Alternative Energy & Power 2021

Last Updated July 20, 2021

Finland

Law and Practice

Authors



HPP Attorneys Ltd is a leading independent Finnish corporate law firm advising both domestic and international clients on their Finnish corporate legal issues, with a tier 1 energy and natural resources team. HPP advises clients operating across all forms of generation from nuclear to biomass to solar to wind. The energy and natural resources team is one of the largest in private practice in Finland and is well placed to identify the key issues, from a developer, operator, sponsor 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 one of the most active and experienced energy law teams in the Finnish legal market and 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 to handle a full caseload of energy-related assignments.

Overall responsibility for the preparation of energy regulation in Finland lies with the Ministry of Economic Affairs and Employment, 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 for district heating, are as follows. Unless otherwise stated throughout this chapter, there are no English versions available.

Generation

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

Wind Power

At the end of 2020, Finland's installed wind power capacity was 2,585 MW. Statistics by Finnish Energy show that wind power production, once again, set a new record for annual production during 2020 at 7.8 TWh.

In 2020, wind power’s share of the total electricity production was 11.8% compared to 9.1% in 2019. During 2020, 67 new wind turbines were installed, making the total number of installed wind turbines 821 at the end of 2020. There are several projects which are scheduled to start production during 2021 and in the following years. Further significant growth is therefore both possible and anticipated.        

Nuclear Power

There are four reactors in operation: two in southern Finland, in Loviisa, and two on the west coast, in Olkiluoto. Another reactor is under construction in Olkiluoto which has been the subject of very significant delays and a dispute with the French multi-national building contractor, Areva, which was finally settled in May 2021. According to the World Nuclear Industry report, it is estimated that the full cost of building the reactor will be about EUR11 billion – almost four times the delivery price of EUR3 billion. According to the developer, TVO, thanks to the settlement with Areva, the cost to TVO will only be EUR5.7 billion. It is now estimated that the reactor will enter commercial production in February 2022.

In addition, Fennovoima is currently planning a nuclear power plant with a 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; according to the currently agreed schedule, it is estimated that the plant will enter commercial operation in 2029, although this is an amended schedule based on project delays.

Transmission

The Finnish national electricity 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 53.1% of Fingrid and Ilmarinen Mutual Pension Insurance Company around 20%. The rest (approximately 27%) is distributed among other shareholders, which are mainly Finnish pension insurance and insurance companies.

A total of approximately 100 electricity grids are maintained by high-voltage distribution networks and distribution systems operators. The transmission grid administered by Fingrid consists of 14,600 km of transmission lines and in the region of 120 substations.

The Natural Gas Market Act (587/2017), which has been in force since the beginning of 2018, resulted in opening of the natural gas market for competition as of the beginning of 2020. Among other things, the Natural Gas Market Act resulted in unbundling of the operations of Gasum Oy, which formerly held a monopoly in the Finnish wholesale gas market. Gasum continues to operate as a wholesale market participant on the free market but its transmission operations have been handed over to Gasgrid Finland Oy.

The natural gas market is also supervised by the Energy Authority.

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 (588/2013) and the Electricity Market Decree (65/2009). The purpose of the Electricity Market Act is to ensure the reliability of supply, competitive prices, and effective and equal service practices to end users in the electricity market. The Electricity Market Act 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)– English version available.

DSO operations are supervised by the Energy Authority and require a DSO licence issued by the Energy Authority. The licence sets out the geographical area of responsibility of the DSO and is non-transferable. Changes at the ownership level have no effect on the licence, although require 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.

Supply

According to the Electricity Market Act, 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 Electricity Market Act, 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 must unbundle the following elements of the electricity grid business:

  • grid operation and distribution network activities; and
  • distribution network activities carried out in geographically separate areas of responsibility with separate electricity distribution tariffs.

Generation Facilities

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 in the nuclear power plant in western Finland (with a third unit expected to come onstream in February 2022); 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).

Distribution Facilities

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.

Electricity Sales

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 as well as a number of more recent entrants to the market (such as Enerfit, the sales division of the Estonian utility Eesti Energia) offering consumers electricity from renewable sources. Whilst the report for 2020 is not yet available, according to the Energy Authority’s 2019 National Report to the European Commission, a total of 48 DSOs were legally unbundled. 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.

Even though the exact market share of individual retailers is not available, the Energy Authority has estimated that seven retailers have a share of the retail market in excess of 5% and five retailers have more than 5% of the electricity customer base. The market share of the three largest retailers for small and medium-sized customers has been estimated to be between 40% and 45%.

Gas Sales

As part of the opening up of the Finnish natural gas market which has deregulated the import of natural gas, the previous monopoly operator Gasum, has now unbundled the transmission part of its business by the formation of a gas TSO, Gasgrid Finland Oy, a fully state-owned company. Gasum is still one of the main players in the Finnish natural gas market but new major market participants – such as industrial players Stora Enso Oyj and Metsä Board Oyj, as well as municipality-owned utilities such as Helen Oy – have emerged alongside it since the opening of the market. From 1 January 2020, Finland, Estonia and Latvia are part of the same gas market area.

The Balticconnector pipeline between Finland and Estonia, which was completed one month early and commissioned on 11 December 2019, will diversify the sourcing of gas supplies and further improve domestic Finnish energy security, which has previously relied almost entirely on natural gas imports from Russia (although small amounts of biogas produced in Finland are also transmitted via the gas network). Finland is the largest gas market in the market area, consuming 23 TWh, followed by Latvia at 13 TWh and Estonia at 5 TWh.

The Act on Monitoring of Foreigners' Corporate Acquisitions (172/2012), the main legislative instrument governing the monitoring of foreign corporate investments in Finland, has been in force since 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. The Act was amended in 2020 to meet the requirements of EU regulation (2019/452), which provides a framework for the screening of foreign direct investment by non-EU investors. The scope of the Act was amended primarily to also cover services related to societal security. The other amendments concerned mainly the application of the Act in practice and the implementation of the co-operation mechanism between member states required by EU regulation.

According to the Act, foreigners are essentially entities domiciled outside the EU or the European Free Trade Association Area. EFTA (ie, the UK, Iceland, Norway, Switzerland and Liechtenstein). Indirect acquisitions via EU or 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 EU or EFTA-domiciled acquisition vehicle or exercises control over such EU or EFTA-domiciled entity, the Act will apply.

Ministry Approvals

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: defence industry companies; companies providing services related to societal security to authorities; and 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 in terms of 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 predecessor of the Act in 1992.

Real Estate Investments

In 2019, a legislation package concerning foreign real estate investments was introduced. As of the beginning of 2020, direct real estate acquisitions by foreign investors are also monitored and require a permit. The Ministry of Defence may deny the permit if the target property is located in an area considered strategic to national defence, territorial integrity, border control, border security or security of supply.

The state may also use its redemption right or right of first refusal if the property is located in an area considered strategic to national defence, border control, security of supply, etc. It should be noted, however, that the permit requirement does not apply to indirect acquisitions of real estate, which are effected by, for example, acquisition of shares in an entity owning real estate.

See 1.3 Foreign Investment Review Process. In respect of regulated distribution networks, a notification must be made of any change of ownership in a company holding a licence from 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.

Compliance

In addition to granting network licences, the task of the Energy Authority is to monitor DSOs’ compliance 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).

Guarantees of Origin Act Reform

The Act on Certification and Notification of the Origin of Electricity is currently being amended. According to the current act, guarantees of origin (GoOs) are granted to electricity produced by renewable energy sources such as wind or solar energy. According to the government proposal, the Act will be amended so that, in addition to electricity, GoOs will be granted also to gas, hydrogen, heating and cooling produced by renewable energy sources. In addition, GoOs will be granted in respect of electricity, heating and cooling produced by nuclear energy.

Natural Gas Market Act Reform

The Finnish Natural Gas Market Act was reformed in 2017 which, among other things, means that the Finnish gas market has been deregulated and is now open for competition from 1 January 2020. As a result, the operations of Gasum Oy, which formerly held a monopoly in the Finnish wholesale gas market, have been unbundled. Transmission operations have been handed over to Gasgrid Finland Oy, a new TSO for the natural gas market. Gasgrid Finland is responsible for the transmission system and for offering transmission services to market participants.

In addition to the opening of the gas market, the Balticconnector gas pipeline between Finland and Estonia was commissioned on 11 December 2019, earlier than originally estimated. The pipeline connects Finland to Baltic and European gas markets which improves the reliability of regional gas supply and creates new trading opportunities at the same time as reducing Finland’s reliance on gas imports from Russia.

Power Exchange Operator Market Opening

The market for power exchange platforms was opened for competition which has ended the long-standing regional monopoly of Nord Pool as the sole power exchange operator.

As a result of this change, the Nordics have become the second area in Europe (after Central Europe) to allow competition between power exchange operators and EPEX SPOT has entered the market alongside Nord Pool. However, Nord Pool still continues to be the market leader on the Finnish power exchange 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 from 1 May 2029. The Act will naturally have a very significant impact on generation facilities as well as promoting the growth of electricity renewable energy sources.

PPAs

After the feed-in tariff subsidy scheme was effectively closed to new participants in 2017, the Energy Authority held a competitive auction through which seven new projects were accepted in a premium-based support scheme. After this, no more auctions are expected to be held, which means that new wind power projects will have to be developed and operated on market terms.

Since 2018, corporate power purchase agreements (PPAs) have been the hottest topic in the Finnish renewables market. For some time, PPAs were more a subject of interest rather than a reality, but during 2019 and 2020 there have been a number of PPAs signed in the Finnish market. The first Finnish PPA was announced by TuuliWatti in 2018. Since then there have been a number of completed PPA processes:

  • Fortum has entered into a PPA with Taaleri for the Finnish wind farms in Taaleri’s portfolio;
  • Google has signed PPAs with Neoen/Prokon, CPC Finland, Ilmatar and wpd Finland;
  • Fortum and Neste entered into a PPA for the Kalax wind farm in Närpiö;
  • AXPO entered into a PPA concerning the Storbacken and Kröpuln wind parks constructed and operated by OX2; and
  • ABO Wind recently entered into a PPA with Gasum concerning Kestilän Kokoneva wind park and Neste signed a PPA with Ilmatar.

Since new projects will have to be market-based and the best option to fund new projects on market-based terms is the use of PPAs, the flow of new PPAs is expected to continue. With the increased awareness of climate change and Finland being home to a large number of large industrial companies and a growing number of data centres with high electricity consumption, the PPA market is expected to grow significantly over the next few years. Alongside physical PPAs, financial or virtual PPAs are increasingly seen as a sensible hedging instrument for new wind farms which will most likely result in the growing use of such agreements.

Project finance banks have already become more comfortable providing construction finance based on PPAs, particularly on the basis of "as produced" PPAs. If large off-takers continue to enter into PPAs, the PPA-market is likely to also eventually attract smaller off-takers who have the need for energy and the desire to be viewed as climate-friendly. This may also result in the increased use of aggregators to connect smaller producers with smaller off-takers.

Government Programme

The 2019 Government Programme states that Finland will become carbon-neutral by the year 2035 and carbon-negative shortly after that. It also states that Finland aims to become the first fossil-free welfare state in the world by replacing the fossil-fuel based production of electricity and heat with fossil-free options by the year 2030.

To achieve these goals, big efforts to support the transition towards renewable sources of energy are needed. A support scheme for projects accelerating the replacement of coal in energy production has already been announced (see 3.2 Principal Laws and/or Policies Relating to the Early Retirement of Carbon-Based Generation). In addition, the government is planning to remove some of the administrative, zoning-related and other barriers to offshore wind power construction and to undertake general reform of energy taxation at a rapid pace.

Energy Tax Reform and Removal of Wind Power Barriers

The Ministry of Finance established a working group to prepare amendments to energy tax legislation based on the environmental objectives of the Government Programme. Based on the report of the working group, tax on fuels meant for heating, power plants and working machinery was increased in 2021, and the tax refund scheme for energy intensive enterprises will be gradually wound down between 2021 and 2024.

With a very shallow nearshore sea depth, the Baltic Sea and the Finnish coast would be an attractive location for the development and operation of offshore wind farms. However, one of the biggest barriers to offshore wind development has been the relatively high tax burden which would face offshore wind developers given that the size of offshore wind farms will be significantly larger than their onshore counterparts. As a result of the need for more sturdy foundations, the resulting real estate tax for an offshore wind park in Finland would be approximately three times that of a similar-sized onshore wind park.

As part of the energy taxation reform and the removal of administrative and zoning-related barriers contemplated by the 2019 Government Programme, conditions for the construction of offshore wind power plants will be improved and real estate tax relief is expected to be provided for offshore wind farms, with the aim of improving their economic viability to encourage further development of the offshore sector.

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; and
  • 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, the Nordic region included. The day-ahead and intraday markets at Nord Pool are auction-based exchanges 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.

The market for power trading operators has been opened for competition which has ended the long-standing regional monopoly of Nord Pool as the sole power exchange operator (see 1.6 Recent Material Changes in Law or Regulation). For the time being, Nord Pool is still the market leader on the electricity exchange market in Finland.

Nord Pool

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 interconnected 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, and 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.

Finland and Estonia

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.

Transmission between Finland and Sweden

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 only around half of the time. In order to resolve this issue, Fingrid and Svenska Kraftnät, the Swedish transmission system operator, are preparing a new transmission line from Pyhäselkä in Muhos via Keminmaa to Messaure in Sweden.

The 400 kV cross-border AC connection is scheduled to be completed in 2025. The project has been included on the European Commission’s list of Projects of Common Interest (PCI). As part of the PCI procedure, the Finnish and Swedish TSOs submitted investment requests to their respective energy authorities.

On 12 March 2020 the Finnish Energy Authority and the Swedish Energy Market Inspectorate issued decisions on the project’s cost allocation. Since Finland will benefit the most from the project, Fingrid shall be fully responsible for the investments that take place in Finland and for 80% of the investments on the Swedish side of the border.

The supply mix for electricity production in Finland in 2020 was:

  • nuclear power – 33.9%;
  • hydro – 23.7%;
  • biomass – 15.3%;
  • wind – 11.8%;
  • natural gas – 5.8%;
  • coal – 4.4%;
  • peat – 3.3%;
  • waste – 1.1%;
  • solar – 0.4%; and
  • oil – 0.3%.

A total of 51% was renewable energy, a total of 85% was carbon-neutral and a total of 55% was domestic.

This is not applicable in this jurisdiction.

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 energy market participants’ compliance with the Competition Act (948/2011) and the competition articles of the Treaty on the Functioning of the European Union is monitored by the FCCA.

The Consumer Ombudsman, under the jurisdiction of the FCCA, is also involved in ensuring that the prices charged by DSOs from 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. The FCCA may, if necessary, conduct a dawn raid to investigate potentially anti-competitive behaviour, including potential cartel investigation.

The 2019 Government Programme states that Finland will become carbon-neutral by the year 2035 and carbon-negative shortly after that. It also states that Finland aims to become the first fossil-free welfare state in the world by replacing the fossil-fuel-based production of electricity and heat with fossil-free options by the year 2030.

The Climate Change Act (609/2015) is the main legislative instrument governing the prevention of climate change. The process of amending the Climate Change Act is currently underway.

The Climate Change Act is a framework legislation and is directly applicable only to authorities. For specific provisions relating to the energy sector, see 3.2 Principal Laws and/or Policies Relating to the Early Retirement of Carbon-Based Generation and 3.3 Principal Laws and/or Policies to Encourage the Development of Alternative Energy Sources.

The Act on Prohibiting the Use of Coal in Energy Production (419/2019) entered into force on 1 April 2019. The Act prohibits the use of coal in energy production starting in May 2029. Furthermore, the Finnish government has prepared an incentives package for energy producers that commit to phasing out coal use by 2025. According to the Government Decree on Investment Aid for Projects Accelerating the Replacement of Coal in Energy Production for the Years 2020-2025 (129/2020), such producers may receive investment support for projects which contribute to energy savings or the production or use of renewable energy.

The budget for the year 2021 is EUR30 million.

After the feed-in tariff subsidy scheme was effectively closed to new participants in 2017, the Energy Authority held a competitive auction through which seven new wind power projects were accepted in a premium-based support scheme. After this, no more auctions are expected to be held, which means that new wind power projects will have to be developed and operated subsidy-free on market-based terms.

According to the Government Decree on the General Terms and Conditions of Granting of Energy Aid for the Years 2018–2022 (1098/2017), so-called "energy aid" may be granted to projects which contribute to the production or use of renewable energy, energy savings or optimisation or otherwise contribute to the transition towards a low-carbon energy system. Typical projects eligible to receive energy aid include solar power, small-scale wind power, biogas and small-scale hydro power projects.

Energy aid is also granted for large-scale demonstration projects which demonstrate new technology. For 2021, categories for demonstration support are:

  • renewable transport fuels;
  • other than burning-based heat production; and
  • other large-scale demonstration projects for new energy technology.

The budget for such aid for the year 2021 is EUR60 million.

Power plants of at least 1 MVA (one megavolt ampere) 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 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 Electricity Market Act and the related Electricity Market 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 and building permits) must also be complied with in the development and construction of power plants of all types.

Nuclear and Wind Power

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

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 Land Use and Building Act (132/1999). This means that areas suitable for wind power construction are defined in the land use plan which allows granting of a building permit or and the potential need for environmental impact assessments should be considered early in the planning process.

According to the Land Use and Building Act (132/1999), a building permit is required for the construction of a generation facility. In order to obtain the permit, an environmental impact assessment (EIA) process must be separately conducted in relation to the project, if it meets the criteria of the Act on the Environmental Impact Assessment Procedure (252/2017). All projects consisting of ten or more turbines or with a nominal capacity exceeding 45 MWs require an EIA, but smaller projects may also require an EIA if the environmental impacts are deemed likely to be significant.

In addition, most projects require a valid land use plan which allows for granting of a building permit. 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.

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. Compensation is usually agreed on 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 a reasonable cost.

According to the Act on the Expropriation of Immovable Property and Special Rights (603/1977), if one does not have ownership or right of possession, an expropriation permit can be obtained, if the general need so requires. The application authority for the permit is 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 the 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 the market price statistics of the National Land Survey. An expropriation permit decision issued by the National Land Survey can be appealed in the Administrative Court.

The design of a nuclear facility must 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 STUK. 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 on which the wind farm is located and the project owner. In some lease agreements, decommissioning bonds are required although bonds are still relatively rare and rarely required as part of the senior debt package.

Real Estate

The general application of real estate law obliges a tenant, upon the termination of a lease agreement, to restore the land to its original condition if nothing has been specifically agreed in the lease agreement. 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, 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. Further, for activities requiring an environmental permit the obligation of decommissioning and rehabilitation of the operation site stems from the permit regulations.

The operator must comply with the permit regulations, which can concern, among other things, rehabilitation of the land areas, closure of possible waste areas as well as long-term monitoring of the impacts on environment.

There is no specific legislation 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 (540/1995) 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 with 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 electricity grid is monitored and developed by Fingrid Oyj which also 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 14,600 km of transmission lines and in the region of 120 substations.

On a regional level, local DSOs also need to obtain and comply with a DSO 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 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 is required for the construction of an internal electricity grid even if it exceeds 110 kV

The relevant permit must be obtained before the construction of a power grid. The project licence is valid for five years from date of the decision, and construction of the relevant infrastructure must be completed within this period.

The Ministry of Economic Affairs and Employment is the relevant permit authority for cross-border high-voltage power lines with nominal voltage of 110 kV or more.

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

The compensation is, on a general level, determined following the principle of full compensation, meaning that the compensation is calculated based on the actual land prices of the areas. However, it is very common to enter into a voluntary agreement regarding the compensation payment between the parties.

Fingrid has a national monopoly in respect of the main national grid transmission services. On a regional level, local DSOs have the monopoly right to construct and operate the grid for the geographic area defined in the DSO license granted to such DSO by the Energy Authority.

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

According to the Electricity Market Act, 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 services to all parties that request transmission service, provided that they meet the technical requirements for such service and pay the relevant fees on the principle of open and non-discriminatory access to the grid.

DSO operations are primarily regulated by the Electricity Market Act and the Electricity Market Decree. The Electricity Market Act is complemented by various other sector-specific regulations. DSO-specific regulations largely derive from the relevant EU regulations, mainly the Electricity Directive. DSO operations are supervised by the Energy Authority.

DSO operations require a DSO licence issued by the Energy Authority. 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 if it deems it necessary.

The Electricity Market Act 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 for innovation, investment into and proper maintenance of the grid 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 by the Energy Authority.

The DSO 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 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 reached, 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 Electricity Market Act, 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; 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.

In accordance with the Electricity Market Act, 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. The reasonableness assessment for the regulatory period 2016–19 was conducted in 2020.

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 Electricity Market Act, a DSO must offer services to electricity market participants 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). 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

Trends and Developments


Authors



HPP Attorneys Ltd is a leading independent Finnish corporate law firm advising both domestic and international clients on their Finnish corporate legal issues, with a tier 1 energy and natural resources team. HPP advises clients operating across all forms of generation from nuclear to biomass to solar to wind. The energy and natural resources team is one of the largest in private practice in Finland and is well placed to identify the key issues, from a developer, operator, sponsor 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 one of the most active and experienced energy law teams in the Finnish legal market and 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 to handle a full caseload of energy-related assignments.

As the Finnish energy market has accelerated the transition to renewable energy sources, the energy market has been characterised by a number of trends seen in other, more mature renewables markets. Additionally, there have been country-specific developments which reflect Finland’s position not only as a major consumer of power, but also its specific geographic and climatic conditions which affect the development of certain types of energy projects.

Private Power Purchase Agreements Fuelling Sponsor Interest

In keeping with other European markets, Finnish energy projects no longer enjoy the support of any subsidy scheme, which has made securing a long-term power purchase agreement (PPA) an important factor in Finnish renewable project development – this in order for developers to provide a solid financial and operational model to better attract international sponsors and investors.

The first announcement as to a merchant project without any subsidy support was in May 2018, when Finnish developer TuuliWatti Oy announced their decision to build a 21 MW project in the municipality of Ii in western Finland without any government support. This preceded the last subsidy scheme when a technology-neutral auction was launched in November 2018, with only wind projects tendering, with seven projects securing premium tariffs, with a total planned capacity of 1.4 TWh.

Even prior to the announcement of the results of the auction, there has been a significant acceleration in the market for corporate PPAs. Since the first significant announcement made in September 2018 in relation to Google’s PPA tender process for 190 MW of production, which was won by three wind farms, there was a steady increase in signed PPAs during 2019. This increased during 2020 and (to date) in 2021, the most significant PPAs being as follows:

  • Neste Oyj, the Finnish renewable fuels company, signing a long-term power purchase agreement with local developer Ilmatar for an annual volume of approximately 200 GWh, representing some 17% of the electricity consumption at Neste’s refinery in Porvoo (announced June 2021);
  • Taaleri Energy’s two 15-year PPAs with major Finnish utility, Suomen Voima, with an annual volume of 400 GWh from the upcoming Posio and Siikajoki wind farms (announced June 2021);
  • Statkraft and Finnish public pension provider Keva into a PPA with an annual delivery of approximately 53 GWh in the period 2023 to 2032 (announced April 2021);
  • French utility Neoen signing a 126 MW power purchase PPA with a consortium formed by Heineken, Philips, Signify and Nouryon from Finnish renewables project in Mutkalampi, co-developed by German developer Prokon (announced December 2020);
  • German renewable energy developer ABO Wind’s ten-year PPA with local gas distribution system operator Gasum Oy concerning a ten-year utility PPA regarding an annual volume of approximately 100 GWh of electricity generated by the planned 40 MW wind farm Kestilän Kokkoneva;
  • wpd Finland signing a 15-year PPA with major Finnish retail group, K Group, for over 40 GWh of renewable energy annually (announced June 2020).

There are a number of ongoing PPA processes in the market, with PPA activity levels undoubtedly at the highest level in the Finnish energy sector’s history. The availability of major domestic off-takers keen to be seen to be actively pursuing a greener agenda should ensure that projects can continue to be financed on a merchant basis; foreign sponsors and lenders are likewise keen to invest in a stable renewable energy market and into renewable energy projects with secure, predictable cash flows.

Solar PV Starts to Shine

Whilst there has been some low-level activity in the solar PV sector for a number of years, particularly around solar panels installed in private homes and off-grid industrial power sources, solar PV generation projects which have actually been developed – mainly by the local utilities – cannot be said to have been at an industrial scale or the production at any material level. At the end of 2019, installed solar power capacity connected to the grid in Finland was 198 MW which produced 178.1 GWh of electricity, which was estimated to grow to approximately 300 MW by the end of 2020. This is clearly a very low level compared to more mature solar PV markets.

However, with the advances in and decreased cost of solar PV panel technology, as well as energy storage solutions, it appears that this is now changing, with a number of solar PV projects currently under consideration and development. Business Finland, a government-funded agency designed to encourage foreign direct investment into growth markets in Finland, published a Solar Cluster Study in the first quarter of 2021, which assessed Finland’s strengths and weaknesses in developing a viable solar PV market. The conclusion was that Finland was an attractive market for growth of solar PV with strong local technological solutions and service providers, but with a need to form a more collaborative solar cluster to stimulate foreign direct investment into Finnish growth areas such as large-scale solar PV installations for industrial usage.

HPP Attorneys is also seeing a growth in instructions from foreign solar PV developers who are starting to analyse specific potential project sites and local co-development partners for the execution of solar PV projects. Time will tell whether this translates into large-scale viable solar PV projects getting financed and built.

Hybrid Plants and Infrastructure Sharing

One noticeable development in renewables project planning and development is the increasing willingness of developers to collaborate by contrasting and operating shared infrastructure, allowing projects located close to each other to take advantage of sharing the costs of permitting, constructing and operating infrastructure which benefits both projects. It may be that this is an increasing feature of the Finnish market for a couple of reasons.

Firstly, it is a sign of a maturing market with developers and sponsors getting more comfortable with both the legal and regulatory framework around project development, as well as a group of reputable developers committed to the Finnish market gaining more trust in each other as counterparties to such infrastructure-sharing arrangements.

Secondly, it may also be a sign that, with projects necessarily located in more remote locations – due to the concern about noise and "shadow flicker impact" on local residents – the distances to grid connection points are quite long in some cases, encouraging a more co-operative approach to cost-sharing to make projects even more financially viable than a fully-owned model.

From a legal perspective, developers and sponsors should consider the impact of Finnish insolvency laws on securing the right to access shared infrastructure early on in the discussions with potential partners concerning infrastructure-sharing arrangements to ensure that the commercial terms agreed can be turned into a legal framework which is bankable for the purposes of securing senior construction finance. In our experience, failure to do so early enough in the process can often lead to subsequent complexity in the agreement structure, and associated delay and cost in undoing or refining structures for the sharing of project infrastructure which do not meet the requirements of the major lenders active in the Nordic renewables market.

Offshore Wind: the Next Wave

In a similar way to the solar PV sector, for several years there has been speculation that the offshore wind market could be about to experience a significant acceleration in projects under development. According to a recent Mergermarket article, the Finnish state-owned forestry and land management company, Metsähallitus – which also manages the nearshore areas along the Finnish coastline – has mandated EY to run a process to find an investor for one of Finland’s first commercial offshore wind projects, the 1.4 GW Korsnäs project, off the west coast of Finland. The total project value is currently estimated at between EUR1.5 billion and EUR2 billion, with the commissioning due to take place by 2028 at the earliest. In November 2020, Metsähallitus submitted their first planning proposal for an offshore wind farm to the municipality of Korsnäs. The proposal was accepted and project development is now underway.

If successful, it is anticipated that this project may be the first of many offshore wind projects, reflecting specific work undertaken to make Finnish offshore wind more attractive by reducing the real estate tax burden on operational projects, although the Commission is currently considering state-aid aspects of the proposed reduction of real estate tax for offshore wind projects.

List of Critical Foreign Workers Now Includes Maintenance Workers

Quite early in the COVID-19 pandemic, the Ministry of Economic Affairs and Employment updated the list of tasks that are essential from the point of view of security of supply or critical to the operations of the sector in question. The update meant that workers from outside Finland who are required to travel to Finland to undertake essential maintenance tasks for the operation of energy plants have a strong chance of being deemed to be undertaking essential work and to be granted entry accordingly. However, the list is only a guideline and the Border Guard has the final decision-making authority. The Finnish Wind Power Association has prepared a document for its members to help explain to the authorities why it is crucial for certain workers to enter Finland during a period of COVID-19 restrictions. The Border Guard also has a similar form which is less detailed.

In the current climate, foreign developers or service providers who are arranging maintenance work at Finnish project sites at the current time should consider providing one of these forms to their contracted maintenance provider to give them the best chance of ensuring their maintenance employees are permitted entry to Finland.

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 both domestic and international clients on their Finnish corporate legal issues, with a tier 1 energy and natural resources team. HPP advises clients operating across all forms of generation from nuclear to biomass to solar to wind. The energy and natural resources team is one of the largest in private practice in Finland and is well placed to identify the key issues, from a developer, operator, sponsor 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 one of the most active and experienced energy law teams in the Finnish legal market and 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 to handle a full caseload of energy-related assignments.

Trends and Development

Authors



HPP Attorneys Ltd is a leading independent Finnish corporate law firm advising both domestic and international clients on their Finnish corporate legal issues, with a tier 1 energy and natural resources team. HPP advises clients operating across all forms of generation from nuclear to biomass to solar to wind. The energy and natural resources team is one of the largest in private practice in Finland and is well placed to identify the key issues, from a developer, operator, sponsor 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 one of the most active and experienced energy law teams in the Finnish legal market and 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 to handle a full caseload of energy-related assignments.

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.