Insights

05/12/2016

Finnish Climate and Energy Strategy 2030 released

On 24 November, the Finnish Government released its Climate and Energy Strategy for 2030. The new strategy was especially awaited by the power producers from renewables who are eager to know what the future holds for them after the current feed-in tariff regime. The strategy confirms that a new technology neutral operating subsidy scheme for promoting investments in power generation from renewables will be put in place based on competitive tendering process. 

The strategy still remains silent on details of the new subsidy scheme, but it targets an increase of 2 TWh of additional production from renewables in Finland by early 2020. This can be converted to roughly 600–800 MW of additional capacity. The target is rather modest given that there are already 6 TWh of almost fully permitted wind power projects in the development pipeline, but the new subsidy scheme will offer a second opportunity for the most cost-efficient and competitive projects. 

What is the purpose?

Finland is committed to increase the share of renewables of final energy consumption to over 50 per cent by 2030 and to reach total carbon neutrality in 2050. The new strategy proposes concrete measures in order to achieve those goals. Amongst other things, the Finnish government envisages that a further interim subsidy scheme is still required to incentivise electricity production from renewable sources to achieve Finland's targets for the renewables for 2030. The new subsidy scheme must be cost-efficient and technology neutral. 

Competitive tendering process will be arranged during 2018–2020 on the basis of which operating subsidy will be granted to selected renewables projects. The current feed-in tariff subsidy scheme will no longer be available for wind power projects, but the projects that have already been approved to the current feed-in tariff system remain unaffected.

The long-term target of the Finnish Government is that investments in renewables sector are made without any public incentive mechanisms once the renewables technologies have matured.

Only the most cost-efficient and competitive projects will receive subsidy

The new operating subsidy will be paid only to the most cost-efficient and competitive renewables production investments that will be decided on the basis of a competitive tendering process. The details on the tendering process are still unknown and the strategy remains silent on, among others, how many times auctions will be arranged, how the premium payable for the selected project will be determined and for how long the premium will be paid.

However, it is now confirmed that the auctions will be arranged during 2018–2020 and the selected projects are expected to be in production early after 2020. After that the Finnish government will again reassess the need for additional subsidy schemes to reach its targets. 

Based on past experience from the current feed-in tariff subsidy scheme, the new operating subsidy will not be granted in the form of a price guarantee, but rather as a fixed or flexible premium that can be adjusted on the basis of the electricity market price and the emission allowance price, or possibly a combination thereof. 

A working group appointed by the Ministry of Employment and the Economy have previously stated that a fixed premium would be the best by means of functionality of the electricity markets and that it would also improve the predictability of the amounts that need to be reserved from the state budget for the subsidy scheme (for further information about the outcomes of the working group, please also visit krogerus.com/feed-in-tariff-is-closing).

Some conclusions can perhaps be made from the Finnish Government's estimate that around MEUR 278 (MEUR 13 in 2020 and MEUR 265 in 2021–2030) of public funding is required for the new subsidy scheme in case the electricity price assumptions set out in the white paper prove to be accurate. As no final decisions have yet been made, the exact form and amount of the subsidy remains to be seen.

Technology neutrality

The new subsidy scheme will be open for all power generation projects from renewable sources. However, according to the Finnish Government the health effects of wind power need to be thoroughly studied before wind power projects may be admitted to the new system, which is a result of ongoing political debate in Finland about the alleged, but unconfirmed, health effects of wind power projects. In addition, inclusion of small scaled wood fuelled CHP plants to the new subsidy scheme will be separately investigated by the Finnish Government. 

What happens next?

The more detailed preparatory work on the new subsidy scheme now continues on the basis of the released strategy, including assessment of alleged health effects of wind power. It is expected that the new strategy will have an effect on at least the Finnish wind power market and requires that the market participants re-assess their position in the market.