In this chapter, we shall describe similarities and differences between important aspects of the regulatory frameworks in all the Nordic countries. Given that the regulatory framework in Åland aligns closely with the Finnish regulatory framework, we will specifically mention Åland only in cases where exceptions arise. A brief description of all these aspects for each Nordic country is provided in Table 9‑3 in Appendix A. A more detailed description of the country-specific regulatory frameworks is provided in the country reports 5-9.

Denmark, Finland, Norway and Sweden have requirements for the structural and functional separation of vertically integrated entities. The unbundling requirements apply for DSOs with more than 100,000 connected customers in Denmark, Norway and Sweden. In Finland, it applies to the DSOs that meet a threshold of 200 GWh for more than three consecutive years. In Åland, the electricity retailers can be vertically integrated with the DSO, which both of the electricity retailers in Åland are. In Iceland, a single power company can function as generator, distributor and supplier, but accounting for separation is required between concession and competitive activities.

All the Nordic countries except for Iceland have specific requirements for information on the invoice of electricity contracts. Requirements regarding information to be provided on the invoice are a consequence of government regulation in Iceland. The survey shows that 37 percent of the respondents in Iceland do not read any information on the invoice and 60 percent only read the amount to be paid, which may explain why there are no specific requirements to the invoice. Only a small percentage of the respondents in the other Nordic countries reports that they do not read any information on the invoice. In Denmark, Finland, Norway and Sweden, the requirements for information on the invoice are occasioned by the NRA. The requirements vary for these countries as there is more required information to be included in Denmark, Norway and Sweden compared to in Finland.

The Nordic countries are different in terms of whether the invoice from retailer and DSO can be combined or not. Denmark offers only one invoice from the electricity supplier. Finland, Norway and Sweden offer both one invoice and two invoices. In Finland, most customers receive two invoices, one from the DSO and one from the electricity supplier, but some receive only one if the DSO and supplier are owned by the same entity. This does also applies to Sweden, but there are also suppliers that offer joint invoicing even if they are not part of the same entity. In Norway, an electricity retailer can choose to include DSO tariffs in their invoice, and if they do, they must implement this for all customers in the DSO area.

In all of the Nordic countries, the customers can freely switch their electricity supplier as long as they do not break a contract. The new supplier will notify the previous supplier in Denmark, Finland, Iceland or Norway, while the customer should contact the current supplier to terminate their current agreement in Sweden as the switch to a new agreement does not occur automatically.

Win-back involves targeted marketing towards customers who have decided to end their contract and change supplier, where customers are typically offered a new contract with possibly better terms than the original contract. All the Nordic countries allow win-back strategies and it can happen through various channels. However, in Denmark, the customer must have consented to be contacted, but this does not apply to SMEs. In Sweden, electricity suppliers must follow certain rules to use win-back strategies. Win-back strategies are commonly used in Finland as customers have to renew or switch contracts periodically.

Electricity retailers are required to have a license in Iceland and Norway, which is issued by the regulatory authority. The retailer license can be withdrawn in both countries if the retailers do not comply with regulations. In Denmark, Finland and Sweden however, the retailers are not required to have a license. In Sweden, the trade association Energiföretagen has developed the certification ‘fair electricity trading’, which verifies that the electricity retailer has functional procedures to clarify what the customer is buying and what the agreement entails. The certification can be withdrawn if the retailer does not adhere to the customer promises. The Norwegian industry organization has a similar certification scheme for certifying the electricity retailers. Electricity retailers in Denmark are required to have a certificate when communicating with DataHub. As for the other countries, the retailers can lose their certificate and therefore be deprived of the right to be registered at DataHub.

In Denmark, Finland, Norway and Sweden it is possible for the customers to both prepay and post-pay. In Finland, invoicing of electricity is usually based on post-payment based on meter readings, while pre-payment is explicitly limited to mitigation of credit risks stemming from a weighty reason related to an individual customer. It is only possible with post-payment in Iceland.

Both Denmark, Finland and Norway have a maximum lock-in period. Denmark has a maximum lock-in period of 6 months for households and no corresponding rule for SMEs. If contracts are of longer duration, the customer can terminate the contract such that it ceases after 6 months. Finland has a maximum lock-in period of 24 months. The maximum lock-in period in Norway is 12 months, with the exception of fixed price contracts. The customer can terminate such contracts by paying a reasonable termination fee. In Iceland, customers can terminate their contract with three months or shorter notice. The lock-in period in Sweden varies between electricity supplier and contract type. A lock-in period of 1-3 years is the most common for fixed price contracts, but it can range from 1 month to 10 years. Variable contracts have either no lock-in period or a lock-in period of 1 month.

There is a 14-day right of withdrawal from contracts that are regarded as a remote sale for all the Nordic countries except Iceland. The right of withdrawal period is extended by up to one year in Norway if the customer has not received sufficient information regarding the right of withdrawal before entering into the agreement and/or the customer has not received a withdrawal form on a durable medium after entering into the contract. Extension of the right of withdrawal period by up to one year also applies in Sweden if the customer has not received sufficient information regarding the right of withdrawal. As soon as sufficient information is provided, the right of withdrawal period of 14 days begins (applicable only for contracts that are regarded as a remote sale).

The requirements on how to find information about contracts vary for the Nordic countries. There are no requirements on how to find information about contracts for electricity suppliers in Iceland, but the information is available at the price comparison tool. Electricity suppliers in Finland are obligated to report contract prices for small customers to the price comparison tool, but in Åland the suppliers must inform customers on their website and on the government's website. In Denmark and Norway, electricity suppliers are required to ensure that relevant and correct information about all of their products, including price and terms, are available on their website. In addition, they are obligated to register their prices at the price comparison tool. Electricity suppliers in Sweden are required to provide certain information about their products and services, such as price and terms of the contract, on their website or in other easily accessible channels. Furthermore, electricity retailers in Sweden have an obligation similar to that of electricity retailers in Finland to report certain contracts, which are published on the price comparison tool Elpriskollen.

In Denmark, Finland, Norway and Sweden, the electricity supplier must inform the customers about changes in the existing contracts, but the time of notifying varies for the countries. In Denmark, the electricity supplier must notify households directly at least three months in advance and SMEs at least 14 days in advance. The customers have the right to terminate the contract if they do not accept the changes. In Finland, changes to pricing or terms of an open-ended contract require a one-month (consumers) or a two-week notice (non-consumers) from the supplier. Electricity suppliers must inform the consumer no later than 30 days in advance in Norway; this applies to both households and SMEs. The notification should include information about whether the consumer has the right to terminate the agreement at no cost. In Sweden, the notification must take place at least 2 months in advance for households and 14 days for SMEs. The supplier must inform the consumers about their right to terminate the agreement in a separate notice. The electricity retailer can change the contract whenever they want to in Iceland. The retailer can publish information about the changes on their website and customers, who have signed up for it, can get an email about the changes.

The required information to include when marketing contracts varies for the Nordic countries where some have specific regulations regarding marketing of electricity contracts, while others have general marketing regulations. In Denmark, Finland, Iceland and Sweden, requirements for marketing of electricity contracts follow the general marketing regulations. Thus, there are no particular requirements for marketing of electricity contracts in these countries. In Norway, the requirements follow the general marketing regulations, but new and stricter rules have been introduced. These rules were largely a clarification of requirements from the Norwegian marketing act.

In addition to the regulatory authority, several actors can impose sanctions in all the Nordic countries. Different authorities have the authority to address violations of the laws and regulations, which they oversee in all countries. The NRA in Norway have the authority to withdraw retailer licenses for violating the license conditions, the Energy Act and associated regulation, but not for violating the Marketing act of ‘Angrerettsloven’. Hence, the NRA has limited ability to withdraw a license. The NRA can, among other things, suspend electricity retailers from the price comparison tool for misconduct related to pricing information. In Sweden, the regulatory authority Ei can issue injunctions to ensure compliance with applicable regulations and conditions, with the right to issue fines for actors who do not comply to the injunctions. Additionally, the complaint list provided by the Swedish Consumer Energy Market Bureau acts as a form of self-sanctioning as it is not imply any sanction but nevertheless electricity retailers try to avoid ending up on the complaint list.

SMEs have the same customer rights as households in Iceland. In Denmark and Finland, a lot of the electricity market specific regulation applies both to households and to SMEs. Changes have also recently been made in the Swedish legislation according to the Electricity Markets Directive, making the provisions between household consumers and other customers more aligned

https://www.riksdagen.se/sv/dokument-och-lagar/dokument/betankande/genomforande-av-elmarknadsdirektivet-nar-det_ha01nu9/. Date: 31.01.24

. For instance, the content of the agreement and the complaint process shall now cover all customers. The change also implies that SMEs should be able to switch suppliers without paying a fee. Under some circumstances however, it shall be possible to charge a fee if the contract is terminated prematurely. In Norway, however, SMEs generally have considerably fewer customer rights compared with households.

All the Nordic countries, except for Iceland, implemented different measures as a response to the energy crisis. As the electricity grid in Iceland is not connected to any other country, the electricity prices in Iceland have largely been unaffected by the energy crisis in Europe and no measures have been deemed necessary. The measures implemented vary across the countries according to their electricity market. Most of the measures in the Nordic countries were customer-oriented measures, but there were some measures implemented oriented at SMEs.

Norway stands out among the countries that have implemented measures as a response to the energy crisis with a large and long support to the households. Norway has implemented a direct support to households’ electricity bills, lasting until the end of 2024. This electricity support scheme acts as a quasi-fixed price for households, which has removed the incentives to enter into fixed price contracts. The other countries have not implemented direct measures to households’ electricity bills with such a long duration. The governments in both Denmark and Finland implemented several customer-oriented measures to help vulnerable households. In Denmark, the general electricity tax was reduced during a period from 1 October 2022 up to the first half of 2023. From February 2022 to the beginning of 2023, the Danish government introduced several tax-exempted payments to vulnerable households and disadvantaged citizens affected by the increasing energy prices. In addition, a temporary and voluntary freezing scheme was introduced for parts of electricity, gas and district heating bills. In Finland, the Value Added Tax of the energy component on the electricity bill was reduced for a five months period from 1 December 2022 to 30 April 2023. In the period from January 2023 to April 2023, customers in Finland could apply for a reduction in their personal taxation for 2023. An electricity benefit was also introduced in the same period for such households that were not able to take full advantage of the compensation through personal taxation due to low personal taxes. These schemes were also available in Åland. In Sweden, electricity and natural gas support were provided to households as well as SMEs, with two support rounds of electricity support directed at households and two at SMEs. In addition, one natural gas support round was directed at household customers, with all rounds being based on consumption.

To prevent bankruptcy, the Danish state offered a guarantee of DKK 100 billion to the energy sector, specifically to energy companies with production facilities or responsibility for market balance, enabling them to secure liquidity. As a result, several of these companies ended up having a result better than any previous year in 2022, in stark contrast to facing bankruptcy without this guarantee. Finland also implemented activities to support the financial situation of electricity retailers and producers.  An up to EUR 10 billion programme for debt and guarantees to companies operating in the electricity forward markets was implemented in order to manage the increase in collateral requirements due to increased price volatility. This programme did, however, not receive any applications. Another implemented measure that was not used was the loans to electricity retailers in Denmark. They were loans that the state provided to the electricity retailers, which were equal to the amounts requested by customers to be frozen, and guaranteed the frozen debt to the electricity retailers. In Sweden, state credit guarantees were also offered to electricity producers in order to provide support regarding securing liquidity, but the scheme was never used. Åland had the same electricity support scheme as Finland, but did not implement the automatic compensation scheme through suppliers’ billing for high energy component costs, which was also in place to cover half of the costs over 10 cents/kWh for spot price or fixed price customers in Finland for a four-month period during the winter 2022-2023. The government in Norway made changes to the resource rent tax on hydropower in order to facilitate better fixed price contracts to end-users. The government introduced a contract exemption for electricity sold through standardized fixed price contracts available for periods of three, five and seven years. In these contracts, the electricity is valued at the contract price instead of the spot price for the basis of resource rent taxation, with the maximum mark-up set at 2.5 øre/kWh.

In all Nordic countries, the formal barriers to entry are regarded to be low, both relative to the market size and in absolute terms. Furthermore, the industry is characterized by low fixed costs and a low degree of sunk-costs investments. In all countries, there are also price comparison tools, which reduce the need to invest in marketing when entering the markets.

Note: HHI is the Herfindahl-Hirschman index. It indicates the level of competition in the market. A lower value indicates higher competition. Share receiving counteroffer shows the share that was contacted by their previous supplier after switching contracts. The share accepting is the share of those getting an offer who accepted it. N/A = Too few respondents. Survey conducted in October and November 2023 amongst Nordic households.

The HHI-index is a measure of concentration that is often used to give a rough indication of the degree of competition in a market

https://www.justice.gov/atr/herfindahl-hirschman-index. Date: 30.11.23

. It takes into account the relative size distribution of the firms. It approaches zero when a market is occupied by a large number of firms of relatively equal size and reaches its maximum of 10,000 points when a single firm controls a market. The index is derived from a model where it is assumed that firms compete in quantities, i.e. Cournot-competition – see for instance Matsumoto et al. (2012)

Akio Matsumoto, Ugo Merlone & Ferenc Szidarovszky (2012) Some notes on applying the Herfindahl–Hirschman Index, Applied Economics Letters, 19:2, 181-184.

. This implies that the measure is somewhat less informative when firms compete on prices. Despite this, it is generally accepted that the lower concentration, the more competitive the market. This follows from the assumption that firms with large market shares have considerable market power.

Competition agencies normally consider HHI below 1,500 as low concentration, between 1,500 and 2,500 as moderate concentration and above 2,500 as high concentration – and assumes that the market is more competitive, the lower concentration. This is also intuitive as low concentration requires a relatively large number of firms, of equivalent size, that compete for the consumers. Such a market would normally imply well-functioning competition.

The HHI-index should, however, be interpreted with caution, and it is critical to apply the right geographical market. For instance, if the competition is local, HHI measures at national level will normally not be informative. HHI measured at a national level will for instance be low in a situation where there are many local monopolies. In electricity markets, suppliers with local affiliation may have loyal customers in their respective areas – and thus market power. Therefore, HHI may underestimate the rivalry in spite of most suppliers having national offers.

In Iceland, the practical barrier to entry is, however, significantly higher than in the other countries as there is no well-functioning wholesale market and because the market is much smaller than the other markets. Furthermore, our assessment indicates that the retail market in Iceland suffers significantly from the lack of a well-functioning wholesale market, as this facilitates market power for the retailers with integrated production. Due to low consumption, the Icelandic consumers also have weaker incentives to participate actively in the market, for instance to switch retailer as a response to higher price. Based on this, we conclude that the competition in the Icelandic retail market is significantly weaker than indicated by the concentration measure.

In markets with low barriers to entry, low concentration is to be expected. In Norway and Sweden, the concentration is particularly low. However, the concentration measure does not capture that in some areas, retailers with a local affiliation have high ‘market’ shares and that consumers are loyal to their local supplier. Despite this, the consumers in all areas apart from Iceland can choose from a large number of retailers. Furthermore, none of the retailers enjoys a significant cost advantage for supply of physical electricity, as they all trade at equal terms in the wholesale market. A large number of suppliers that compete on equal terms will normally translate into efficient competition. For supply of fixed price contracts, however, large retailers, and in particular those with integrated production, seem to enjoy an advantage due to imperfections in the hedging markets. Perhaps not from the electricity price itself, but from the availability of long-term power agreements, transaction costs associated with trading, and also credit costs if they are considered more solvent. On the supply side, the markets in Denmark, Finland, Sweden and Norway seem to support a well-functioning market, perhaps with the exception of fixed price contracts.

Despite favourable conditions on the supply side, conditions on the demand side have historically led to imperfections in all countries’ retail markets, where search and switching costs and asymmetric information are the most prominent issues. It follows from economic theory that search and switching costs are an important source of market power. The conditions on the supply side have probably led to higher mark-ups than what theoretically was to be expected, given homogenous commodities, low fixed costs and few expansion barriers. High mark-ups may in turn explain why the retail markets have supported a rather high number of active suppliers.

There are some indications that the asymmetric information has had the most adverse impact on the Norwegian retail market. There are probably compounded reasons for this. First, an average Norwegian customer uses more electricity than an average customer does in the other countries. Second, wholesale prices have historically been so low that electricity has remained a low-interest commodity, despite relatively high mark-ups and high consumption. Combined, this has made it very profitable to win customers, which has incentivized heavy and aggressive marketing of contracts that have not been in the consumers’ best interest. In the other countries, the incentives to invest in such marketing practices may have been lower due to lower consumption and higher wholesale prices.

Variable contracts have been common in all Nordic countries, probably due to meters that had to be read manually. Fixed price contracts also work well with manual reading, and such contracts exist in large numbers, especially in the Finnish market. Norway has on the other hand stood out with a very low share of fixed price contracts, and hence they have probably had the highest share of variable contracts.

In most of the Nordic countries, variable contracts appear to be the least competitive type of contract as the price of electricity is then under the electricity retailers’ control and changes regularly. The retailer may thus exploit the combination of low awareness and switching costs to charge high mark-ups to existing customers. Hence, in contrast to fixed price contracts, the retailer may charge a low price on variable contracts to get customers on-board, for subsequently to increase the price. Spot contracts are on the other hand much more transparent, as the mark-up in contrast to a variable price contract is directly observable to the customer – making it more difficult to increase the mark-up without it being noticed by the customers. The variable price contracts that are most common in Sweden are an exception, as these contracts are based on the average spot prices in the previous month. Such contracts can be beneficial for the consumers if the timing of their electricity consumption corresponds with the time when spot prices are high. These contracts stem from the implementation of smart meters in Sweden, as the first smart meters were only read on a monthly basis.

Finland has traditionally had, and still has, a very high share of fixed price contracts. However, a higher share of fixed price contracts may have contributed positively to competition in Denmark and Sweden as well. However, today Norway has the lowest share of variable contracts and few, if any, retailers offer variable contracts. There are at least two reasons for this. First, smart meters became mandatory and spot contracts fit very well to smart meters, as they measure the exact consumption at every time. Thus, consumers may save money by adapting to price signals. This is especially valuable to the high share of the population that has electrical cars. Furthermore, spot contracts have been heavily promoted over a long time by for instance the Consumer Council. However, this cannot be the full explanation for the lack of fixed price contracts, as the retailers in the other countries face the same challenges related to hedging as in Norway. Smart meters, similar to the Norwegian, are also widespread in both Denmark and Finland. Thus, some of the explanation must be related to differences between the countries on the demand side.

In contrast to the other countries, electricity is the most common source of heating in Norway. This implies a higher consumption, which may make the consumers more price sensitive and aware. Furthermore, the prevalence of electrical cars is also much higher in Norway than in the other countries. Households and SMEs that use electrical cars can be expected to have a higher consumption of electricity than counterparts without such cars do. They also have incentives to charge the cars in low price periods, which in turn may contribute to more awareness and higher demand for contracts, which expose the consumers to the price variations.

In addition, in Norway different actors have warned against variable price contracts over time. The Consumer Council, which operates the official price comparison tool, have also made changes in the tool such that it is not tempting to choose a variable price contract. The price support scheme for households, which the Norwegian government introduced as a response to the energy crises, worked in practice like a price ceiling. This further reduced the households’ demand for fixed-price contracts, which always have been low in Norway. Consequently, the supply of other than spot price contracts to households have more or less stopped. Data from Statistics Norway show for instance that the share of households with variable contracts decreased from 22 to 4 percent between the fourth quarter of 2021 and the third quarter of 2023, while the share with spot price contracts increased from 75 to 93 percent

Statistics Norway, table 09364, https://www.ssb.no/statbank/table/09364/tableViewLayout1/

.

Spot price contracts have a simple price structure, consisting of a fixed mark-up on the wholesale price and a fixed monthly fee. This makes it easy for the consumers to compare contracts and identify changes in a running contract, at least compared to variable contracts. This has probably alleviated the information problem, which historically has given scope for market power in the Norwegian market. Price comparison tools and smart meters have probably also contributed to lower search and switching costs. Thus, the current conditions in the Norwegian market may facilitate a healthy and competitive retail market.

In the Finnish and Danish retail markets, there has also been a development towards more spot contracts, something that we expect will continue. We expect to see the same development when smart meters, which can report real-time hourly-based electricity consumption, become common in Sweden. Thus, we also expect these markets to become more competitive in the future. However, as demand for fixed price contracts have historically been higher in these markets, retailers that are vertically integrated with production may have more scope for market power in these markets than in Norway, if the imperfections in the markets for hedging are not resolved and the consumers continue to prefer fixed price contracts.

The competitive landscape in Åland is quite different compared to the Nordic countries, and the competition is in practice non-existing. New electricity retailers can enter the market, but currently there are two electricity retailers in Åland, who are also integrated DSOs. According to the interviews, one third of the customers are living in the grid area of one of the retailers, and the remaining two thirds are in the grid area of the second retailer. The switching rate between these two retailers appears to be almost zero, indicating almost full correlation between the customers’ electricity supplier and their DSO. The organization structure of the retailers impacts their market behaviour. The two suppliers in Åland are either owned by the municipality or operate as an economic cooperative owned by the customers, which can mean that the companies might not focus on financial targets, but rather on giving customers a stable and reliable electricity supply. Neither of the companies seem to actively try to win customers from the other. For instance, one of the retailers only offers fixed price contracts to the customers located in their DSO area. In addition to the general requirements of setting up a supplier company in Åland, the fact that the legal framework is based on the Finnish regulation while the price area belongs to Sweden SE3, makes it more difficult for electricity retailers from either Finland or Sweden to enter the market. Although new retailers can enter the market, the functioning of the market appears to be similar to the electricity retail markets in Finland and Sweden before the deregulation (Finland 1995 Sweden 1996).

The energy crisis has increased awareness and knowledge of the electricity markets in all countries. The experience with high and volatile prices may also have increased the interest in spot contracts in terms of consumers being able to adjust their energy consumption to the prices throughout the day. The prevalence of spot contracts has increased in Denmark, Finland and to some extent Sweden. In addition, Norwegian retailers have stopped offering variable price contracts. Part of the explanation is probably linked to that variable price contracts require more hedging than spot price contracts and that the energy crisis illustrated the advantage of being able to move consumption to low price periods. The demand is also low as it poses a risk for consumers to enter into variable price contracts when the electricity support is based on spot prices. In Sweden, there has also been challenges regarding large differences between bidding zones for hedging possibilities, leading to large price differences between the areas. Further, hedging possibilities have also been affected by increased risks when electricity production is located in other bidding zones.

The development on the demand side may contribute to more active and informed consumers, and thereby to more well-functioning markets. However, for the retailers, it has become significantly more difficult and expensive to hedge, which has led to a reduction in offering and more expensive fixed price contracts. In Sweden, contrary to Denmark, Finland, and Norway, many electricity meters are not yet on an hourly level, which can impose a challenge regarding customers who want to be more active. However, consumers in Sweden can choose an hourly electricity contract, which requires hourly metering without any additional cost, and the DSO must replace the meter if necessary even if most meters can be reconfigured at a distance.

Another consequence of the energy crisis was some bankruptcies among the retailers. There were not a lot of bankruptcies, but the bankruptcies that did occur may have made the consumers more aware of the risks associated with entering into contracts with smaller retailers. Thus, the consumers’ preferences for solid retailers may have increased, especially related to fixed price contracts or contracts with pre-payments. At least in Sweden, there has been a significant diversion from small to large retailers, which is compatible with such a hypothesis. If customers have preferences for large retailers, this may allow these to charge higher mark-ups and also to increase the practical barriers for entry.

However, we consider increased consumer knowledge and awareness as the most prominent effect of the energy crisis. Unaware customers are perhaps the biggest obstacle for a well-functioning electrical retail market, as the existence of such customers may reduce the electricity retailers’ incentives to compete on price. Thus, the crisis has probably alleviated the information problem, which can be expected to improve competition.  However, it is too early to say anything about the duration of the effect on awareness.

In Norway, fixed price contracts are offered to SMEs, and only a few fixed price contracts are available to household customers. The explanation is probably imperfections in the hedging markets combined with the price support scheme for the households. The lack of fixed price contracts may in particular be a challenge to SMEs that are not protected from high prices by the price support scheme. In Denmark, Finland, and Sweden, fixed price contracts are still offered, but the realized demand is slightly lower than before the crisis due to unusual high mark-ups. As explained above, the competition in the segment may be adversely impacted by advantages for large retailers with integrated production. In Åland, two contract types are available, and most household customers have open-ended variable price contracts, with fixed price elements, similar to Finnish variable price contracts.

The size of the electricity bill is likely to be highly correlated with the customer awareness and satisfaction. The greater the sum due on the electricity bill, the more conscious consumers will be on their electricity usage and the quality of their electricity contracts. Furthermore, customers with high electricity consumption will be more adversely impacted if a retail supplier switches them to a suboptimal contract or modifies the contract's terms and conditions in a negative manner. To sum up, the higher the consumption, the stronger the incentive for being an active and aware customer.

The use of electricity as a source of heating varies in the Nordic countries (Figure 3‑1). Norway has the highest electricity usage, as electricity is the most important source of heating for almost 50 percent of the population. For Sweden and Finland, electricity is the most important source of heating for approximately 25 percent of households. For Iceland and Denmark, electricity is the most important source of heating for as few as 8 and 6 percent, respectively. Most customers in Iceland and Denmark have district heating as the main source of heating, and the customer cannot influence the price by changing electricity suppliers. As a result, Norway, Sweden and Finland naturally have a higher electricity consumption compared to Denmark and Iceland. This implies that Norway, followed by Sweden and Finland should have a higher customer awareness in the electricity market. The degree of awareness is also revealed when examining household awareness of their annual electricity consumption. The results show that around 25 percent of households in Finland, Norway and Sweden lack awareness of their annual electricity consumption. In contrast, the figures are 70 percent for Iceland and 35 percent for Denmark, respectively (Figure 3‑2).

Note: The graph shows the most important source of heating in the household. Survey conducted in October and November 2023 amongst Nordic households. 

Note: The graph the reported yearly electricity consumption. Survey conducted in October and November 2023 amongst Nordic households.

The predominant electricity contract differs across the Nordic countries (Figure 3‑3). Among the Nordic countries, Norway has the highest share of spot price contracts with 75 percent of households having a spot price contract. Followed by Denmark, where 45 percent have spot price contracts. Variable price contracts are the main contract type in Iceland and Sweden, with a share of 58 and 53 percent, respectively. In Finland, almost 50 percent have a fixed price contract, while 30 percent have spot price contracts.

Generally, consumers on spot price contracts tend to be more conscious of their electricity usage because they gain advantages by aligning consumption with periods of low electricity prices. Moreover, these consumers are not bound by any contractual obligations and retain the flexibility to switch electricity retailers when desired. This suggests that Norwegian customers have the strongest incentive to understand and follow the electricity retail market. This is driven by a significant number of customers on spot price contracts, coupled with high electricity consumption. Consequently, the customers would face the most significant negative impact if a retail supplier switches them to a suboptimal contract or modifies the contract's terms and conditions in a negative manner. The customers on a spot price contract will also have a higher incentive to follow the hour-by-hour price development and adjust their electricity consumption accordingly.

In contrast, the Finnish and Swedish customers with fixed or variable price contracts, especially those bound by binding long-term contracts, are less likely to actively engage in the market. Their lack of flexibility and the absence of incentives to adapt consumption based on electricity price fluctuations should be expected to make them less active participants in the energy market. At the same time, those on fixed price contracts, in particular Finnish consumers, will have the incentive to search and compare contracts when they have to renew their fixed price contracts. Those customers who actively need to renew their fixed price contract have a rather strong incentive to stay informed compared to other countries where one can be a passive customer for many years. Thereafter, those on variable price contracts in Sweden and Iceland have the incentive to understand whether they have a contract that is in their best interest and should to some extent be active when it comes to comparing and switching contracts.

We do not have survey results about households’ contract types in Åland. However, there are only two contract types available; a variation of tariff-based prices, which is open-ended, similar to Finnish variable price contracts, and dynamic price spot contracts. The open-ended tariff-based contracts appear to be by far the most common contract type among household customers, while spot price contracts are mainly favoured by businesses.

Note: The contract shares are those reported by respondents in a survey conducted amongst Nordic households in October and November of 2023.

In summary, customer awareness is contingent on both the type of contract, to what extent electricity is the main source of heating and the household electricity usage. Customers on spot prices, especially in a market where electricity serves as the primary heating source, are typically the most attentive to market price develop­ments. However, they might less frequently find the need to switch contracts as they have a contract that follows the price develop­ments in the market and also because spot price contracts are more similar to each other than fixed or variable price contracts. In contrast, those on fixed price agreements who actively need to renew the contract might have a stronger incentive to assess whether they have the most competitive contract. This suggests that Norwegian customers should exhibit a high level of awareness, given that the majority are on spot price contracts and electricity serves as the primary heating source for most households. Next comes Finland, characterized by a substantial share of fixed price contracts that customers need to renew frequently and electricity having a fairly important role in heating. In the subsequent ranking is Sweden, where the majority holds variable price agreements, influenced by spot price developments, and electricity serves as a crucial heating source. Then comes Denmark with about 40 per­cent on spot price agreements, signifying a high level of awareness. However, since electricity is not a primary heating source in Denmark, overall consumption is limited. This suggests that Denmark may be relatively less aware than Norway, Finland and Sweden. In Iceland, where the electricity consumption is very low, the only contract available is variable price contracts, which in addition to the low price level results in a low level of both active customers and customer awareness.

In the Nordic countries, Finland stands out with a notably high share of active customers, as shown by how 80 percent of respondents in the survey either switched or compared contracts within the past year (Figure 3‑4). Within this group, 61 percent signed a new contract and about half of the customers signed with a new supplier. The high number of active customers compared to other Nordic countries may be attributed to a high share of fixed price contracts, where the customers are forced to switch or renew contracts periodically compared to contract types without a fixed term. Among the customers in Denmark, Norway, and Sweden from 45 to 50 percent are considered active in the market, supporting the notion of a relatively well-functioning competition in the electricity retail market. It is, however, important to note that the energy crisis may have spiked the share of active customers and that these shares may have been lower prior to the crisis. In Iceland, only 22 percent of respondents have engaged in either switching or comparing electricity contracts in the preceding 12 months. This suggests that the Icelandic households are for the most part inactive, which supports the notion that the competition in the Icelandic market does not function optimally.

There appears to be no clear correlation between the share of active customers and electricity consumption levels in Finland, Denmark and Norway (Figure 3‑5). In Sweden, a modest correlation is observed for consumption levels of 20,000 kWh or higher annually. In Iceland, a notable spike in active customers is evident when electricity consumption exceeds 20,000 kWh per year. It is noteworthy, however, that the prevalence of households with such high electricity consumption in Iceland is limited, given that the majority rely on district heating. The analysis does not consider the personal financial circumstances of the consumers; for instance, individuals with higher incomes might exhibit relatively lower concern regarding saving money in a new contract compared to those with lower incomes, despite potentially having higher electricity usage. This effect may explain why in some instances the share of active customers decreases when the electricity consumption increases.

The reason for being active varies between actively seeking a new contract and being contacted by a seller. In Norway and Sweden, the search for a new contract was often triggered by the consumer’s desire to find a more competitive contract.  In contrast, the main reason for switching in Iceland, Denmark, and Finland was that they were contacted by a seller. This could imply that customers in Norway and Sweden are more actively engaged in the market. This trend may be attributed to the substantial prevalence of spot price contracts in Norway and variable price contracts in Sweden, coupled with higher household electricity consumption per year compared to other Nordic countries. At the same time, it seems that the large share of fixed or variable price contracts in Finland and Iceland, coupled with the low electricity usage in Iceland, make the customers not actively seek a more competitive contract but rather accepting an offer when being contacted.

In Denmark, the customers seem to be inactive despite the large share of spot price contracts, and even though the electricity consumption increases (Figure 3‑5). This does not necessarily promote a well-functioning market, as the ‘active’ customers do not search for contracts that are more competitive. Furthermore, when sellers approach consumers, they may be led into contracts that are not in their best interest – especially if they are not well informed about their current contract.

Note: The graph shows the share of respondents who have either switched or compared electricity contracts during the previous 12 months. Survey conducted in October and November of 2023 amongst Nordic households.

Note: The graph shows the share of respondents who are active customers based on electricity consumption level. Share of active customers is defined by having either switched or compared electricity contracts during the previous 12 months. Survey conducted in October and November of 2023 amongst Nordic households.

Electricity is and traditionally has been a low-interest product in the Nordic countries due to for instance low and stable prices. Customer awareness has, however, increased due to the high electricity prices, which in turn have affected the mobility of customers and the customers’ choice of contracts. Although there have been several improvements in the recent years, information asymmetry is still the main challenge for a well-functioning electricity retail market.

The market is complex for customers. The starting point is that electricity is a homo­geneous subscription product with low interest. The product sold is composed of both electricity and grid services provided by different suppliers, and the consolidated bill includes charges for electricity, network usage, and other fees. With numerous retailers in the electricity market offering various types of contracts, each with distinct features, pricing elements, and additional services, it becomes challenging to compare products and choose what is in one's best interest, especially when there is limited awareness of individual consumption. In such a market, it is to be expected that inactive consumers enter into contracts that may not be in their best interest. This can be due to the complexity of navigating the market, making it difficult to make well-informed choices. In sum, even though the customer awareness is increa­sing in the Nordic countries in terms of more search and switching, com­plaints, and use of informative apps, the complexity of the market serves as a significant barrier for customers to properly understand the electricity market.

Despite electricity being a low interest product, there are still many customers, who switch suppliers. Getting a better price is, according to the survey, the main motivation for switching contracts in Denmark, Finland, Iceland, and Norway. At the same time, among those who had compared contracts, the main reason for not switching was the lack of considerable savings associated with switching, in all Nordic countries. Overall, this indicates that consumers are drawn to low prices, giving suppliers an incentive to compete on price. Sweden was the exception when it comes to the motivation for switching, where over 60 percent of the respondents stated to have switched for other reasons than better price, negative experience, or access to new services. Based on results from the interviews, this may explain the shift from smaller retail companies towards larger, more well-known companies.

Note: The graph shows the share of respondents who states that price was their main motivation for having switched contracts during the last twelve months. Data from household survey conducted in October and November of 2023 amongst Nordic households.

The main reasons for not switching in Norway, Finland, Sweden and Iceland is the high level of satisfaction with existing contracts or due to a perception of limited potential for savings in a new contract. In Denmark, approximately half of the individuals, who refrain from switching or comparing contracts, attribute this decision to the perceived complexity and time-consuming nature of the process, which is often related to difficulties in finding reliable information. This is not surprising, given that search and switching costs are independent of consumption, while the gain from a more competitive contract increases in consumption, and the average customer in Denmark has a low consumption.

In sum, the limited potential for savings, coupled with the considerable time and effort required to seek out a more favourable contract, prevents consumers from engaging in the process of switching or comparing contracts. It should however be noted that a high switching rate is not a goal in itself, but that consumers who are aware and willing to switch are a prerequisite for a well-functioning market.

Among the households that have switched or compared contracts in the Nordic countries, more than 50 percent report challenges while doing so. The main challenges in the Nordic countries when comparing contracts were (i) the complexity of comparing contract terms and (ii) the difficulty in distinguishing between various contracts. In Iceland, more than 40 percent responded that they also had other reasons for experiencing challenge. Norway and Iceland were the two countries experiencing the most challenges, followed by Denmark and Sweden. Finland had the least share of households reporting challenges. However, a rather high share of the switches in Finland was initiated by the supplier and may therefore have occurred without the consumers undertaking any real search. Based on this, we should be careful about concluding that search costs in general are lower in Finland than in the other markets.

Note: The graph shows the share that experienced issues when switching or comparing contracts. Survey conducted in October and November of 2023 amongst Nordic households.

Note: The graph shows the share who report having experienced an given issue whilst switching or comparing contracts. Multiple choices allowed. Survey conducted in October and November of 2023 amongst Nordic households.

The nature of the contracts that the consumers are searching for may also affect the search costs and experienced challenges. Variable contracts may be inherently difficult to compare, as the retailer will have the flexibility to change prices in the future. The retailer’s reputation may thus be an important variable in the choice of supplier and may be a reason why there are fewer negative experiences with electricity retailers in Sweden. Fixed price contracts should on the other hand be relatively easy to compare, but different terms related to contract breach, volume requirements, etc., might increase the experienced complexity. Spot price contracts may be very difficult to compare in a situation without smart meters, as the real mark-up will be affected by the assumed consumption profile set by the retailer. With smart meters, the contracts should be relatively easy to compare, but without information about own consumption, it may be challenging to compare contracts with different mark-ups and monthly fees. Based on this, and the fact that now mostly spot price contracts are offered in Norway, the share of customers that report having experienced difficulties appears higher than expected. However, there can be different types of spot price contracts in terms of bundling with other products, which makes them difficult to compare. In addition to many different contract types that are difficult to differentiate, there are also many suppliers, who offer these types of contracts.

Based on the survey, where a high proportion of households reported that they had encountered challenges related to comparing and switching contracts, we conclude that measures that reduce search and switching costs may lead to more well-functioning retail markets in the Nordic countries. However, as markets and contracts have undergone some changes during the energy crisis, the experienced challenges may be related to new and unfamiliar contract types. Here the Norwegian retail market may serve as an illustration; almost all consumers now have a spot contract. For consumers, it should be relatively easy to compare their running contract with other contracts on the market, for instance by using a price comparison tool that presents all the current contracts available in the market. This applies to all the Nordic countries, but mostly to the Norwegian retail market as most consumers have a spot contract, which makes it easier to compare.

Despite the high share of customers who experienced challenges when comparing contracts, many customers felt well informed when switching contracts. In most of the Nordic countries, about half of the households responded that they felt either well informed or very well informed when switching contracts. This may suggest that many customers in the Nordic countries are adept at identifying competitive electricity contracts, as getting a better price is the main motivation for switching contracts in all countries. Finnish customers appear to be the most well-informed among the Nordic customers, as 70 percent reported feeling either well informed or very well informed. Seen in context with Finland that has the most active customers as well as the lowest share of households experiencing challenges, this may suggest that the electricity market in Finland is less complex, households are better informed or they perceive themselves as more informed, possibly due to the substantial prevalence of fixed-price contracts. However, the results also imply that a large share of household consumers did not feel well informed when switching contracts, and the share of households who felt poorly informed or somewhat informed were particularly high in Denmark, and to some degree in Norway. The high share of poorly informed customers in Denmark could, in part, be due to challenges related to the price comparison tool.

Note: The graph shows how informed respondents felt before switching or after comparing contracts. Survey conducted in October and November of 2023 amongst Nordic households.

The online comparison tool is important when comparing contracts in all the Nordic countries, which implies that the efficiency of the market depends to a high degree on a price comparison service that provides relevant and reliable information, and that the consumers are well-informed about these services. Nevertheless, the online comparison tool varies across the Nordic countries, differing in both content and customer satisfaction levels. Among all the Nordic countries, the Norwegian comparison tool seems to be the most developed when it comes to regulations that hinder ‘bad deals’. On the other hand, the Danish comparison tool is noted for having the lowest customer satisfaction, attributed to challenges in customers’ discerning the reliability of presented deals. Sweden, Iceland, and Finland generally express satisfaction with their respective tools, emphasizing their widespread use for comparing and switching contracts. However, there is room for improvement in the Nordic price comparison tools.

Note: The graph shows the most important source of information when switching or comparing contracts. Survey conducted in October and November of 2023 amongst Nordic households.

All the Nordic countries suffer from a large share of customers who have negative experiences with the retailers. While a share of these negative experiences is attributed to high electricity prices, it is noteworthy that many customers still report negative experiences that are not related to price (Figure 3‑11).

Among the Nordic countries, Norway, Denmark and Finland struggle the most with a lack of trust in the electricity retailers in the market. Approximately 40 percent in Norway, 35 percent in Denmark, and 30 percent in Finland report negative experiences, which are not related to price. In Sweden and Iceland, approximately 25 percent of the households report negative experiences with the electricity retailers, which are not related to price. Sweden generally has a lower number of customers with negative experiences due to the high trust in the electricity retailers as there is a limited number of suppliers that are classified as unfair. It is interesting that the Swedish customers report fewer negative experiences, as the share of variable price contracts are the highest in Sweden and such contracts may be more prone to retailers making changes that are not in the consumer’s interest. Sweden also has a public complaint list, which contains electricity retailers that have received a high amount of complaints, and this may have disciplined the retailers from practices like moving customers to unattractive contracts, etc.

Transparency in the market is mainly needed for the customers to understand the market. The Icelandic market does not have the same problem with lack of trust in the retailers, but this might be attributed more to a lack of awareness and attention to the market than to the electricity retailers’ conduct standing out positively or negatively. The Icelandic market is also characterized by a limited number of electricity retailers, of whom the majority are well-known and trusted companies.

Note: The figure shows the share of households who report having a negative experience with their electricity supplier during the last two years. Survey conducted amongst Nordic households in October and November of 2023.

The main issue, which the households reported in all the Nordic countries, was that the price was much higher than expected. It is difficult to say whether the negative experience regarding the price development was related to the contract with electricity retailers’ or rather related to the general development of the electricity price in the spot price market.

It also seems to be a general issue in the market that the bill is difficult to understand, indicating an opportunity for improvements to make it more consumer-friendly, especially in Norway, Denmark and Iceland. For Finland and Sweden, the percentage who reported difficulties in understanding the bill was much lower. This may be because Finland and Sweden have a high percentage of fixed and variable price contracts, respectively, which makes the price per kWh on the bill easier to understand. It also may indicate that the layout of the invoice is indeed more comprehensible with respect to for instance the inclusion of the grid usage fee in the bill.

Another negative experience, which consumers have with electricity retailers, is aggressive marketing techniques, for instance by phone, that provide customers with limited information to make good decisions, and misguiding information on the electricity retailers’ websites and electricity bills. This is especially a challenge in Norway. Currently, the ministry considers addressing such conduct with the introduction of a cooling-off period, stating that the offer must be presented in writing before being accepted by the customer.

Lastly, customers in the Nordic countries were in general dissatisfied with the electricity retailers’ customer service, which was difficult to contact during the energy crisis, primarily stemming from a mismatch between the number of complaints and the capacity of customer service employees, resulting in prolonged wait times.

Surprisingly, few customers take action in response to the negative experiences. The survey shows that a little under half of the households in the Nordic countries did nothing in response to the negative experience with the retailers (Figure 3‑12). Iceland stands out with over 65 percent choosing not to take any action, which is also in line with the high number of inactive customers in the market. Generally, approximately 20 percent of the customers chose to complain or switch retail supplier. There may be several reasons for this behaviour. First, it makes sense not to do anything if the negative experience with the retailer is due to the price being higher than expected, as this is highly defined by the development of the spot price market. Also, if the perceived search costs are high and it is challenging to determine if one is switching to a better contract, it can also make sense to stay. It may also be because the main issue, apart from the price, is that the bill is difficult to understand. The difficulties with respect to understanding the bill may be a market-wide issue, thus giving little incentive to change supplier.

Note: The graph shows actions taken by consumer in response to a negative experience with their electricity seller. Survey conducted amongst Nordic households in October and November of 2023.

According to the survey results, a substantial challenge for customers is the difficulty in understanding the electricity bill. This should be considered a fundamental issue. Understanding the invoice is a prerequisite for verifying that the billed amount is in accordance with the contract. Furthermore, if the consumers find it hard to compare contracts, their incentive to check the invoice and the details may be low. Thus, the more difficult it is to understand the invoice, the more scope and temptation for exploitative practices.

Customer awareness related to their invoice is quite similar in the Nordic countries, with Iceland being the exception. Common for all countries is that the respondents read the amount to be paid (Figure 3‑13). Apart from this, in Norway, Demark, Sweden and Finland, a little less than half of the households show interest in the break-down of costs and the estimated annual and/or historical consumption. In Sweden, it has been emphasized that the requirements regarding the level of detail on the invoice served as a barrier to product innovation and was a source of confusion for consumers trying to comprehend the information. In Iceland, the households do not show interest in the invoice and 40 percent reported that they did not read any information on the electricity bill. This further highlights that electricity is a low interest product in Iceland, as neither the choice of retail supplier nor the information on the bill, apart from the sum to be paid, is of particular importance to the customer.

Note: The graph shows actions taken by consumer in response to a negative experience with their electricity seller. Survey conducted amongst Nordic households in October and November of 2023.

The energy crisis had an impact on customer awareness and satisfaction in the Nordic countries, with Iceland standing out as an exception due to its isolation from the European grid. Primarily, the spike in electricity costs transformed electricity from a low-interest product into a commodity that gained significant attention from customers and media. Customers grew more aware of the need to comprehend the electricity market, understand contractual terms and conditions, and ensure that they secured an electricity contract in alignment with their best interests.

Furthermore, there was a noticeable increase in mobility within the Nordic countries, particularly in Sweden and Denmark, where mobility had traditionally been low. The crisis, in this sense, fostered a positive effect on market competition. Customers switched from fixed to spot price contracts, seeking more flexibility and responsiveness to market changes In Norway, a considerable number of customers transitioned from variable price contracts to spot price contracts, with this shift beginning slightly before the onset of the energy crisis. Moreover, a small trend emerged in Sweden, where some customers moved from smaller retailers to larger well-known companies, driven by increased trust in more established actors.

The energy crisis also prompted a heightened focus on energy consumption. Customers expressed a desire to shift their usage from peak hours to hours with lower prices. To achieve this, many installed various solutions such as solar cells, heat pumps, and smart-charging systems for electric cars. This type of behaviour was mostly seen in Norway and Denmark where a higher share of the customers was on spot-price contracts. Customers with fixed or variable price contacts in Finland and Sweden did not have the same incentive to shift their electricity consumption but did have an incentive to reduce it. Finland, for example, implemented a campaign to encourage consumers to "lower their home temperature by one degree," proving to be an effective strategy in the reduction of electricity consumption among consumers.

However, challenges emerged in customer service during the crisis. Many electricity suppliers experienced constraints in their customer service channels, leading to situations where consumers were unable to contact customer service. This limitation impacted consumers' ability to exercise their legal rights, including cancellation rights related to distance selling or the ability to submit complaints. Overall, the energy crisis had far-reaching effects, reshaping not only customer behaviour and market dynamics, but also the landscape of customer service in the Nordic countries.

The energy crisis appears to have had limited impacts on the customer awareness and satisfaction in Åland compared to the other Nordic countries. While the customers were not surveyed in Åland for this study, the interviewed stakeholders reported no significant increase in customer complaints or congestion of customer service channels, and few cases have been lifted to the consumer and competition authorities regarding the electricity retail market. The interviews also indicated that there have been no large shifts in contract type preferences due to the price shock. The switching activity in Åland is generally low, regarding both electricity retailers and contract types. The low switching activity could be due to customers trusting their retailers because of the vertical integration, and because the customers have experienced relatively low and stable prices over time. However, the low switching activity could also be due to customers being unaware of the possibility to switch retailers or contract types.

Similar to the other European power markets, the Nordic power market was significantly impacted by the energy crisis during the winter 2022/23. The crisis resulted in a price shock for customers, prompting the implementation of electricity support schemes in several countries. The energy crisis also contributed to straining the liquidity in the financial markets, adding to a long period of gradually reduced activity at the exchange. The lack of liquidity in the financial market reduced the robustness of the future prices and increased transaction costs, negatively impacting electricity retailers' ability and costs related to hedge their portfolios. This made it more challenging for electricity suppliers to offer attractive fixed price agreements to their customers.

On the retail side, we have identified two main challenges that may adversely affect the functioning of the retail markets. The first challenge is related to the electricity retailers’ ability to offer the full range of products in demand and the other is related to asymmetric information.

Fixed price contracts are currently offered in Finland, Sweden and Denmark. In Norway, fixed price contracts are available for SMEs, and some fixed price contracts are available to households. The supply of fixed price contracts to Norwegian households is limited and has been non-existent in periods during the energy crisis. Iceland has variable price agreements that in practice functions as a fixed price contract. In Finland, fixed price contracts are the most common agreement, Norway and Denmark has a high share of spot price contracts, while Sweden and Iceland have a high share of variable price contracts.

The Nordic countries, except for Iceland, utilize Nord Pool as their wholesale electricity market, which is a marketplace for the wholesale trading of electricity. Iceland is the only Nordic country that does not have a functioning wholesale market. This can be a challenge as some electricity retailers have integrated production, allowing them to shift market power from the production stage down to the retail level. This results in less equal competition conditions on Iceland.

Common for the Nordic electricity retail market is the challenge connected with hedging the risk associated to future prices. In a well-functioning market, retailers should have the capability to hedge against the risks associated with future price fluctuations. Without such a possibility, the retailers will have to carry much risk, which ultimately will result in high premiums for fixed-price contracts. Furthermore, the retailers will be vulnerable to fluctuating prices and facing risk of bankruptcy. This may reduce the consumers’ trust in the retailers as counterparts. In particular, it may make the customers reluctant to enter into fixed price contracts, as the contract is of no value if the retailer goes bankrupt when the power prices increase. Iceland is a unique case in the sense that they do not have a financial market for electricity, making risk management and price hedging difficult. In addition, the lack of a functional financial market also removes essential price signals in the market.

In the Nordic market, the Nasdaq exchange is the marketplace for financial contracts. Over time, it has become more difficult for the retailers to hedge through Nasdaq. The contracts exchanged are linked to the Nordic system price, for which the correlation with the price areas has decreased significantly as a result of the energy crisis. The lower the correlation is between the system price and the area price, the less efficient hedging is for both retailers and producers, and thus low supply and demand for financial contracts. In turn, this has led to an illiquid market, with high premiums. High premiums reduce the consumers’ demand for fixed price contracts.

Bilateral OTC contracts are an alternative to exchange hedging. An important advantage of OTC trading is that a producer and a retailer in the same price area can contract on the area-price rather than the system price, on which exchange-contracts are based. The disadvantage is high transaction costs, low flexibility and possibly a ‘thin’ market in each price area. Thus, for a retailer it may be costly to base fixed price contracts on OTC hedging, implying that OTCs may not support competitive fixed price contracts. The prices in OTC contracts are also unobservable, and hence OTC trade does not support the formation of robust long-term reference prices on the exchange, which is open and valuable to all market players.

Retailers who have integrated production in areas where they want to offer fixed price contracts are not facing the same costs of hedging, as the increased costs mainly are associated with market imperfections and transaction costs. However, few retailers are integrated with production and very few have production in several price areas. This may translate into market power within fixed price contracts. Thus, competitive offerings of fixed price contracts cannot be expected despite not all retailers are facing equally large challenges.

The challenges related to hedging seem to be caused partly by fundamental conditions in the power market. Thus, it cannot be expected to vanish in a situation with increased underlying demand for fixed price contracts. However, achieving an improvement in the financial market with increased liquidity in listed products and robust futures prices will help level out the differences in competition.

Asymmetric information is a challenge in the electricity retail market. The information problem on the consumer side makes it difficult for the consumers to distinguish between serious and unserious suppliers, as well as good and bad contracts. This translates into a challenge for serious retailers because it makes it difficult and costly to signal seriousness, and to compete on parameters such as price and quality. This may in particular be a challenge for new electricity retailers as they have no track record to prove seriousness. In turn, this may adversely affect the type of retailers who enter the market, for instance, by promoting short-sighted firms that pursue hit-and-run strategies to enter the market. The result is less efficient competition and a worse outcome for consumers.

Unserious retailers may speculate on charging low ‘on-boarding prices’ to capture consumers that later can be exploited. Serious retailers will on the other hand have less ability to finance low ‘on-boarding prices’ through future profit on the customers. The more difficult it is for the consumers to distinguish between serious and unserious retailers, the less the scope is for serious retailers. Furthermore, if the consumers do not trust the retailers and expect to be ripped-off in the future, it becomes rational for the consumers to choose the lowest ‘on-boarding price’. This may reduce the profitability of serious retailers and make it tempting to exploit captured customers. Furthermore, it will decrease the incentives for serious retailers, resulting in a population with a high share of unserious retailers.

The situation has similarities to what economic theory refers to as the lemons problem or adverse selection due to asymmetric information. This was first introduced by Akerlof (1970)

George Akerlof (1970) "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism", Quarterly Journal of Economics.

where he showed that asymmetric information between sellers and buyers of used cars translates into a market with only ‘bad cars’, as the sellers of ‘good cars’ cannot demand a higher price than the sellers of bad cars due to the inability of customers to distinguish between them.

The electricity retail market has some inherent properties, which implies that asymmetric information to some degree is unavoidable. Generally, electricity can be described as a homogeneous subscription product with low customer interest. The product sold is, however, composed of both electricity and additional services provided by different suppliers, and the consolidated bill includes charges for electricity, grid services, and other fees. With numerous retailers in the electricity market offering various types of contracts, each with distinct features, pricing elements, and additional services, it becomes challenging to compare products and choose what is in one’s best interest, especially when costumers often have limited awareness of their individual power consumption. The prevalence of asymmetric information, coupled with low barriers to entry, makes scope for unserious players. Such challenges appear to have had the most adverse effects in Denmark and Norway. Regulations are in place to reduce the prevalence of bad business practices, and we believe that this and increased awareness has contributed to reducing the problems. However, suppliers are creative and tend to find ways around regulations and measures to protect consumers. One example of such measures is that suppliers must guarantee the price for at least 12 months in order to obtain an attractive ranking at the official comparison tool in Norway, Strømpris.no. Furthermore, new regulations have been introduced in Norway to deal with these challenges, and the authorities have signalled stricter enforcement of existing regulations. The complaint list in Sweden, listing electricity retailers who have received many complaints during the past year, is an example of another measure to deal with such challenges.

Regulations in the Nordic electricity retail market is generally considered sufficient. However, there are concerns, especially in Sweden, Norway, and Denmark, regarding how certain regulations may impede the development of various types of contracts.

In Norway and Sweden, there are regulations as to what information is necessary to be provided to the customers and how. Sweden has for example an obligation of informing customers 60-90 days before a contract expires, with several obligations as to what the information should include. In Norway, electricity retailers are obligated to inform customers, who are not on spot price contracts, of the upcoming price in their contract at least 30 days in advance. The earlier the price information is required to be sent to the customer, the greater the financial exposure and uncertainty for the electricity supplier, thereby influencing the price that can be offered to the customer.

In Denmark, the legal framework strongly favours consumer rights, particularly concerning their ability to opt out of fixed price agreements. Since the legal framework anchoring consumer rights applies to all sectors it can be difficult to adapt. While the current approach is undoubtedly consumer friendly, it can act as a disincentive for retailers to provide fixed price contracts. Alternatively, the increased risk for retailers raises the prices of these contracts.

The risk of procuring power for fixed price contracts and engaging in hedging strategies is elevated when consumers have the freedom to terminate their contracts at any time. The existing quarterly fixed price contracts can also be restrictive due to how the opt-out option forces the retailers to charge a significant premium, especially if the market is volatile.

Sweden also has issues in connection with the strict requirements related to the information that needs to be included on the invoice. These requirements can help customers improve their understanding of their bills, but it can also make it more difficult for the customers to understand when there is too much information. The retailers argue that it hinders product development. It specifically hinders the development of new products, which are more complex than the ones offered today, as the increased complexity of a new product would be difficult to present correctly on an invoice according to the regulations of the information that must be included. Therefore, it is crucial to evaluate what information is relevant for the customer and introduce regulations accordingly.

In Iceland, it is the market's design itself that imposes limitations on the types of contracts that can be offered. The absence of a wholesale market and a financial market restricts the contract types that can be offered, resulting in only variable contracts being available.

Some market participants also find it questionable that the markets allow 'greenwashing’. Purchasing electricity agreements with guarantees of origin is a way for consumers to support renewable energy producers. However, it does not impact the electricity that consumers receive in their homes through their power agreements. Therefore, some market participants find it strange that electricity retail companies can market that they are selling green power.

On the consumer side, we have identified four main challenges that may adversely affect the functioning of the retail markets. The first challenge is related to information asymmetry, followed by the electricity retailers’ ability to offer the full range of products in demand, customer awareness and customer protection.

Electricity is a low-interest subscription product, where the consumers, unlike in many other markets, do not have to make an active choice of supplier and contract each time they buy the product. Furthermore, when consumers sign an electricity contract with a retailer, both their future consumption and the price they pay can be uncertain. These uncertainties may be even more prevalent in the electricity retail market, compared to other subscription markets. Understanding the relationship between the contract terms and future prices may be difficult for the consumers.

Although there have been several improvements in recent years, information asymmetry is still the main challenge for a functioning electricity retail market. Consumers have little confidence in electrical retailers due to for instance the information asymmetry, and households in especially Norway, Denmark and Finland have considerable scepticism regarding the electricity retailers’ credibility. This may be a result of the consumers themselves having had negative experiences or that they have heard about unfair retailer practices through media coverage.

The characteristics of the market, and the product complexity, reduce the consumers’ incentives and ability to seek information and actively participate in the market. Because of the information asymmetry, inactive consumers have a high risk of entering into contracts with unfavourable terms. Also, for active consumers, the complexity and variation of product structure may impede the consumers’ ability to identify the contracts that are in their best interest, which in turn may reduce the electricity retailers’ incentives to compete on price and quality. In addition, contracts are often sold through channels that provide customers with limited information at the time of purchase, such as telemarketing and stands. Norway and Denmark stand out with the most telephone sales and aggressive marketing strategies.

Results from the survey show that approximately 50 percent of customers in the Nordic countries who compared or switched contracts, had difficulties while doing so. The main challenge related to comparing contracts were (i) the complexity of comparing contract terms and (ii) the difficulty in distinguishing between various contracts due to varying price components and variations in supplementary services within the same contract type.

In Sweden and Finland, there is a higher degree of asymmetric information due to the presence of both variable and fixed prices in their electricity market. This is because both fixed and variable contracts are often more complicated to understand, as well as how there are many different versions of these contracts, such as customer profile, duration, etc. Electricity retailers can also have different hedging strategies, which in turn result in different prices for the customer. Moreover, understanding the expected price development also poses an information challenge for consumers. In sum, the risk that the consumers enter into an agreement, which is not in their interest, is higher for these types of contracts. In Norway and Denmark, where spot price agreements are more dominant, it should be less complicated to compare contracts as spot contracts have a more unitarian design. In practice, the absence of variable and fixed agreements in Norway prevents customers of going into impractical or less favourable contracts.

The complexity of contacts and variations in price structures is also challenging when designing price comparison tools, which is an important source of information to consumers in the Nordic retail market. When the tools are well designed, they can reduce the search costs for consumers and increase information about suppliers and contract terms, making it easier to identify favourable contracts and avoid unfavourable contracts. Some of the tools, however, have been less trustworthy and in part been used as marketing platforms for suppliers and contracts that may be cheap in the short run, but not favourable for the consumers in the long run. Currently, in particular Denmark faces challenges with its tool, and its usage is less prominent compared to the other Nordic countries.

The retail electricity markets in Finland, Denmark and Sweden offer spot, fixed and variable price contracts to households and SMEs. The Norwegian market offers spot price, fixed price and other types of contracts to households, and spot and fixed price contracts to SMEs. The availability of fixed price contracts is variable, and there is no guarantee for Norwegian customers always to be able to find an offer in their price area. Variable price contracts are currently not available in Norway, but there are still around 4 percent of customers on 'old' contracts. At the same time, the Icelandic market only offers variable price contracts, while in Åland, open-ended variable price contracts with fixed price elements and spot contracts are available.

The absence of fixed and variable price contracts in Norway, and spot and fixed-price contracts in Iceland does not necessarily pose a challenge with finding a good contract for customers. In Norway, the lack of supply of fixed and variable price contracts is mainly due to the demand, which is in practice non-existing. This should be considered as consequence of the electricity support scheme, which in practice implements a soft price cap at a rather low level. Hence, without bearing the cost, the households are protected from very high prices. In this situation, the willingness to pay a premium for a stable price, in the form of a fixed price contract, is understatedly low. The demand for fixed price contracts was also low prior to the electricity support scheme. Considering that Sweden, Finland, and Denmark offer fixed-price contracts, it is probable that Norway could provide similar contracts if there was a sufficient demand. However, there may be a higher underlying demand in the SME segment. However, at present spot prices are low, relative to the cost of hedging, translating into a rather low expressed demand, also in the SME segment. Despite the current low demand for fixed price contracts, in a well-functioning market, consumers and producers should be able to secure the future price for a competitive and acceptable premium. Furthermore, an electricity support scheme is only temporal, and a higher demand for fixed price contracts is expected when the scheme is terminated. The consumers’ experience with unexpectedly high prices during the energy crisis may also translate into a higher demand for fixed price contracts in the Norwegian market than what historically has been the case. Given that Sweden, Finland, and Denmark are able to provide fixed price contracts, it is likely that this would be possible in Norway, too, had the demand been there.

The Icelandic market only offers variable price contracts due to the absence of a wholesale market for spot prices, and the wholesale electricity price is set by Landvirkjun. Landsvirkjun is the main power producer in the electricity retail market, and electricity retailers purchase power from Landsvirkjun through fixed contracts. The electricity prices in the consumers’ variable price agreements are typically adjusted once a year, often on 1 January, when Landsvirkjun also adjusts its prices. In practice, the Icelandic customers have typically a fixed price for a year without a binding time-period with a chosen retail supplier. The lack of spot price contracts is not necessarily a weakness in the market that has been unfavourable for consumers, given the current low and stable prices in the Icelandic market. The need for a transparent spot market and contracts based on spot prices may, however, be more evident with a development towards increased demand and potentially also integration of variable energy production, hence also increasing the value of more flexible consumption responding to efficient price signals.

In Denmark, there are only long-term fixed price agreements available for SMEs and not for households. This is because the SMEs do not have the right to opt out of a fixed price agreement as households do. As a result, households are limited to signing 3-month fixed price contracts. Consumer rights to terminate agreements on relatively short notice contribute to reducing the availability of ‘favourable’ long-term fixed price contracts for households, especially considering the volatility of prices. The absence of favourable fixed price contracts, along with long-term contracts for households, may be a weakness for the customers who seek fair deals that also offer predictability.

Finland and Sweden offer several different types of agreements. However, in Finland the fixed price contracts that used to be 24 or 12 months are now also offered at shorter durations due to hedging difficulties. The customers who traditionally have had the long duration agreements may find shorter-term contracts inconvenient. In addition, offering consumption-effect contracts is now a common thing in the market, which might stem from the difficulty of offering pure fixed price contracts. In Sweden, most customers have been on variable price contracts. A possible explanation of the high prevalence of variable price contracts is that the meter reading collection for households takes place on a monthly basis in Sweden, making the spot price contracts in Sweden less attractive. Last year, a new generation of smart meters was introduced, and more customers have started to have spot prices with hourly measurements and hourly spot prices. This may indicate that there is an underlying demand for spot price contracts, and that a broader introduction of smart meters is necessary.

The future demand for fairly priced fixed price contracts in all the Nordic countries is likely to increase as the European energy production becomes more volatile with the introduction of sources like wind and solar power. This volatility in the European power system is expected to lead to fluctuating prices for customers in the Nordic market. Consequently, there may be an increased need for price hedging among customers who are price sensitive. This may further emphasize the importance of a well-functioning Nordic financial market that enables the availability of fixed-price contracts with reasonable risk premiums.

Electricity has been seen as a low interest product, due to electricity being a homogenous product and prices historically being low and stable. There is some evidence that the rising energy prices has contributed to raising the general customer awareness in the Nordic market, with Iceland being the exception.

Finland stands out with a notably high share of active customers, followed by Denmark, Norway, and Sweden. Iceland has without comparison the least active customers in the Nordic markets. In Norway and Sweden, the activity was often triggered by the consumer’s desire to find a more competitive contract. In contrast, the main reason for switching in Iceland, Denmark, and Finland was that a seller contacted them. This could imply that customers in Norway and Sweden are in practice more actively engaged in the market. This trend may be attributed to the substantial prevalence of spot price contracts in Norway and variable price contracts in Sweden, coupled with higher household electricity consumption per year compared to other Nordic countries. In sum, this increases the customer awareness, as electricity constitutes a relatively bigger part of their monthly expenses.

In addition, a little under half of the households in the Nordic countries felt well-informed when switching contracts, except for Finland where around 70 percent felt well-informed. For most consumers, the main motivation for switching contracts in the Nordic countries is to get a better price, which may suggest that many households are adept at identifying competitive electricity contracts since many of the respondents report that they take well-informed decisions. However, the results also imply that a large share of household consumers did not feel well-informed when switching contracts, and the share of households who felt poorly informed or somewhat informed was particularly high in Denmark, and to some degree in Norway. In addition, the survey indicates that the market is still characterized by a significant group of inactive consumers. Measures to further increase the awareness of customers is likely beneficial to further increase the efficiency of the market.

The degree of awareness is likely to be somewhat higher for SMEs since businesses have better incentives to pay attention to their contracts as they often have higher consumption, and their costs of electricity may influence their ability to compete in the market. Also, as businesses do not necessarily have the same consumer rights as households, they have, at the outline, stronger incentives to make sure that they understand the deal they are entering into. In Norway, the majority of businesses have chosen to actively hedge around half of their portfolio through fixed price contracts. Nevertheless, there are still many SMEs that, in practice, have the same starting point when it comes to knowledge of the electricity market as households, and many SMEs face similar challenges in distinguishing between attractive and unattractive contracts.

Households benefit from strong consumer rights in the electricity retail markets across the Nordic countries. No area was highlighted as needing improvement, according to the interviews with actors in the Nordic countries. Denmark stands out as the Nordic country with the strongest consumer protection, as customers are allowed to opt out of fixed price agreements.

There are still instances of electricity retailers in the Nordic countries that do not adhere to existing laws and regulations. An example of retailers not adhering to existing laws and regulations is aggressive marketing techniques, for instance giving the customer an introductory offer, where customers are transitioned to more expensive contracts without notification after a short period of time. There have also been challenges with tele sales, where retailers make promises regarding a price that they do not actually offer. Some retailers may pursue such practices due to a lack of understanding of the legal framework, while others may breech regulations intentionally. Some actors we interviewed in Denmark claim that certain retailers believe the sanctions are so low that they have potential sanctions incorporated in their marketing budgets. If so, the expected cost of breaching regulations related to consumer protection, meaning a combination of the size of potential fines and the probability of being fined, is too low to prevent illegal practices.

Another issue concerning consumer protection is how electricity retailers can take advantage of legal grey areas in the legislation, thus creating a situation where companies may deceive customers without technically violating the law.

To address these to challenges, there is a need for strengthened enforcement of the existing legislation. This is particularly important in Denmark, where the issue of more unserious actors appears to be most prominent. First and foremost, the relevant regulations and legal framework must be effectively enforced, practiced and communicated to electricity retailers to enhance their understanding of what is allowed. This communication can also help alleviate issues in the market related to ‘grey areas’. Regular controls are important to establish a sense of risk for retailers that might be tempted to deviate from complying with the law. Furthermore, informing the consumers about their rights and how to response to illegal practices may also have a deterrent effect on incentives to pursue illegal practices, while at the same time increasing the likelihood of detecting such practices.

The fines imposed on retailers for legal violations must also be sufficiently high to provide them with strong incentives to adhere to legislation. In Norway, for instance, sanction fees have been increased to offer additional incentives for electricity retailers to comply with the laws.