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Electricity market forecast: Price will triple by winter, but crash next spring

Olkiluoto 3 and new wind turbines are expected to bring Finland electricity self-sufficiency for the first time in decades.

Electricity prices are forecasted to increase by three-fold come the final months of the year, but crash next spring. Image: Ilkka Kemppinen / Yle

Electricity price forecasts for the coming winter are starting to become more accurate.

Prices will peak in the final months of the year. By then, even the average three-month price will reach almost 50 cents per kilowatt-hour. The most expensive price periods are likely to be much more expensive than the average.

The price of electricity is difficult to forecast, but the best and only public information about the coming prices is found in futures trading of the electricity exchange.

Futures are the prices at which major electricity sellers and buyers have agreed to trade in advance. This provides the market's current view of what the "right price" for electricity will be in the future.

Much of the electricity produced is sold in advance, said Risto Kuusi, a senior expert at grid operating firm Fingrid.

"We have not seen this kind of pricing in the electricity market before, but we have not had a war like this in Europe for a long time," Kuusi said.

Cross-border price fluctuations

There are many reasons for the price rises but Kuusi pointed to gas as the most important.

"I would say the single most important factor is the way the very high price of natural gas has affected the overall price of electricity in Europe," Kuusi added.

For example, in Germany, the price of electricity doubled for October, justified by a 450 percent increase in the purchase price of natural gas.

Because Finland and the greater Nordic electricity market is increasingly connected and tied into Europe's market, price fluctuations are felt across borders.

The price of electricity will rise in Finland, especially before the commissioning of the nuclear reactor Olkiluoto 3 and wind turbines expected to be completed at the end of the year.

"As long as we are a net importer of electricity, the price level of neighbouring countries will be reflected in us as well. When fossil fuels are needed in Finland for domestic electricity production or as part of imported electricity, the increase in the price of fossil fuels is also reflected in the price of electricity for us," Kuusi reasoned.

Energy self-sufficiency

While the last months of this year will see the price increase dramatically, it is expected to plummet in a similar fashion in spring.

For the past 54 years, Finland has imported more electricity than it produces, but Kuusi pointed out that this may change in the coming year.

Due to Olkiluoto 3 and the new wind turbines, Finland's domestic electricity production is increasing so much that next year is expected to be Finland's first year of self-sufficiency since the 1960s.

This turnaround is particularly significant as the import of electricity from Russia ceased in May.

"Russian imports were quite significant. It accounted for a tenth of consumption on a cold winter day," Kuusi specified.

Kuusi summed up the electricity market by saying that a variety of factors will impact price this winter.

"In the end, the prices will be affected by whether it will be cold in winter, how much wind there will be, whether the power plants will break down, whether the transmission connections will work, what will be the balance of demand and supply in the neighbouring countries," Kuusi clarified.