Öresundsverket. Coal power plant in Malmö, Sweden.
Photo: Unsplash

4. Effects of demand reduction measures

The CR required countries to introduce measures to reduce electricity consumption; however, it did not state any specific measures. The specific implementation was left to the individual countries.

In line with economic theory, measures to reduce demand can be classified as follows:

Taxes and subsidies
Command-and-control measures
Information measures

The measures implemented in the Nordic countries to comply with the CR can be classified as command-and-control or information measures. For instance, the requirements for implementing energy-saving measures in public buildings in Denmark and Sweden are command-and-control measures. The awareness campaigns, such as “Every kWh counts” in Sweden and “Down a Degree” in Finland, as well as the recommendations to reduce temperatures in public buildings in Denmark, are all examples of informational measures.

The problem with command-and-control measures is that they are inefficient. Price is the most efficient tool to allocate resources; increased prices induce consumers with the lowest willingness to pay for electricity to reduce their consumption first. The authorities do not have information about consumers’ willingness to pay.

The problem with information and awareness campaigns has traditionally been that they are short-lived: consumers respond to campaigns by changing their consumption, but the effect is temporary. However, regarding the case at hand, it may be that the temporary effect was sufficient: by reducing electricity consumption in winter 2022–2023, consumers contributed to lower prices and alleviated the scarcity situation exactly when it was needed. Even if the response diminishes or disappears over time, it has been useful.

Taxes and subsidies influence end-user prices. A general tax on all electricity consumers would ensure that demand is reduced efficiently by allocating demand reductions according to the value of electricity for different consumers. The allocation would be less efficient than if it were left to the market mechanism and market price, as the tax creates a wedge between the consumer and producer prices. Therefore, the market price does not fully reflect the scarcity and does not give the correct signal to the supply side to increase production. If the tax applies only to some consumer groups, it is less efficient in allocating demand reductions.

All Nordic countries have an electricity tax for most end users. However, these taxes were reduced in 2022–2023 to alleviate the situation for end users. Hence, the authorities actually removed (or weakened) one potential measure to reduce consumption.

An alternative to the electricity tax is a subsidy on electricity alternatives. Subsidies for increased energy efficiency measures that reduce electricity consumption are another possibility. It is difficult to find alternatives to electricity for some uses (such as light and electrical appliances), but for others (such as heating), electricity can be replaced by alternate energy sources. Some of the alternatives have undesirable impacts, e.g., emissions. In fact, all Nordic countries have policies to phase out other energy sources, such as oil and firewood. For instance, there are four subsidy schemes in Denmark with the aim of phasing out fossil fuels in the heating of private buildings (as described in Section 2.1.3).

While many of the investments that could reduce electricity use have long lead times (e.g., insulation of buildings, district heating), the most readily available alternative is the installation of heat pumps. This is a relatively small investment that can be carried out quickly.

The payment for reduced consumption as implemented in Sweden (see Section 2.1.2) is a form of subsidy to refrain from consumption.

4.1. Electricity consumption in winter 2022–2023

It is outside the scope of this study to analyse the impact of the different measures to reduce demand in the Nordic countries. Relevant demand data were made available just before the conclusion of the project. Nevertheless, we report on the actual demand reduction. Table 4.1 provides information about the differences in the data and calculations.

Table 4.1. Differences in peak hour and gross consumption reduction calculations

	Sweden	Finland	Denmark
Peak demand:
Reference period	Average of previous five years	Average of 2015–2021	Denmark’s Climate Status and Outlook 2022 report*
Adjustments	Temperature	Temperature	Temperature
Total consumption:
Reference period	Previous year	Average of previous five years	Denmark’s Climate Status and Outlook 2022 report*
Adjustments	Temperature and calendar	Temperature for winter months

Source: Vista Analyse
* A projection that considers the expected increase in electrification of the energy system, fuel and energy prices and the economic outlook, among other drivers of electricity demand.

4.1.1. Peak demand

Figure 4.1 shows the consumption reduction in peak hours (average for each month) in Denmark, Finland and Sweden from December 2022–March 2023. Note that slightly different reference periods were used in the different countries (see Table 4.1 for details).

Peak-hour consumption was reduced well beyond the target of 5% in all countries: 8.3% in Finland, 9.1% in Sweden and 10.2% in Denmark.

Figure 4.1. Consumption reduction during peak hours (relative to the reference period), 2022–2023
Source: Vista Analyse
Note: The countries use different reference periods, see Table 4.1.

4.1.2. Total consumption

Figure 4.2 shows the total consumption reduction in Denmark, Finland and Sweden from November 2022–March 2023. In total, consumption was reduced by almost 9% in Denmark and Finland and by almost 7% in Sweden.

Figure 4.2. Total consumption reduction (relative to the reference period), 2022–2023
Source: Vista Analyse
Note: The countries use different reference periods. See Table 4.1 for details.

Electricity consumption was reduced considerably in winter 2022–2023. A thorough analysis of the different measures’ impacts on consumption is outside the scope of this project; thus, we cannot deduce how much of this reduction was due to emergency measures and how much was due to increased prices or relatively mild weather. Electricity prices were much higher this winter than historically (as shown in Figure 1.1). Electricity prices were slightly below 250 EUR/MWh on average in Denmark, Finland and Southern Sweden in December 2022, and around 100 EUR/MWh in January 2023. Moreover, the winter of 2022–2023 was relatively mild, contributing to lower demand in Finland and Sweden.

Nevertheless, we cannot rule out the impact of the information campaigns: consumers have become more aware of both prices and opportunities to adjust their consumption. There are two interesting points to note:

A large reduction in demand occurred in January, when prices were significantly lower than in December. This may imply a time lag in demand reduction due to either more information becoming available and increased awareness of the prices or to more possibilities to reduce demand over time. In addition, total electricity consumption was reduced the most in Denmark, where electricity demand is independent of temperature.
The reduction of demand in peak hours in Sweden was considerably larger than the 75 MW (corresponding to less than 0.4% of peak demand) procured in the flexibility procurement scheme. Hence, the reduction in electricity consumption in the rest of the economy was significant.

4.2. Electricity consumption in Sweden

4.2.1. Peak consumption reduction in Sweden

Svenska kraftnät published monthly reports on consumption reduction during peak hours in winter 2022–2023.

See reports for December 2022, January 2023, February 2023 and March 2023.

Electricity consumption during peak hours was reduced by 9.1% on average during the period of December 2022–March 2023 in Sweden. Figure 4.3 shows that the reduction was roughly the same in all months. The consumption reduction was calculated relative to the corresponding period during the previous five years and adjusted for temperature and known changes in industrial load (see the reports from Svenska kraftnät for details).

Figure 4.3. Peak hour consumption (temperature-adjusted) in Sweden
Source: Vista Analyse, based on Svenska kraftnät’s reports on electricity consumption during peak hours for December 2022, January 2023, February 2023 and March 2023.

4.2.2. Total consumption reduction in Sweden

Total electricity consumption also decreased in Sweden during the autumn and early winter. Figure 4.4 shows total consumption for November–March in 2021–2022 and 2022–2023. The figures were adjusted for temperature and calendar differences.

Figure 4.4. Total consumption in Sweden
Source: Vista Analyse, based on data reports from Svenska kraftnät.

4.3. Electricity consumption in Finland

4.3.1. Peak consumption reduction in Finland

Figure 4.5 shows a reduction in peak hour consumption in the period from December 2022–February 2023 in Finland. Consumption reduction was the highest in December (8.8%). On average, peak consumption was reduced by 8.3% during the winter months. This was more than the 5% required by the CR.

The forecast was based on temperature-adjusted consumption data from the past few years (2015–2021). The forecast excludes the effects of reduction measures.

Figure 4.5. Peak hour consumption reduction in Finland
Source: Vista Analyse, based on data from Fingrid

4.3.2. Total consumption reduction in Finland

In Finland, consumption reduction was measured relative to consumption in the same month in the previous five-year period. For the winter months (December–February), the figures were temperature adjusted.

Total consumption was reduced in all months (see Figure 4.6). The reduction ranged from 3.1% in December to 13.6% in February. In total, the reduction was 8.6%.

Figure 4.6. Total consumption in Finland
Source: Vista Analyse based on Fingrid’s reports
* Temperature adjusted

4.4. Electricity consumption in Denmark

4.4.1. Peak consumption reduction in Denmark

Figure 4.7 shows peak demand for December 2022–March 2023 in Denmark. Peak demand was reduced by more than 10% in the winter months and by more than 5% in March 2023, relative to the forecast.

Figure 4.7. Peak demand in Denmark
Source: Vista Analyse, based data from Energistyrelsen

4.4.2. Total consumption reduction in Denmark

Figure 4.8 shows total consumption in Denmark for November 2022–March 2023, together with normal consumption for the same months (based on Climate Status and Outlook 2022). This projection takes into account the expected increase in electrification of the energy system, fuel and energy prices, and the economic outlook, among other drivers for electricity demand.

Consumption in Denmark was reduced in all months, the most in January and the least in March. In total, consumption was reduced by 8.7% over this period.

Figure 4.8. Total consumption in Denmark
Source: Vista Analyse, based on data from the Danish Energy Agency.
* Based on the report Climate Status and Outlook 2022. This is a projection that takes into account the expected increase in electrification of the energy system, fuel and energy prices, and the economic outlook among other drivers for electricity demand.