Why is Finnish Electricity Expensive When it’s Not?!

Few readers have probably never heard about the Mankala Model, but around 50% of all energy produced in Finland is based on this cooperative model for large scale energy investments. 

Even though you have never heard about the above, almost everybody is shocked at the huge jump in the price of electricity. Helsinki, through its own energy company Helen Ltd., is now offering new 2 year fixed contracts for 60c/kWh, when the old ones were 6c/kWh, a price increase of 10 times… not bad for a taxpayer-owned company. But let’s look at the situation as it really is…

Companies and municipalities are shareholders in Mankala Model energy companies that generate electricity for the shareholders at production cost for the shareholders instead of making profit and paying dividends. Shareholders then sell their share of electricity further or use it in their own processes.

The economic result of generating electricity is part of shareholder’s own profit/loss. Having a share in a Mankala Model company is like owning a power station where a shareholder’s agreement set the rights and obligations for payments of production costs, and for the allocation of electricity, steam or heat from the power station.

According to the Ministry of Economic Affairs in 2015 (see this link): 

The Mankala Model: “A concept to finance large clean energy investments in Finland for nuclear, wind, and hydro power plants all of which should enable stable electricity price for shareholders.”

The biggest shareholders in many of these Mankala Model energy companies are some of the biggest forestry and metal sector companies, in addition to the energy companies where the state and the municipalities are the majority owners.

Given that taxpayers have effectively paid for the these investments, it is strange that the public sector does not work in favour of the consumers – the same taxpayers.

Let’s now look at the City of Helsinki that owns Helen Oy. They tell us on their website (see the graph above) that electricity they sell comes from the following sources – 42% from nuclear, 45% from renewables, and 13% from fossil fuels… 

Since the investment and operating costs of nuclear and renewables are almost fixed over long periods at around 5c/kWh there should be no need to have big price increases for electricity since fossil fuels account for such a small volume of the total generation costs. Taxpayers as owners have paid for these investment costs over the years, and we also bear the associated costs of nuclear plants that are heavily subsidised by the government. Most of the Helsinki sources of energy are based on the Mankala Model and thus should “enable stable electricity price for shareholders” – these are the exact words of the Ministry of Economic Affairs mentioned above.

Let’s take the example of Fortum – it is complaining that it must pay margin calls when selling electricity in the future to buyers, (and it would be interesting to know exactly who they are but that is their commercial secret). It claims that these margin calls should not apply to them because they are producers of electricity. However, we know that Fortum buys electricity from TVO, a Mankala Model nuclear power company, at a cost which is estimated to be around 4c/kwh! Nobody is forcing Forum to sell electricity in the futures market because Finland is almost self-sufficient and imports small amount electricity in the winter months. We have no power surplus like Norway or Saudi Arabia…

However, Fortum has probably sold all of its the electricity it plans to produce into the European markets, thinking it can buy it back cheaper later when it sells spot electricity to consumers and companies… Now, when huge economies that depend on importing massive volumes of power imports suddenly find that their high risk sources have dried up because of Putin’s war against Ukraine, the price of energy increases dramatically and we the Finnish taxpayers are expected to pay the price.

Just look at Fortum’s crazy investment in Uniper – their German daughter company. It appears to have sold some of its future production at a low cost to the Swedes according to bits of information trickling out in the media, and now can only supply the needed power by buying at a price that would drive smaller companies in to bankruptcy. Taxpayers are asked to come to the rescue and past bonuses are not repaid by the responsible bosses some of whom have scarpered off to Nokia… 

Brilliant minds can be found in these energy companies that appear to take risks normal folk would never entertain… 

These publicly-owned Mankala Model energy companies have invested in big plants that produce low cost electricity at our expense and risk, and have apparently sold it at the highest possible price to outsiders, who bear none of the costs or risks, without first offering it to us at a normal stable price. That means, as we see now, that we lose our competitive advantage in the export markets. 

Electricity for consumers, commerce, and industry is a public good like water, and should be treated as such and not privatised or sold to “the markets” for short-term gains and to create huge bonuses for the bosses.

Think for a moment that we have no electricity to run our phones, the internet, cars, buses, household appliances, heating and cooling… these risks are real just now… 

Site Footer