CHAPTER 1 1. Introduction and mandate

1.1 Background

European energy prices have been significantly impacted by the war in Ukraine, and the subsequent energy crisis has led to a price shock for consumers in the Nordic countries and impacted the market players’ financial situation and ability to hedge price risk. The high electricity prices have been a heavily debated topic in several European countries, and the general consumer trust in the electricity sector is considered to be low. The energy crisis contributed to highlighting some underlying challenges in the European electricity retail markets, for instance regarding the impact of volatile electricity prices.

The European Union has been working on an electricity market design reform (EMD) to address challenges in the electricity retail market, and in December 2023, a provisional political agreement on the electricity market reform was reached between the Council and the European Parliament. The electricity market reform aims to create better protection for consumers, shield customers from price spikes, ensure more stability for companies and an increased proportion of green electricity. Better protection for consumers includes improved availability of fixed-price and fixed-term contracts, increased flexibility in choosing dynamic pricing through multiple or combined contracts, and improved information to customers before entering into agreements. The Nordic countries will likely need to adapt to new regulations concerning the electricity retail markets once the EMD reform is enacted as EU law. At the time when our analysis was conducted, the details in the EMD reform were not agreed upon as yet. Our recommendations should therefore be viewed in accordance with the propositions from the final electricity market reform.

The electricity retail markets in the Nordic countries share many inherent characteristics, indicating that the countries share many of the same challenges such as asymmetric information and costly searches for the consumers. There are, however, differences regarding the prevalence of these challenges, and how the countries are dealing with the challenges in the market. There are also other major differences in the characteristics of the Nordic electricity retail markets such as the prevalence of different contract types and the level of households’ electricity consumption. Nevertheless, the close resemblance between the countries in terms of market structure and challenges suggests that there could be a potential for more Nordic collaboration on how to address the market issues and learn from the best practices of other countries.

1.2 Mandate

In June 2023, Nordic Energy Research, on behalf of the Nordic Council of Ministers, commissioned a constellation led by Oslo Economics to conduct an evaluation of the electricity retail markets in the Nordic countries. The constellation consisted of Oslo Economics, Sweco, Gaia and Respons Analyse. The aim of the project was to evaluate how well the retail markets function in the Nordic countries, including an analysis of the regulatory framework, the competitive landscape and customer satisfaction. The study was also intended to examine the behaviour of market participants, especially households and non-households, and their responses to changing market conditions during the winter 2022/2023.

In particular, the evaluation was supposed to answer the following questions:

What is the competitiveness of the retail markets in the Nordics due to parameters such as market concentration, changing rates of electricity retailers, market transparency and range of competitive number/type of price contracts available to the customers, etc.?
What are the prerequisites for electricity retailers to offer competitive fixed price contracts?
How satisfied are the customers with services, and what are the customer preferences for services of the suppliers?
Do consumers have confidence in electricity retail companies? What is the customer awareness of various products and prices? Are the customers able to make an informed decision about what product to choose?
Is the ‘general public’ aware of the existence of power producers, DSOs and electricity retailers and do customers know what are the tasks of the different companies, and who does what?
How are the existing legal obligations for retailer companies aimed at securing consumer rights for electricity consumers, and what other measures for securing consumers are there?
Are there legal restrictions that prevent different types of price agreements (e.g. 1/3 fixed price, 2/3 spot), etc.?
Discuss and recommend measures to increase the customers’ trust in their suppliers, to improve the efficiency and the transparency of the electricity retail market.

The overall objective of the study is to help policymakers and market participants make informed decisions about how to address the energy crisis, raise awareness of the level of competition in the retail markets, and help identify and remove barriers to a well-functioning electricity retail market. In addition, the results could be used when the Nordic countries are to implement the various amendments to the electricity market as a whole when the EU’s electricity market reform has been finalized.

1.3 Methodology and data collection

Our evaluation of the Nordic electricity retail markets builds on the following empirical foundation:

First, we carried out five separate country studies of the Nordic countries, including Åland. The Swedish country study was conducted by Sweco, the Finnish country study was conducted by Gaia and the Danish, Icelandic and Norwegian country studies were conducted by Oslo Economics. The studies are based on an analysis of several information sources. We have conducted desk research of relevant literature and regulations in each Nordic country, interviews with relevant market actors, and a survey conducted among household consumers in all the Nordic countries. Table 1‑1 provides an overview of the actors interviewed in each country. In total, 42 interviews were conducted. The survey was conducted among 500 participants in Iceland, and between 1,000 and 1,500 participants in each of the other countries. Åland was not covered by the survey.
A comparative analysis of the country studies was conducted, focusing on the regulatory framework and organization of the markets, the competitiveness and functioning of the markets, customer awareness and satisfaction, and the prevalence of challenges for consumers and retailers. We conducted an internal workshop with the entire project team from Oslo Economics, Sweco and Gaia as part of the work with the comparative analysis, where we discussed and compared the empirical findings from the country reports.
Recommendations are based on the identified challenges in the different countries. A second internal workshop with the entire project team was conducted as part of this work.

1.3.1 Document and literature review

We have conducted extensive analysis of existing documents, literature and statistics regarding the electricity retail markets in the Nordic countries. Most of the literature has served as important background information for the analysis but is not necessarily discussed directly in the report. However, we have in particular reviewed relevant regulations for the electricity retail markets in the Nordic countries. A general overview of important aspects from the country specific regulations are included in the country reports, and a more detailed overview of relevant regulations in each country is included in Appendix A.

1.3.2 Interviews

We have conducted in-depth interviews with relevant market actors in each country. We have interviewed NRAs, industry organizations for electricity retailers, industry organizations representing non-household consumers, consumer and competition authorities, consumer councils, and electricity suppliers. These relevant actors provide good understanding of the different legal and regulatory environments in each country and provide valuable qualitative data on the impacts of the energy crisis, rising energy prices, and the potential electricity market reform. Certain actors have declined to participate in interviews. There is a list of the interviewed actors in Table 1‑1.

Table 1‑1: Interviewed actors

	Denmark	Finland	Iceland	Norway	Sweden
Regulatory authority	Forsyningstilsynet	Energiavirasto, Ålands energimyndighet	Orkustofnun	Reguleringsmyndigheten for energi	Energimarknadsinspektionen
Consumer authority	Konkurrence- og Forbrugerstyrelsen	Kilpailu- ja kuluttajavirasto	Neytendastofa	Forbrukertilsynet	*
Competition authority	Konkurrence- og Forbrugerstyrelsen	Kilpailu- ja kuluttajavirasto	Samkeppniseftirlitið	Konkurransetilsynet	Konkurrensverket
Consumer council	Forbrugerrådet Tænk	Kuluttajaliitto		Forbrukerrådet	Konsumenternas energimarknadsbyrå
Special interest groups	Dansk Erhverv, Green Power Denmark	Energiateollisuus, Paikallisvoima	Samorka	Fornybar Norge, NHO, Norsk industri	Energiföretagen, Villaägarna
Electricity retailers	3 retailers	2 retailers (Mainland), 2 retailers (Åland)**	3 retailers	3 retailers	2 retailers

*The Swedish Consumer Authority (Konsumentverket) was contacted but referred to the Consumer Council (Konsumenternas Energimarknadsbyrå) ** In addition to retailers, the TSO of Åland (Kraftnät Åland) was interviewed.

1.3.3 Survey

We have conducted a survey amongst household consumers in all five Nordic countries. Respons Analyse has been responsible for conducting the survey, and the results have been analysed by Oslo Economics, Sweco and Gaia.

The purpose of the survey has been to obtain information on consumers’ activities and experiences with the retail market for electricity and their current electricity seller. The survey does not cover businesses or their experiences with the electricity market. The survey consists of 48 questions, excluding questions on demographics. The number of questions displayed to each respondent depends on their answers, and no respondent was asked all questions.

Except for a question related to the household’s most important source of heating, the survey data presented in this report is based solely on responses from those who state that they are involved in decisions regarding their household’s electricity contract. Hence, the sample size differs for the questions, which leads to different levels of uncertainty. Topics covered in the survey include:

Energy consumption, current contract, and prices
Experiences with switching and comparing contracts
Activity in the retail electricity market
Negative experiences with electricity seller (last two years)
Billing and notification of changes in contract

Country	Total	Decision makers
Denmark	1,299	986
Finland	1,156	969
Iceland	562	369
Norway	1,483	1,195
Sweden	1,066	772

Note: The table shows the number of respondents in a survey conducted in the Nordic countries. In the first column, the table provides the total number of respondents, and in the second column the number of respondents who are involved in decisions regarding the household’s electricity contract. Only the latter group answers the majority of the questions in the survey.

Table 1‑2: Number of respondents in household survey

The same survey was distributed to panels in all five countries. The survey was translated to Finnish for Finland, Danish for Denmark, Icelandic for Iceland, Norwegian for Norway, and Swedish for Sweden. Questions related to contract types and pricing were adapted to the characteristics of each country.

The sample is not necessarily representative of the adult population in each country. Therefore, for each country, the survey data are weighted to match the target population on gender, age, and place of living.

1.4 Definitions and abbreviations

1.4.1 Definition of contract types

The most common contract types that are provided in the Nordic countries can broadly be categorized into spot price contracts, fixed price contracts and variable price contracts. Each contract type has some inherent characteristics, but there are still variations within each contract type, both between and within each country. In Table 1‑3, we present descriptions of the most common contract types for household consumers in the different Nordic countries, and how they generally are to be understood. Other contract types than these also exist. For non-household consumers, combination agreements, combining aspects of fixed and spot contracts, is prevalent.

Table 1‑3: Description of different contract types

	Spot price	Fixed price	Variable price
General description	The wholesale market price, typically the hourly Nord Pool price, plus a fixed mark-up to the supplier for each kWh and/or a fixed fee to the supplier.	A fixed price per kWh for a period of at least 3 months, including fixed price per kWh for a predetermined volume.	The supplier sets the price per kWh for an open-ended period, or for a predetermined period of less than 3 months.
Denmark	Same as general description	Same as general description.	Same as general description.
Finland	Same as general description	Same as general description. Typically, fixed price for one or two years.	Typically, the price is updated four times a year or monthly. The price can be adjusted with a one-month notice. Contract is open-ended.
Iceland	Not on the market	Not on the market	Only open-ended contracts exist.
Norway	Same as general description	Same as general description.	Typically, the supplier sets the price per kWh for an open-ended period. The price can be adjusted with a 30-day notice.
Sweden	This contract form is called ‘hourly prices’ and is an hourly based spot price + margin matched with kWh per same hour	Same as general description. Typically, fixed price for one, two or three years.	Based on an average spot price for the month + margin, matched with total kWh for the month. ‘Assigned price’ is a version with higher margin and open ended (2 weeks’ notice period)

Abbreviation	Description
DSO	Distribution system operator
EMD	Electricity market design
TSO	Transmission system operator
EPAD	Electricity Price Area Difference
EEX	The European Energy Exchange
EEA	European Economic Area
NRA	National regulatory authority
SME	Small and medium sized businesses Small businesses have up to 50 employees and a turnover less than 10 million euros, while medium-sized businesses have up to 250 employees and a turnover of less than 50 million euros. https://single-market-economy.ec.europa.eu/smes/sme-definition_en.

Table 1‑4: Abbreviations used in the report