that the company’s functions be separated by incorporating new companies in respect of different business divisions.

The intention is to schedule the reform so that it will be enforced simultaneously with the launch of the Balticconnector pipeline connecting the Finnish and Baltic natural gas networks. Currently, Finnish natural gas is mostly imported from Russia and LNG is imported into Finland by ship. The Balticconnector pipeline will enable direct access to the natural gas markets of Estonia, Latvia and Lithuania, creating new opportunities for natural gas users and investors.

On a commercial and investment level, the Finnish energy industry is proving to be a potentially interesting target sector for private investors due to the following.

  • Finland being part of a larger market with the highest energy consumption in the world, due to the long and cold winters.
  • The relatively fragmented nature of the electricity and district heating markets, due to the large number of small municipality-owned utilities. The market is ripe for consolidation, as witnessed by some recent transactions in the sector.
  • A healthy ex ante regulatory environment in the DSO market that allows for ‘reasonable rates of return’ against clearly defined metrics allowing investors to financially model their potential investment against some clearly defined assumptions with a fixed regulatory model until 2023.
  • A maturing renewables market in terms of wind that must continue to be developed in order to ensure the Finnish State achieves its emissions reduction targets and is in line with one of the most ambitious programmes for the transition to a clean energy market in the world.

The key acts on a European and domestic level that govern the Finnish wholesale electricity market are:

Nord Pool runs the leading power market in Europe, including in the Nordic region. There, contracts are made between the seller and buyer for the delivery of power the following day, the price is set and the trade is agreed.

The day-ahead market at Nord Pool is an auction-based exchange for the trading of prompt physically delivered electricity. Finland is a defined geographic region subject to its own area price for the purposes of Nord Pool trading.

Imports and exports of electricity are permitted. Energy is traded mainly on Nord Pool, which provides pricing for electricity sales in the Finnish price area, although delivery may be from outside the Finnish price area.

Finland’s main grid is part of the synchronous inter-Nordic system, which includes the transmission grids of Sweden, Norway and eastern Denmark, in addition to Finland. The Nordic system is interconnected with other countries through several direct current (DC) transmission connections. There are a number of DC connections to western Denmark (Jutland) from Sweden, Norway and Eastern Denmark. DC connections run from Sweden to Germany, Poland and Lithuania. There is a DC connection from Norway to the Netherlands, and from Finland to Estonia and Russia.

Finland’s main grid is connected to the Swedish grid via two 400 kV alternating current (AC) connections in northern Finland. Finland also has a 220 kV AC connection to Norway. In addition to the AC connections, DC links have also been built: Fenno-Skan 1 from Rauma (400 MW) to Dannebo, Sweden, and Fenno-Skan 2 (800 MW) from Rauma to Finnböle, Sweden. There is a 100 MW DC connection from Naantali to the Åland Islands that is owned and operated by Kraftnät Åland.

The Russian and Estonian grids do not have AC connections with the Nordic grid. Finland and Estonia are connected by the DC links Estlink 1 (350 MW) and EstLink 2 (650 MW). There are three 400 kV transmission links from Finland to Vyborg, Russia. Russia and Finland are also connected by 110 kV connections from Ivalo and Imatra in Finland. These enable the connection of hydropower plants in Russia to the Finnish grid.

It should be noted that electricity transmission between Finland and Sweden is among the most congested in Europe. The import of electricity from Sweden has steadily increased in recent years, and in the past few years, sufficient cross-border transmission capacity has been available to the electricity market for around only half of the time. In order to resolve this issue, on 23 August 2017, Fingrid and Svenska kraftnät signed an agreement concerning the realisation principles for a new connection. The project was placed on the European Commission’s Projects of Common Interest (PCI) list on 23 November 2017. Relevant environmental impact assessments (EIAs) are ongoing and Fingrid and Svenska kraftnät will make decisions on detailed further planning and construction after the environmental impact assessments have been completed. Construction of the transmission line is expected to last two to three years. In addition to the transmission line, the project will include substation expansions as well as one series-compensator in Finland and one series-compensator in Sweden. The common goal of Fingrid and Svenska kraftnät is to have the transmission line connection in use by the end of 2025.

The supply mix for electricity in Finland in 2018 was:

  • nuclear power 32.0%;
  • hydro 19.0%;
  • biomass 19.0%;
  • coal 9.0%;
  • wind 9.0%;
  • natural gas 6.0%;
  • peat 5.0%;
  • waste 1.0%;
  • oil 0.3%; and
  • solar 0.2%.

A total of 47% was renewable energy, a total of 79% was carbon neutral and a total of 53% was domestic.

Not applicable.

The Energy Authority monitors compliance with applicable electricity market legislation and promotes the operation of competitive electricity and natural gas markets.

The Energy Authority is responsible for supervising the wholesale energy market in accordance with the applicable investigative and enforcement powers of REMIT regulation (EU 1227/2011). According to the REMIT regulation, the Energy Authority may conduct an investigation (or a dawn raid) if it detects abuses in the wholesale energy market.

The Finnish Competition and Consumer Authority (FCCA) monitors compliance with competition law by actors in the energy market (948/2011) and with the competition articles of the Treaty on the Functioning of the European Union.

The Consumer Ombudsman, under the jurisdiction of the FCCA, is also involved in ensuring that the prices charged by DSOs to end users for transmission services are reasonable and may negotiate with DSOs to persuade them to reduce planned price increases in the interests of consumers.

FCCA may, if necessary, conduct a dawn raid to investigate potentially anti-competitive behaviour, including potential cartel investigation.

The Finnish Parliament has accepted an act prohibiting the use of coal in energy production in 2029. The Act on Prohibiting the use of Coal in Energy Production entered into force on 1 April 2019. Furthermore, the Finnish government will prepare an incentives package, amounting to EUR90 million, for district heating companies that commit to phasing out coal use by 2025.

The incentives package, designed for cities that phase out coal by 2025, will support investments in energy technologies to replace coal. Half of the package will be reserved for renewable combined heat and power (CHP) generation, and the other half for other, new technologies needed in the conversion from coal. Support to renewable CHP will also help to ensure a sufficient level of electricity production capacity in peak load conditions. The incentives package will comply with EU state aid rules.

See 3.1 Principal Climate Change Laws and/or Policies.

The relatively small capacity tendered under the recent premium auction scheme indicates that, in line with other European markets, the legislative intention is that the Finnish wind industry is transitioning towards a market-based, subsidy-free sector that must make sense without government support. It is therefore not anticipated that any replacement subsidy scheme will be implemented for Finnish renewable energy. This is also reflected by the increasing visibility of large-scale PPAs in the Finnish energy market. However, the government’s programme for the forthcoming elective term, announced in May 2019, identified areas in which the government intends to provide support packages to encourage conduct that reduces carbon emissions (such as an incentives package, amounting to EUR90 million, for district heating companies that commit to phasing out coal use by 2025, as discussed above).

Power plants of at least one megavolt ampere (1 MVA) must be registered with the Energy Authority, which maintains a register of such power plants. New planned infrastructure to be commissioned, changes in production capacity and decommissioning of power plants needs must also be notified.

The Energy Authority relies on the power plant register, for example, for evaluating peak load capacity during winter periods in Finland. The power plant register is based on the Finnish Electricity Market Act 588/2013 and related Decree 65/2009. The Energy Authority does not verify the validity of the information given by producers.

In addition, normal land use, planning and environmental legislation (such as that concerning the need for an environmental impact assessment) must also be complied with in the development and construction of power plants of all types.

The principal law that governs the construction and operation of nuclear power plants is the Nuclear Energy Act 990/1987  (in English).

The construction of wind power plants is subject primarily to the same provisions as for other construction. The implementation of large wind turbines should in principle be based on the Finnish Real Estate Code (540/1995). This means that areas suitable for wind power construction are defined in the land use plan or planning decision and the potential need for environmental impact assessments should be considered.

A building permit is required for the construction of a generation facility (Land Use and Building Act (132/1999)). In order to obtain the permit, an EIA process must usually be conducted separately in relation to the project, if it meets the criteria of the Act on the Environmental Impact Assessment Procedure (252/2017).

In addition, most projects require a valid land use plan. In Finland, municipalities have a monopoly in land use planning, and the public’s right to participate is a key element in the land use plan process. Meetings with the officials and locals are arranged during the process, and local residents, organisations and authorities also have the right to submit objections regarding the plans. Furthermore, the EIA is an integral part of the land use planning process. The intention of the EIA process is to assess different alternatives and their impacts on the environment before carrying out the project.

As a rule of thumb, for wind power projects under planning, an EIA is required for projects with a planned capacity in excess of 30 MW.

See 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities.

In order to obtain a building permit for a generation facility, one should have ownership or right of possession based on a land lease agreement. No expiration rights can be admitted. Compensation is usually agreed by bilateral agreements.

According to the Land Use and Building Act (132/1999), the owner or the possessor of the property is obliged to allow the construction of a cable in an area owned or controlled by it unless the investment can otherwise be arranged in a satisfactory manner at reasonable cost.

If one does not have ownership or right of possession, an expropriation permit can be obtained, if the general need so requires (Act on the Expropriation of Immovable Property and Special Rights 603/1977). The permit is applied for from the National Land Survey, if the matter is not opposed or it is related to a less important expropriation in terms of the public or private interest.

When a valid expropriation permit has been granted, the expropriation will be executed by the National Land Survey in a specific expropriation procedure where the exact areas and compensations payable will be determined. The compensation to be paid is calculated by using Finnish National Land Survey Authority’s market price statistics.  An expropriation permit decision issued by the National Land Survey can be appealed to the Administrative Court.

The design of a nuclear facility shall provide for the facility’s decommissioning (Nuclear Energy Act 990/1987 – Section 7 g – Decommissioning), with an obligation to keep the related decommissioning plan up to date. When the operation of a nuclear facility has been terminated, the facility shall be decommissioned in accordance with a plan approved by the Radiation and Nuclear Safety Authority. Dismantling the facility and other measures taken for the decommissioning of the facility may not be postponed without due cause.

Regarding wind power, decommissioning of the plant is generally something that is agreed between the owner of the property and the developer. In some lease agreements, decommissioning bonds are agreed. Bonds are still relatively rare and normally only required as part of the senior debt package.

The general application of law obliges a tenant, upon the termination of a lease agreement, to restore the land to its original condition if nothing else has been agreed. In addition, if a user of a land area has caused any contamination to such land area, the user will remain liable for remediation and clean-up costs for a period of ten years after the event that caused the contamination, meaning that an energy producer causing contamination will remain liable even after the decommissioning of the relevant power plant or termination of a lease agreement.

There is no specific legislation or legal practice concerning funding of decommissioning, although in most projects undertaken based on land leased on a long-term basis, the provisions of the Real Estate Code require the tenant to restore the land to its original condition at the expiry of the lease term.

Grid operations are a natural monopoly where the construction of competing electrical power networks is not feasible in regard to the national economy. In electricity market legislation, grid operations have been regulated as operations subject to a licence from the Energy Authority.

In addition to granting network licences, the task of the Energy Authority is to monitor compliance by system operators with their regulatory obligations.

The Finnish transmission grid is monitored and developed by Fingrid Oyj. The same company holds most of the international connections to the Finnish grid. Fingrid is responsible for the functioning of the Finnish electricity transmission grid at the national level. The transmission grid administered by Fingrid encompasses approximately 14,600 km of transmission lines and nearly 120 substations.

On a regional level, local DSOs also need to obtain and comply with a grid operator’s licence from the Energy Authority. A permit from the Energy Authority is required to build a high-voltage power grid. A permit is required for wires, boundary lines and connecting lines with a nominal voltage of at least 110 kV per grid or high-voltage distribution grid. However, no permit or licence is required for the construction of an internal electricity line for the property or its corresponding real estate unit. For lines with a voltage of less than 110 kV, no permit is required.

A grid licence is granted if the applicant fulfils the technical, financial and organisational requirements concerning the electricity grid in accordance with the licence application. The grid licence is granted permanently until either revoked or given up by the grid operator, or, for a specific reason, for a limited period.

The Energy Authority must inform the European Commission of the licence granted to the TSO, Fingrid, but not regional DSO licences.

A licence from the Energy Authority is required to build a high-voltage power grid. A licence is required for wires, boundary lines and connecting lines with a nominal voltage of at least 110 kV per grid or high-voltage distribution grid. However, no permit is required for the construction of an internal electricity line for the property or its corresponding real estate unit.

The relevant licence must be obtained before the construction of a power supply. The project licence is valid for five years from the final result of the decision and construction of the relevant infrastructure must be completed within this period.

A project licence from the Ministry of Employment and the Economy must be applied for cross-border power lines with nominal voltage of 110 kV or more.

Compensation is usually agreed in easement or rights of use agreements between the landowner and constructor of the generation facility. In cases where agreement is not possible, it is possible to use an expropriation procedure to secure the right to place cables and other infrastructure on or under the surface of relevant land areas. The expropriation procedure almost always grants the necessary use rights.

Fingrid has a national monopoly in respect of the main national grid transmission services (in Finnish, kantaverkko).

The principal law regarding the provision of transmission service and the regulation of transmission charges and terms of service is the Electricity Market Act (available only in Finnish). The application of and compliance by DSOs in providing transmission products and services is monitored by the Energy Authority.

According to the EMA, Fingrid and DSOs must offer the services of their electricity grid to parties on the electricity market in a fair and non-discriminatory manner. There must be no unfair or restrictive terms of competition in the provision of services. The Energy Authority also monitors the prices of electricity transmission during four-year periods, although retrospectively at the end of such four-year regulatory period and not during it. After each monitoring period, the Energy Authority issues decisions regarding all grid companies obliging the companies to return any potential overcharge to clients through amended pricing applicable during the next regulatory period. According to the Act on the Supervision of the Electricity and Natural Gas Market (590/2013), the Energy Authority’s decisions regarding electricity pricing may be appealed to the Market Court.

A transmission entity must provide transmission service to all parties that request transmission service provided that they meet the technical requirements for doing so and pay the relevant fees on the principle of open and non-discriminatory access to the grid.

DSO operations are primarily regulated by the EMA (Electricity Market Act, 588/2013) and the Finnish Electricity Market Decree (65/2009). The EMA is complemented by various other sector-specific regulations. DSO-specific regulations largely derive from the relevant EU regulations, mainly the Electricity Directive (2009/72/EC). DSO operations are supervised by the Energy Authority (EA).

DSO operations require a DSO Licence issued by the EA. The licence sets out the geographical area of responsibility of the DSO and is non-transferable, although changes at the ownership level of the DSO will have no effect on the licence. The Energy Authority also issues interpretations and guidance if requested by the market operators or where it deems it necessary.

The EMA was designed to improve the security of electricity supply and overall quality of DSO customer service, including quality of service during major weather-related and other disturbances, and to encourage a high level of security of supply and technical quality of the network. As a result, DSOs are increasingly constructing lines and cables underground rather than overhead in order to minimise disruption caused by high winds, snow and ice. Financial incentives as well as penalties for long periods of outage are administered by the Energy Authority.

In addition, DSOs are subject to the unbundling requirements imposed at an EU-wide level and implemented in the EA.

The distribution system operator has the exclusive right to build a distribution network within its area of responsibility as set out in the DSO licence issued by the Energy Authority.

In recent years, there has been a trend towards more frequent formal and informal discussions between the DSOs and the Energy Authority; for example, regarding the preparation of new reasonable return methodology for future regulatory periods, in order to reduce the number of appeals by DSOs and build better relationships with them.

Compensation is usually agreed in easement or rights of use agreements between the landowner and constructor of the generation facility. In cases where agreement is not possible, it is possible to use an expropriation procedure to secure the right to place cables and other infrastructure on or under the surface of relevant land areas. The expropriation procedure almost always grants the necessary use rights against a fixed compensation calculated according to a formula set out in the Act on the Expropriation of Immovable Property and Special Rights (603/1977).

DSOs are assigned a geographic area of responsibility, where the DSO has the exclusive right to build a distribution network. According to the general requirements set out in the EMA, the DSO must comply with its statutory obligations on a non-discriminatory basis and treat its customers, electricity suppliers and other electricity market participants in an equal and non-discriminatory manner. Consequently, transfer prices are fixed within the DSO’s area of responsibility. The DSO is also required to apply similar terms and conditions, and to offer its network services to all its customers on an equal basis; to arrange its customer services in a manner that secures non-discriminatory and equal treatment of its customers, electricity suppliers and other market participants; and to ensure that its third-party service providers also commit to non-discriminatory practices as part of the provision of services relating to the DSO’s operations.

DSO Licences are granted by the Energy Authority upon application by a DSO prior to the construction of its distribution network.

The principal law that governs the provision of electric distribution service and regulation of electric distribution system charges and terms of service is the Electricity Market Act 588/2013 (, available only in Finnish).

In accordance with the EMA, the Energy Authority regulates reasonableness of pricing (turnover) in four-year regulatory periods. The methodology for the four-year regulatory periods 2016-19 and 2020-23 have been fixed. The current model is a revenue cap, ex ante model in which a reasonable rate of return is calculated at the expiry of the four-year regulatory period by comparing the reasonable rate of return (using weighted average cost of capital and regulated asset base calculations) to the actual adjusted net profit for the relevant four-year period. If the calculation of reasonableness of pricing concludes any overcharging of customers, this is adjusted through the pricing for the following four-year regulatory period.

DSOs set their own tariffs; however, they must be cost-reflective. Tariffs must be set in an impartial and non-discriminatory manner, and presented to customers in a clear and understandable way.

The regulatory calculations also take into account five incentives when calculating reasonable rate of return:

  • efficiency incentive;
  • innovation incentive;
  • investment incentive;
  • quality incentive; and
  • security of supply incentive.

The incentives are designed to encourage investment in network infrastructure and to encourage quality and security of supply.

According to the EMA, a DSO must offer services to parties on the electricity market in a fair and non-discriminatory manner. There must be no unfair or restrictive terms of competition in the provisions of services. Therefore, many DSOs use the market standard terms for connection and distribution agreements drafted by Finnish Energy, which is a private sector organisation that represents approximately 260 companies that produce, acquire, transmit and sell electricity, district heat and district cooling as well as offer related services. Finnish Energy is responsible for the management of collective labour agreements for the personnel of its member companies, and it provides advice and training for its members, conducts studies and disseminates information.

It should also be noted that electricity sales to customers must comply with other general legislation that is applicable to sales of goods and services to consumers, such as the Consumer Protection Act (38/1978 as amended). The FCCA supervises the application of the Act and the Consumer Ombudsman has been involved in negotiations with DSOs, most publicly when Caruna proposed a significant price increase for transmission charges of up to 30% in March 2016, which resulted in an agreed settlement between the FCCA and Caruna in which Caruna agreed not to increase prices as drastically and quickly, but to even them out over a longer period.

HPP Attorneys Ltd

Bulevardi 1 A
FI-00100 HELSINKI
Finland

+358 45 657 5758

andrew.cotton@hpp.fi www.hpp.fi
Author Business Card

Law and Practice

Authors



HPP Attorneys Ltd is a leading independent Finnish corporate law firm advising domestic and international clients on their Finnish corporate legal issues. HPP is widely recognised as one of the leading Finnish law firms for advice to clients operating in the energy sector across all forms of generation, from nuclear to biomass, solar and wind. HPP’s energy & natural resources team is one of the largest in private practice in Finland. Through its extensive and regular involvement in a number of significant energy transactions, as well as its lawyers' experience of working in-house in relevant sectors, HPP’s energy team is well placed to identify the key issues – from a developer's, operator's, sponsor's or lender’s perspective – to evaluate and report on the level of risk and to propose risk mitigation solutions where possible. HPP’s energy team is complemented by lawyers from HPP’s other legal specialist teams, including M&A, banking and finance, competition, land use and regulatory, real estate and dispute resolution.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.