Electricity network company’s operations are highly regulated
The Energy Authority supervises the operation of Finnish electricity network companies and determines the boundary conditions concerning the sector. For Vantaa Energy Electricity Networks Ltd, meeting the needs of the customers within the scope of the regulations is the primary factor directing its operations.
Electricity network operations are the responsibility of regional distribution system operators, such as Vantaa Energy Electricity Networks Ltd. There are about 80 of these operators in Finland. In order to carry on the operations, the company needs an electricity system licence that determines the area of responsibility where the distribution system operator has the exclusive right to build the distribution network. The operating area of Vantaa Energy Electricity Networks Ltd is limited to Vantaa.
– The electricity network is a marketplace for electricity, and the purpose of regulating electricity system operations is to ensure that all market participants are served on an equal basis, describes Risto Lappi, Managing Director of Vantaa Energy Electricity Networks Ltd.
The Energy Authority supervises the operations of the electricity network companies and monitors the reasonableness of distribution pricing in four-year periods. The methods of calculating a reasonable return are determined in advance for eight years at a time to ensure that the operations are as predictable as possible.
Electricity network operations are very capital-intensive and of long-term nature. Electricity networks must be maintained and developed in accordance with the changing needs of customers and society.
Amendment to regulation raised concerns
The Electricity Market Act was amended in autumn 2021 as a result of long-standing public debate concerning the electricity distribution prices and the subsequent political pressure. As a result of the legislative amendment, the Energy Authority updated its regulation and calculation methods in the middle of the regulatory period. As a result of the amendments, the permitted return for electricity network companies fell considerably, and the decision shook the operators in the sector. According to Lappi, the indignation was based on concerns about the operating preconditions of the companies and the resulting possibilities of being able to meet the customers’ growing needs.
– It is more difficult to make investments in the electricity network if the permitted level of return is pushed too far down. A key solution in the mitigation of climate change is to replace fossil fuels with electricity in transport, heating and industry. From the viewpoint of an electricity network company, this requires growing investments in the electricity network to ensure that the distribution capacity can meet the increasing electricity consumption, Lappi explains.
Customers see the changes in regulation as a positive thing in the short term when the electricity network companies reduce their electricity distribution prices. This is what happened also in Vantaa in early 2022. However, it is important to remember that the life cycles of electricity networks are dozens of years and changes in their maintenance and development will be seen in the quality of service with a delay of several years.
Responsibility is involved in all operations of an electricity network company
Electricity network operations and responsibility are connected to each other in many significant ways.
Lappi mentions the electricity network companies’ responsibility towards various stakeholders. The monopoly position provided by law obliges electricity network companies to act in a particularly responsible way because the customer cannot change the company responsible for electricity distribution.
– Consumption of electricity will grow as a result of climate change mitigation. Therefore, we are even more dependent on efficient electricity networks and sufficient energy supplies for all our customers. It is the task of the electricity network companies to make sure that there is sufficient capacity in the network for charging vehicles and running factories, Lappi points out.
In addition to customers, Vantaa Energy Electricity Networks Ltd is responsible for its operations to its employees and the owners of Vantaa Energy, i.e. the Cities of Vantaa and Helsinki.
– From the owners’ point of view, our operations must be profitable. With the operating revenue, it is possible to finance many of the City’s functions from early childhood education to the infrastructure. For our personnel, on the other hand, we want to offer a safe and meaningful workplace. We can also regard the urban environment as one of our stakeholders: we build the electricity network on its terms and by respecting the environment, Lappi sums up.
People want to take measures for a greener tomorrow, and we at Vantaa Energy Electricity Networks Ltd recognise our responsibilities and develop our operations to the best of our ability!