Based on the findings of this study, our overall assessment is that the electricity retail markets in the Nordic countries are well functioning. Generally, the competition in the Nordic electricity retail markets seems to be good, although Denmark and especially Iceland have a higher prevalence of competitive challenges than the other Nordic countries. Customer awareness has traditionally been low in all the Nordic countries due to low and stable prices. The energy crisis has, however, caused an increase in customer awareness due to the high electricity prices. This has in turn affected the mobility of customers and the customers’ choice of contracts. The electricity retail markets in Denmark and Norway, and to some extent in Finland, have for some time been characterized by a high level of customer dissatisfaction, which likely further increased during the energy crisis. Regulations in the Nordic electricity retail market generally appear to be sufficient, both with respect to marketing and to consumer rights. However, the regulations are distributed among different authorities, enforcement of the regulations has been upheld to a varying degree, and sanctions can be low. This may contribute to some retailers not having a clear understanding of the legal boundaries and therefore they may unintentionally be operating in a legal grey area. In sum, the information asymmetry stands out as the main challenge for a well-functioning electricity retail market in all the Nordic countries, both when it comes to the competitive landscape and customer awareness and satisfaction.

In Denmark, the competition in the electricity market is characterized by low margins for the electricity retailers, combined with many electricity retailers operating in the market. This includes established companies, local providers, and newer, innovative companies. These characteristics could indicate a healthy competition, but it is important to note that there are still companies who hold high market shares in regional areas, which weakens the competition. The Danish market is also characterized by a large passive customer base compared to Norway, Sweden and Finland. If the willingness to switch is low for other reasons than the customers already having the most competitive contract, it may affect the functioning of the market adversely, as it will constitute a source of market power to active suppliers, and a challenge for new entrants. Lack of customer awareness and satisfaction due to information asymmetry is also a threat to the functioning of the electricity retail market, as customers do not understand the market, and whether the contracts they are entering into are competitive or not. Denmark has also had challenges with retailers not complying with the law, for instance by luring customers into bad contracts or introductory offers where the customer is moved to a contract that are more expensive without being notified. This issue does not caused by a lack of regulations, but rather by a lack of enforcement and sanctions. Some electricity retailers also argue that the regulations are too consumer friendly as the customers for instance have the right to opt out of fixed price agreements.

The competition in Finland functions fairly well. There is a high number of suppliers, but the number of electricity suppliers has been steadily decreasing since 2019 due to consolidations. Vertically integrated companies are unbundled, but many are still not fully unbundled from an ownership perspective. The Finnish market is characterized by a high share of active customers. The high mobility may be attributed to a high share of fixed price contracts, forcing customers to switch or renew contracts periodically. The customer satisfaction is generally be considered low, especially due the energy crisis. Many customers report negative experiences related to the price being higher than expected, but also related to misinformation from suppliers and bad customer service. The regulatory framework in Finland generally seems sufficient, but the regulations are not necessarily enforced sufficiently.

In Iceland, the competition is weaker than in the other Nordic countries. The practical barrier to entry is 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 Nordic countries. The lack of a well-functioning wholesale market facilitates market power for the retailers with integrated production. Low electricity consumption weakens the Icelandic customers’ incentives to participate actively in the market, like switching retailer as a response to higher price. The customer satisfaction seems high, with a generally low level of complaints. The high customer satisfaction may likely be attributed to electricity being a low interest product, because of the low and stable electricity prices combined with low electricity consumption. Although the Icelandic market seems to function well in several areas, the interviewed Icelandic actors expressed that there was some room for improvement regarding the regulatory framework. Our findings indicate that the government lacks the capacity to perform tasks such as developing and updating existing regulations, which can cause future challenges for the electricity retail market in Iceland.

Competition in the Norwegian electricity retail market appears to be quite robust, with numerous retailers operating in the sector, including large established companies, various small local providers, and new players that profile themselves as innovative. The market conditions are favourable for a healthy competition, but asymmetric information is still a significant challenge. For a long time, the electricity retail market has been considered a market with relatively high levels of customer dissatisfaction compared to other markets. Customers have for instance had issues with electricity retailers who fail to provide essential information about the electricity agreement in their marketing, such as price, invoice fee, commitment period and breaching fee. Such information challenges make it difficult for customers to compare products and make well-informed decisions. The customer awareness has, however, increased due to the rising prices during the energy crisis. Overall, the prevalence of challenges in the Norwegian electricity retail markets seems to have decreased during the past years. The regulatory framework generally seems sufficient, with many adjustments made recently. There have, however, been issues with electricity retailers that failed to understand legal boundaries, leading them to operate outside the regulatory framework. Furthermore, there have been retailers taking advantage of this legal grey area. Thus, there seems to be room for improvement regarding the enforcement of the regulatory framework.

The Swedish electricity retail market is characterized by low market concentration and a high degree of competition. There are many electricity retailers, with a mix of local companies who only offer contracts in certain areas or bidding zones, and large companies who have customers all over the country. The customer satisfaction is high, although the average customer satisfaction has declined due to increasing prices. There generally seems to be a difference in customer satisfaction between larger and smaller retailers, with larger retailers enjoying greater trust by their customers than the smaller ones.

Because it is an autonomous state, Åland has control over its electricity retail market, and the market functions differently from the other Nordic countries. The competition in Åland is in practice non-existing, as only two integrated DSOs and retailers operate in the market. New electricity retailers can enter the market, but in practice, the entrance barriers are high, both due to language barriers regarding the regulations and to the market being small. We do not, however, have indications that customer satisfaction is particularly low, and although customers only have access to a handful of different contracts, these contracts appear to be relatively competitive compared to contracts in the other Nordic countries. Overall, the electricity retail market in Åland appears to function relatively well for the customers.

The energy crisis had an effect on several aspects of the electricity retail market. The energy crisis contributed to increasing customer awareness in the Nordic countries, with Iceland standing out as an exception due to its isolation from the European grid. 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 comprehending the electricity market, understanding contractual terms and conditions, and ensuring that they secured an electricity contract that aligned with their best interests. The high and volatile electricity prices combined with higher customer awareness increased the demand for spot price contracts, most likely due to the possibility of moving consumption to periods with lower electricity prices.

The energy crisis contributed to further straining the liquidity in the financial markets. Significant variations in the area prices have made products in the financial markets less relevant. Furthermore, these products have become more expensive due to high collateral requirements, typically higher than for OTC trading. Thus, OTC trading has become increasingly more common in the Nordic electricity retail markets and is today relatively common for futures contracts that hedge the price in a specific bidding area. OTC trading represents both competition and a supplement to power exchanges like Nasdaq and EEX and is considered a part of the futures market.

All the Nordic countries, except for Iceland, implemented various measures as a response to the energy crisis. Norway stands out with sizeable and long-lasting measures directed towards reducing households’ electricity costs. Norway implemented a direct support to households’ electricity bills that will last 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.

In the following section, we shall discuss the need for addressing the different identified challenges in the Nordic electricity retail markets. We shall also provide recommendations as how to address some of these challenges if we believe our gathered information and analysis will provide sufficient basis for doing so. It is important to note that the survey and interviews were done in the context of the energy crisis and thus the responses and findings are influenced by this crisis.

Electricity retail markets are distinguished from most other retail markets due to consumers signing a contract with a retailer before the consumption takes place. At the time when the contract is signed, the future consumption is uncertain and, in many cases, the price to be paid per unit of consumption is not specified in the contract. Furthermore, understanding the relationship between the contract terms and future prices may be difficult for the consumers. This creates an environment where suppliers may exploit consumers, especially consumers with low awareness. Thus, consumer protection and regulation may be more important in the electricity retail market than in other retail markets.

Generally, the regulations covering the Nordic electricity retail markets seem suffi­cient, both related to marketing and consumer rights. We have not been able to identify any evident gaps in the legal framework in any of the countries. However, the regulations are distributed among several authorities in all countries and enforcement of the regulations has been upheld to a varying degree. This has contributed to chal­lenges regarding the electricity retailers’ knowledge and interpretation of the relevant regulatory framework. Since rules in many countries are general and not sector-specific, such as marketing laws, interpretation of the regulations may be difficult to under­stand. Some retailers may not necessarily have a clear under­standing of the legal boundaries and may unintentionally be operating in a legal grey area. Electricity retailers also bundle the sale of electricity with other products such as advisory services, thus leading to the need to comply with numerous and diverse regulations simultaneously. The lack of a clear under­standing of the regulatory frame­work is a challenge in all the Nordic countries but has been especially evident in Denmark and Norway. A Norwegian informant emphasized that numerous electricity retailers in Norway face challenges in comprehending the regulatory framework, even after the consumer authority has provided explanations to retailers on multiple occasions.

Furthermore, electricity retailers may also find it profitable to operate in a legal grey area. Economic sanctions seem to be fairly low and other sanctions may not be severe enough. Electricity retailers may consider it profitable to operate in the legal grey area if they find the chances of being caught low and the fines minimal. This also makes it difficult for serious actors who comply with the legal framework to compete with actors that can take advantage of the legal grey area and use unfair business practices. The issue of retailers exploiting the regulatory framework seems at present to be most evident in Denmark. For instance, there has been a problem in Denmark with smaller retailers calling the customers and luring them into bad contracts. There have also been several cases of customers thinking that they have fixed price contracts for a longer period than the usual three-month period, suddenly paying a higher price without being notified. In Norway, several electricity retailers have violated the legal requirements by not providing the legally required price list on their website, failing to provide essential information about the electricity agreement in their marketing, and not providing information regarding the right to withdraw from the contract.

These described challenges are most often not due to the lack of regulations, but rather that the regulations are not sufficiently enforced, or that sanctions are not severe enough. We generally recommend increasing the enforcement of regulations and ensuring that economic sanctions are sufficiently high to remove the incentives to operate outside the regulatory framework. Enforcement and active interpretation of the regulations reduce the ambiguities and uncertainty about the legal boundaries, and the possibility to operate in a legal grey area. Increasing economic sanctions for potential breaches can dissuade electricity retailers from violating the regulations due to the perceived severity of the consequences. Increased enforcement and sanctions have already proven successful in Norway, Sweden and Finland. Unserious actors were a more prominent challenge in Norway a few years ago, but efforts have been made to both enhance enforcement and increase the upper limits for economic sanctions, which appear to have had a positive effect, although there are still challenges. Sweden and Finland have generally been successful in avoiding retailers with unfair business practices operating outside the regulatory framework. Sweden, for instance, has introduced an informational measure by creating a public complaint list that includes electricity retailers with many complaints, with the intention of incentivizing retailers to avoid practices like moving customers to unattractive contracts. Such a complaint list may work in the other Nordic countries, but the effectiveness of the measure is not proven. This list is published and is updated every quarter by The Swedish Consumer Energy Markets Bureau. The complaint list may remove the most ‘unserious’ electricity retailers, but its success is contingent upon customers being aware and informed sufficiently to consult and act upon such a resource. A similar measure was also introduced in 2020 by the Norwegian industry organizations Fornybar Norge and Distriktsenergi, in the form of the certification programme ‘safe electricity trading’ (trygg strømhandel). The certification programme includes a set of requirements for the sales and marketing of electricity to which the retailers must adhere.

Some of the challenges with electricity retailers breaching the regulations are due to the retailers not being aware of or understanding the current regulations. Therefore, the relevant authorities can also consider informational measures to communicate clearly to retailers how the existing regulatory framework should be interpreted, and to promote increased aware­ness among retailers. Increased awareness among retailers promotes compliance and a fair marketplace. An example of such an infor­ma­tional measure could be the estab­lishment or, if already existing, the further development, of a shared guideline or a practice document that provides information to enhance the electricity retailers’ understanding of existing regu­lations. Such a document could, for instance, clarify how general sector regulations, such as marke­ting regulations and other consumer protection laws, apply and should be inter­preted in the context of the electricity retail market. Several actors could have roles in developing such documents, like the consumer authorities, market regulators or/and industry organizations. Informational measures may enable the electricity retailers to understand and navigate the regulations more effectively, but they may also pose challenges as it necessi­tates significant resources from the responsible party to develop and maintain them. More­over, the effectiveness of such guidelines hinges on the interest and engagement of electricity retailers to understand the regulatory framework better. However, together with active enforcement and sufficient sanctioning, the retailers’ willingness to understand the regula­tions may increase because the consequences of not complying with the law are higher. It is also important to note that the practice or guiding documents should be maintained and updated, for example when new case law or administrative practice is established, or with the introduction of new actors, contract types, or offering of new additional services in the market.

Strengthening the enforcement of regulations and ensuring sufficient supervision and sanctioning should be a particular priority in Denmark, as the challenges with unserious actors and unfair business practices appear to be most prevalent in Denmark compared to the other Nordic countries. At the same time Norway, Sweden, and Finland should continue their work in this area, and Iceland should be aware that issues regarding interpretation of regulations might arise when developing a more competitive market.

Information asymmetry is a challenge in the electricity retail markets in all Nordic countries, as the electricity retail market is, for several reasons, complex for customers to understand. There is often inadequate information available to consumers about aspects such as the functioning of the market, contract types, and terms and conditions. This may reduce the consumers’ incentives to actively participate in the market. At the same time, the information asymmetry makes it difficult for the consumers to distinguish between serious and unserious suppliers, as well as good and bad contracts. This exemplifies the 'lemons problem', where reputable retailers are unable to get a higher price for a good contract, given that customers cannot distinguish between good and bad contracts. The information asymmetry can also hinder innovation in contract types. When consumers lack understanding of a contract, the contract is unlikely to garner a significant customer base making the costs of bringing new products to market high compared to revenues/margins from the product. Consequently, the products available to the customer becomes more limited.

Measures that can enhance the information given to customers may reduce the underlying problem with information asymmetry in the market, and hence improve competition and innovation, as well as the customers’ welfare through better choices of contracts. There is, however, a balance between providing sufficient information and having detailed information requirements, which could potentially impede innovation or increase costs. For instance, in Sweden, strict regulations ensure that information is included in the invoice, which can help customers understand their bills well, but it also introduces difficulties for the customers in understanding when there is too much information. The retailers also argue that the comprehensive information requirements hinder product development. Therefore, it is crucial to evaluate what information is relevant for the customer and introduce regulations accordingly. Some information may be more appropriate for inclusion in the electricity bill, while other information may be more relevant in other places such as through a price comparison tool. For instance, Finland has recently implemented rules to make certain infor­ma­tion accessible through the portal of suppliers or data hubs, which could also contribute to addressing this issue.

Relevant measures to consider could be stricter requirements on the retailers regarding the information directed towards the customers about features of the different contract types and key differences between them. This may be more important in Finland, Sweden, and Denmark, since the markets are more complex than in Norway and Iceland, due to the prevalence of different types of contracts to consumers. Norway has already introduced several measures to reduce differences between the electricity retailers’ different contracts. Covering most of the Norwegian electricity retailers, the industry organization Fornybar Norge offers standard electricity agreements for retailers to utilize. Such standard contracts may contribute to both clarifying the information that is given to the consumers, and more uniform contract terms. This type of regulatory interpretation, which clearly defines what information the supplier should provide to the consumer in a contract, can be a useful way to reduce the information asymmetry, or at least to ensure that consumers are offered balanced contractual terms. Norway's introduction of a standard agreement also allows suppliers to add special conditions. However, if suppliers choose to add numerous additional terms to the agreement, deviating significantly from standard contract terms, there is a higher risk of legal violations of which customers should be aware. The consumer council in Denmark, Forbrugerrådet Tænk, has also recommended that the Danish electricity market should standardize and simplify the consumers’ electricity bills

Forbrugerrådet Tænk (2023), "Forbrugernes 20 forslag til et trygt energimarked," https://taenk.dk/system/files/2023-03/Energiudspil_Forbrugerraadet_Taenk_2023.pdf. (published 2023, downloaded December 2023

. This is to address the issue that the electricity bills in the Danish market contain many terms that are difficult to understand, which for instance is related to how the bill only shows an average price for the electricity used during the billing period. In their report, the consumer council states that the bill should include the most important information, including spot surcharge per kWh. The consumer council argues that this will enable a real comparison across electricity providers. Additionally, detailed consumption and price information should be easily accessible for the group of consumers who want to understand their consumption. The consumer council is clear on the recommendation that if the industry does not address these tasks, they should be resolved through a tightening of the billing regulation in the electricity sector.

In several of the Nordic countries, there is a need for stricter regulations regarding how the electricity retailers inform the customer about adjustments in their contract. This is to ensure that electricity retailers do not change the contract terms, increase the price or make other significant changes without the customer noticing it. Both Norway and Sweden have regulations to handle this issue. In Norway, new regulations are proposed but not yet adopted, stating that if the electricity retailer intends to modify an existing electricity agreement in a way that makes the agreement less favourable for the customer, these changes can only take effect at least 30 days after notice is received. This means that the consumer is not bound by the change until then. If the consumer disagrees with the changes, they should be able to terminate the agreement without incurring any costs. However, such regulations may have adverse effects if they are too strict. In Sweden, the electricity suppliers find the requirement to inform customers about price adjustments 60 to 90 days ahead of delivery (when a fixed term contract is automatically renewed after the contract period has ended) as an important challenge for product development.

There may be a potential to improve the format and design of the electricity bills, to make them more consumer friendly. Challenges for consumers to understand the bills appear to be most prevalent in Denmark, and to some degree in Norway. Several adjustments have recently been made regarding the information requirements on electricity bills in Norway, and one should review the impact of these adjustments before considering new changes. In Denmark, however, the design and format of the electricity bills were highlighted as a challenge both by informants and in the survey. Informants highlighted that customers were challenged in understanding the different price elements and what elements in the bill they can affect, and that the bill contains too much information. Although there are Danish regulations regarding the content of the electricity bills, there could be a need for considering whether adjustments should be made in these regulations.

A price comparison tool can be a highly effective way to decrease search and switching costs for customers. It does, however, require that the portal actually makes it easier for customers to find, compare, and evaluate what contract, including their current contract, is best suited to their needs. Price comparison tools can be harmful if they are not of sufficient quality. It is therefore important that all Nordic countries invest in developing and maintaining well-functioning price comparison tools.

The Norwegian price comparison tool, strompris.no, has undergone several major changes in recent years due to challenges related to the design of the tool. For some time, the price portal essentially became a channel for electricity retailers that offered customers cheap contracts, before quickly switching them to a more expensive contract. These issues were evident up until 2019-2020, when several adjustments were made to the tool, and several adjustments have been made since then. The adjustments have included showing contracts with contract terms that are guaranteed for at least one year at the top of the list, and stricter notification requirements if customers are moved to contracts that are more expensive. Further­more, since November 2022, all electricity contracts must refer to the price comparison tool. In Sweden the price comparison tool Elpriskollen manages transparency through displaying symbols for electricity retailers who have been subjected to supervision regarding one of the consumer protection provisions of the Electricity Act or if they are on the complaint list provided by the Swedish Consumer Energy Markets Bureau.

As of now, the price portals in the Nordic countries seem to function relatively well, with the exception of the Danish price portal. The Danish consumer council, Forbrugerrådet Tænk, recently published a report stating that companies providing inaccurate information hinder identifying and comparing prices and products

Forbrugerrådet Tænk (2023), "Forbrugernes 20 forslag til et trygt energimarked," https://taenk.dk/system/files/2023-03/Energiudspil_Forbrugerraadet_Taenk_2023.pdf. (published 2023, downloaded December 2023.

. This is made possible due to insufficient supervision by the regulatory authority that operates the price comparison tool. The portal fails to give the customers a realistic and correct view of what the price will be, and therefore the trust in the comparison tool is low. The Danish regulatory authority has, however, planned the development of a new price portal for electricity in 2024. The Danish consumer council suggests that the regulatory authority should make comprehensive changes so that electricity retailers in the future report the real competition parameters, such as spot surcharges per kWh on top of the market price for electricity, subscription fees, and all other fees. The Danish consumer council further recommends that the regulatory authority should ensure that consumers have an overview of customer satisfaction with the companies, complaint rates, the percentage of upheld complaints, and results from supervision and control, preferably taking inspiration from the insurance sector’s price portal.

According to the survey results, the price comparison tools are widely used by customers to compare contracts in the Nordic countries. The price portal seems to work relatively well in Norway, Sweden, Finland, and Iceland, while the Danish price portal faces challenges and has potential for improvement. The Danish price portal should be adjusted to correct these challenges in the portal today, and the Danish regulatory authority is already working to solve these challenges. However, the development of the price comparison tools should be a continuing task for all the Nordic countries, as it is necessary to consider the design of the price portal based on the changes and development of both the supply and demand sides of the market. For example, it is important to ensure that the contracts that are being compared are relevant to customers and that there are no loopholes for suppliers to exploit to push their deals higher on the list unless they are genuinely favourable. Ensuring that the price portals function properly can address several challenges related to information asymmetry in the market.

The electricity retailers’ ability to hedge in the financial market became a greater challenge during the energy crisis due to poor liquidity at Nasdaq OMX. With vast fluctuations in the area prices, the system price contracts were no longer sufficient to hedge the price risk. This combined with an illiquid or non-existent market for EPADs to hedge the remaining area price risk, as well as rising costs for necessary collaterals, led to a rapid decline in the trade at the exchange.

Yet, based on the availability of fixed price contracts in Sweden, Denmark, and Finland, the illiquidity of the market does not seem to have prevented the supply of fixed price contracts completely. The declining trade in the financial markets are at least partly replaced by OTC-trade, where electricity enters into bilateral agreements with producers or intermediaries. However, relying on bilateral markets is a less favourable solution for electricity retailers, as it involves higher transaction costs for hedging. At the same time, the electricity retailers with integrated production within their conglomerates have an advantage, as they can avoid these increased transactional costs.

Overall, the market is able to offer fixed price contracts despite low liquidity in the financial market, but likely at a higher cost due to increased transaction costs associated with hedging. Fewer customers may find the agreements appealing due to the increased premium. The lack of a well-functioning financial market increases the prices, reduces the availability of fixed price contracts and may lead to competitive disadvantages for suppliers with limited access to production or bilateral hedging. The existence of a liquid and efficient financial market that gives transparent and robust future prices, reduces the cost of hedging for all actors, and may reduce the premiums on fixed price contracts. It will also reduce the competitive disadvantages for suppliers that are not integrated with production or do not have an established network in the bilateral market.

Hedging against area prices was one of the major challenges for electricity retailers when the prices rose. All financial markets refer to the common Nordic system price, using EPADs to account for price differences. The current discussion revolves around whether the Nordic countries should adopt the European system with area price hedging, or continue with a financial market that pools liquidity in system price contracts that mitigates some of the risk, while handling the risk associated with area prices through individual products. The latter strategy has proven challenging, particularly with significant price differences. It is, however, difficult to know whether a system with area price hedging would function better in the extraordinary situation during the energy crisis. Nevertheless, the Nordic countries share a common market and a system distinct from Europe. The future design of the market, solutions to increase liquidity in the financial markets, and response to EU proposals require Nordic collaboration.

In sum, improving financial markets is a crucial joint Nordic task for several reasons. One key reason is the desire for efficient price hedging options to offer attractive fixed price contracts with more moderate risk premiums. At the same time, it is important for companies planning to build new energy production facilities to be able to hedge their prices. Moreover, accessible reference prices are crucial for effective decision-making in operations and investments. A well-functioning financial market will contribute to enabling electricity retailers and customers to make better decisions overall.

Before the electricity retail markets were deregulated, the markets were served by vertical integrated players with local monopoly that controlled production, grids and supply to end-customers. Vertical integration is an effective means to ensure efficient coordination in the vertical value chain and may thus be associated with welfare enhancing efficiency gains. However, in a situation with natural monopoly activities at one level, vertical integration may give rise to several regulatory complications. For instance, cost-based regulation of the natural monopoly activity is difficult if the entity can cross-subsidize market activities by allocating costs to the monopoly activity. Furthermore, the entity that controls the natural monopoly may use its position to exclude downstream competitors such as independent retailers.

Grid operation is a natural monopoly activity, which needs to be regulated. Creating a level playing field by unbundling grid operations and retail activities, in addition to establishing wholesale marketplaces for physical electricity, was therefore crucial in the deregulation of the Nordic markets. The unbundling process started with a requirement for separate accounts in order to limit cross subsidization of retail activities. It has become stricter over time, but structural separation is still not a requirement. Competition challenges related to obtaining information from grid companies in the Nordic countries have been addressed through electricity hubs (el-hubs). Furthermore, most Nordic countries have a solution to provide a consolidated bill regardless of whether a company is integrated or not. Iceland is an exception, where two bills are offered.

Thus, most of the challenges associated with integration of retail and grid activities have been resolved. However, several of the incumbents are still organized as groups with activities within production, grid operations and supply of electricity to end-users. The largest retailers are still owned by, or originates from, the largest incumbents. This indicates that incumbents still enjoy some competitive advantages, relative to independent retailers established after the deregulation.

Sources for advantages may be a well-known brand name, loyal customers locally, or financial and organizational capacities that stem from their size. Having production and supply within the same conglomerate may be particularly advantageous. For instance, electricity retailers who have access to production do not have to contact any intermediaries to arrange hedging agreements. This can result in lower transaction costs associated with internal trading.

The benefits associated with having production within the same corporate group became particularly evident during the energy crisis. Lower liquidity in the financial markets increased the cost of hedging through markets, which made it difficult for retailers without production to supply fixed-price contracts at competitive terms. Consequently, the market power of retailers with production increased for fixed-price contracts. This challenge may have been more pronounced in Finland, Sweden and Denmark, where demand for fixed price contracts has historically been significantly higher than in Norway. In Iceland, this issue is particularly substantial as they lack a wholesale market, giving an advantage to entities with access to production within the same corporate structure.

We do note that the competitive advantages, which vertical integration can lead to, have become more prominent with reduced liquidity in the financial markets. However, based on the findings from this study, we cannot conclude that increased unbundling is either a necessary or an efficient measure to improve the functioning of the market. Market power related to the supply of fixed contracts may be most efficiently remedied by measures that ensure well-functioning financial markets, which will also have other important benefits to market players. Furthermore, integrated players that practice single billing may be obliged to offer other electricity retailers the option of single billing at non-discriminatory terms. Such a regulation is, for instance, in place in Norway. Alternatively, one can have separate bills regardless of vertical integration, as in Finland. Separate bills can potentially also provide the end-users with more relevant and accurate information and make the customers more informed about the different roles in the market.

In all Nordic countries, besides Iceland, SMEs have significantly fewer consumer rights than household consumers, and there appears to be certain challenges associated with the SMEs’ lack of certain customer rights. As SMEs often lack the resources and bargaining power of larger companies, they are more vulnerable to unfair business practices. There are, however, valid reasons why SMEs are not subject to the same customer rights as households. Strong customer rights can diminish the customer's incentive to choose 'correctly' since the cost of making a wrong choice becomes less substantial, and one party could exploit imbalanced rights and obligations between two commercial actors. Nevertheless, letting SMEs have somewhat stronger customer rights may be beneficial due to issues related to information asymmetry in the market, as SMEs often are faced with the same challenges as household customers.

There is some variation between the Nordic countries with regard to the customer protection of SMEs. SMEs have the same customer rights as households in Iceland. In Denmark, Finland and Sweden, some of the specific regulation of the electricity market applies both to households and to SMEs. In Denmark, for instance, SMEs are not equally protected when it comes to fees for switching. SMEs can, however, complain to the Danish Energy Supplies Complaint Board if their complaint is not significantly different from a complaint concerning that of a private customer

https://businessindenmark.virk.dk/guidance/utility/electricity/. Date: 23.11.23

. In Finland, non-household customers do not enjoy the same consumer protections; however, the electricity market-specific regulations applied to small customers provide some additional protection compared to larger businesses. There have also recently been changes in the Swedish legislation according to the Electricity Markets Directive, making the provisions between household consumers and other customers more similar

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 incurring a fee. Under some circumstances, however, it shall be possible to charge a fee if the contract is terminated prematurely. In Norway, on the other hand, SMEs have fewer customer rights. If SMEs are exposed to illegal behaviour from electricity retailers, they cannot complain to the electricity complaint board or the competition authority as households can. SMEs must contact lawyers to receive help regarding these issues or solve the problem themselves. Nor do they have the same type of withdrawal rights as household consumers.

There could be several ways to improve customer protection for SMEs in the Nordic countries. One approach could, as a minimum be to introduce a right to withdraw from a contract for businesses of a certain size, similar to the 14-day right to withdraw afforded to consumers under the existing consumer rights legislation in many countries. This would provide SMEs with the chance to change their minds if they are victim to aggressive sales techniques, such as telephone sales, where the buyer has not had much time to think before agreeing to the deal.

Due to the sudden rise in electricity prices and the increased volatility during the energy crisis that unfolded at the end of 2021, numerous governments implemented electricity support schemes. These initiatives aimed to ease the impact of rising electricity costs on households and other relevant entities such as sports clubs and voluntary organizations, but the extent of these support schemes varied in the countries.

In general, support schemes that affect the market players’ incentives should be expected to have adversely distorting effects on markets. For instance, if the consumers do not bear the full costs of their consumption, they may become less price sensitive, which in turn may soften the competition. Furthermore, the Nordic markets are designed to take advantage of general market mechanisms. In these markets, distorted incentives may thus be very considerable.

The Nordic countries had different approaches regarding the design of their electricity support schemes, and the extent of the potential distorting effects are contingent on the design of the scheme. Finland and Denmark have implemented means-tested electricity support schemes, which have not been linked to electricity consumption. In Sweden electricity and natural gas support schemes have been implemented based on consumption and electricity price area. In Norway, there has been a more extensive electricity support scheme where households as of 2024 have 90% of the amount over 73 øre/kWh without VAT covered, calculated on an hourly basis.

The Norwegian support scheme is more extensive than what has been implemented in the other countries, potentially resulting in stronger distorting effects. However, there are also natural reasons why Norway has a more extensive support scheme. Norwegian households were significantly more impacted by the high prices, because the electricity consumption for heating, etc. is significantly higher in Norway than in the other Nordic countries. However, the Norwegian scheme significantly influences the market in Norway and is likely an obstacle to a functioning fixed price market, where the result has been a complete lapse in the supply of fixed price contracts to Norwegian households. Furthermore, it significantly weakens the consumers’ response to price signals. Until recently, the support scheme was based on average prices over a month, and consequently there were still incentives to move consumption from peak hours to low price periods. However, with the current support scheme, where the support is calculated based on the hourly price, the incentives to reduce consumption is lower.

Generally, we recommend keeping direct interventions to a minimum. Given a need to support households or SMEs, this should ideally be done through alternative measures, such as flat electricity support payments to customers that do not affect relative prices. This would have less adverse effects on the functioning of the electricity retail market, the electricity retailers’ ability to come up with innovations in contract types, and the market for fixed price contracts. There may, however, be other practical and political reasons for the design of the support schemes, which could partly or fully offset the negative impact on the power market.

Reducing electricity consumption is advantageous for various reasons, offering both environmental benefits and cost savings for consumers by lowering electricity bills. Customer awareness campaigns could be an effective measure to reduce electricity consumption in households and SMEs.

Customer awareness campaigns with the aim to reduce electricity usage have appeared to be efficient in Denmark, Finland and Sweden. In Denmark, the DEA has implemented a national energy saving campaign, which reached a wide range of customers. The campaign also focused on how to save energy in the workplace, as this is an important part of electricity consumption. The campaign is likely to have increased awareness and contributed to electricity and heat savings. The consumption statistics from the DEA shows that electricity and gas consumption in the second half of 2022 was reduced by 6 percent and 19 percent, respectively, compared to the expected consumption. In Finland, a successful information campaign also started at the end of 2022, with the slogan “lower your temperature by one degree”. The Finnish electricity consumption was reduced by 7 percent in the temperature-adjusted consumption. The reduction cannot be solely attributed as a direct outcome of the campaign, given the parallel media focus on high electricity prices. However, the campaign probably played a role in reducing the electricity consumption. Furthermore, the Swedish energy agency launched a customer awareness campaign in October 2022 with the slogan “every kilowatt hour (kWh) counts”. The campaign aimed to inform customers about what measures to take to lower their electricity consumption as well as how they can contribute to flatten the load curve and not use electricity during peak-load hours. The campaign is likely to have had an impact on increasing customer activeness and shifting more customers to signing hourly price contracts during the crisis.

Launching customer awareness campaigns, similar to those already conducted in Finland, Denmark and Sweden, can be an effective measure in all Nordic countries. Such customer awareness campaigns can contribute to enabling customers to become more active and conscious. Such customers play a crucial role in fostering competition, and implementing initiatives to encourage such engagement could thus be beneficial. Furthermore, customer awareness campaigns can both be a cost-effective measure and contribute to a general reduction in electricity usage.

There are certain measures that could be beneficial for addressing country-specific issues. In Denmark, it is common for customers to have pre-payment of their electricity bill, as much as three months in advance. As a result, many customers have been afraid of switching suppliers because they are uncertain about whether they will get their pre-paid money back. Such terms contribute to increasing switching costs and may lead to an inefficient lock-in effect. However, there is a trade-off between the need for working capital for energy suppliers and ensuring that consumers do not provide energy suppliers with an interest-free loan, and thereby are reluctant to switch retailer in fear of not getting their money back. The fact that the Danish market has faced such a problem could indicate that competition in the market is not functioning optimally, as the market should be able to correct such behaviour. There could be a need to address the issues related to advance payments in a way that does not create a lock-in effect, and thereby hinder competition. However, findings from the interviews also suggest that electricity retailers are increasingly offering post payment alternatives, to market themselves to consumers. This could be a sign that the market is in fact correcting this behaviour. Thus, we suggest that one should wait before addressing this concern and monitor whether the market corrects it on its own.

The authority to create regulations in the electricity market varies in the Nordic countries. In Iceland, the NRA does not have the mandate to develop and update existing regulations. At the same time, our findings indicate that the government lacks the capacity to perform these tasks, and several of the interviewed actors have suggested transferring the regulatory authority to the regulators. We do not have sufficient information regarding this challenge to clearly recommend how it should be solved, but giving the NRA the mandate to develop and update existing regulations should be a measure to consider.

The competition is practically non-existent in the electricity retail market in Åland, as only two electricity retailers operate, who are also integrated DSOs. The entrance barriers to Åland can be considered high, firstly due to the market being small, but also due to relevant regulations being difficult to navigate for potential market actors, as they are partly Finnish law, and partly local legislation in Swedish. Creating an official overview of the relevant regulations, and translating all relevant regulations into either Swedish, Finnish, or both, could lower the entrance barriers to Åland, and make the market easier to navigate. However, as the market is small, it is not obvious that this will increase the competition in Åland as market participants may find it difficult to secure a market share sizable enough to operate effectively. Furthermore, it appears that the current electricity retailers have a good understanding of the energy consumption of their stable customer base, enabling them to keep hedging costs low. This attribute allowed the retailers to offer relatively low prices during the energy crisis. As of now, the electricity retail market in Åland appears to function relatively well for the customers, and we suggest not to make any major changes as long as there are no obvious challenges on the horizon.