As energy prices spike, Nordics offer stability measures

By Arctic Business Journal - September 8, 2022
Finnish PM Sanna Marin (centre) lays out energy stability measures together with members of her government on 4 September (📸: Valtioneuvosto)

CONCERNS OVER THE sharp increases in energy prices seen over the past year have led Sweden and Finland to announce plans to offer financial guarantees to Nordic and Baltic power companies in an effort to prevent a financial crisis sparked by Russia’s war against Ukraine. Meanwhile, Norway and Sweden say they will work together to come up with recommendations for reducing price volatility.

The Swedish government announced on 4 September that it plans to offer 250 billion kronor (€23.4 billion) in liquidity guarantees to power companies, while Finland, in a co-ordinated measure unveiled the same day, said it will offer €10 billion to power companies.

Swedish officials said its guarantees are designed to prevent increasing collateral requirements from bringing down energy companies trading electricity on the Nasdaq Commodities Exchange. The Finnish measures, according to that country’s government, are a “last-resort financing” option for companies that would otherwise be threatened with insolvency.

Surging electricity prices have led to paper losses on electricity futures contracts of power companies, forcing them to set aside additional funds to meet exchanges’ collateral requirements. The concern in both Stockholm and Helsinki is that, should energy companies fail, the crisis could spill over to the overall financial industry.

“This [energy crisis] has had the ingredients for a kind of a Lehman Brothers of the energy industry,” Mika Lintel, the Finnish economy minister, said on 4 September according to Reuters. Mr Lintila was referring to the US-based investment bank whose September 2008 collapse led to a financial crisis that affected much of the world.

Stockholm’s guarantees for Swedish companies trading energy on the Nasdaq Commodities Exchange are set to last until March 2023. Coverage for all other Nordic and Baltic energy companies active on the exchange will be in place only for the next two weeks.

The measures come amid concerns in that the latest shutdown of the Nord Stream 1 pipeline from Russia to Germany under the Baltic Sea could lead to a further surge in prices.

Moscow says the shutdown is due to required maintenance. Western countries, however, say it is a part of the Kremlin’s strategy of cutting energy supplies as part of an effort to use higher energy prices to to drive apart Europe’s alliance against Russia.

The Kremlin denies that it is using energy as a weapon, but, regardless of the causes, Sweden and Norway, which said it did not see a need to implement financial measures of its own, now say they will establish a task force to look into what can be done to bring down power prices in the Nordic countries.

The Nordic countries have operated an electricity exchange since the 1960s and analysts reckon its prices will remain the lowest in Europe in the long term. As with elsewhere in Europe, the recent price increases are due to the war against Ukraine, but they follow on the heels of an unrelated, milder surge that began at the end of 2021, and Sweden and Norway now say they will look to closer integration as a way to reduce prices and prevent future increases. Denmark and Finland have been asked to take part in the efforts but are currently on the sidelines.

EU energy ministers are meeting today to discuss a European response to high energy prices, and the working group has said it will take its lead from Brussels. Its recommendations are expected by 28 November, when the Nordic energy ministers are slated to meet in Oslo.