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Prime Minister’s announcement on the impact of Russia’s invasion of Ukraine on the European energy market

Government Communications Department
Publication date 8.9.2022 17.00 | Published in English on 9.9.2022 at 10.44
Prime Minister's Announcement
Prime Minister Sanna Marin in Parliament.
Photo: Parliament / Pirjo Tuominen

On Thursday 8 September 2022, Prime Minister Sanna Marin made an announcement to Parliament. Check against delivery.

Mr Speaker,

In its war of aggression against Ukraine, Russia has breached and abandoned the key principles and commitments of the European security order.

As part of the European Union, Finland has responded to the war by imposing extensive sanctions on Russia. In doing so, we have aimed to undermine Russia’s ability to finance the war and maintain its military build-up. In addition, we are providing many forms of political, financial and material support to Ukraine – from humanitarian aid to defence materiel – both at the national level and as part of the European Union. We will continue our support as long as necessary.

Russia, which is now subject to extensive sanctions, is testing the EU’s resolve, its unity and the resilience of its citizens by restricting imports of energy to Europe. At the same time, it has revealed our vulnerability, as the Union has been far too dependent on Russian energy.

Putting pressure on our societies by restricting energy supply is a deliberate effort to erode Finnish and European support for Ukraine. This is something we cannot accept. 

This is why the Government has made efforts – both through national-level decisions and by exerting influence within the EU – to ensure that the indirect effects of war experienced by people in their daily lives do not give Russia its desired outcome.

We must continue – through EU and national-level decisions – to do everything possible to ensure that ordinary citizens and businesses can cope with the acute energy crisis. At the same time, we must break away for good from the influence of countries that do not share our values.

Mr Speaker,

Russia’s actions are having severe, concrete impacts in Finland and throughout Europe.

The reduced energy supply has led fossil fuel prices to rise dramatically. In particular, the price of gas has increased to ten times its normal level. Russia’s decision to shut off the supply of gas from the Nord Stream 1 pipeline indefinitely has further weakened the availability of gas in Europe. 

The energy crisis we have experienced is largely linked to natural gas. Electricity produced with natural gas sets the market price for all electricity in Central Europe. In the common European electricity market, fluctuations in the market price are also reflected in Finland, even though gas accounts for a very small portion our electricity generation. The gas and electricity markets are therefore closely intertwined. 

At the same time, Europe’s high electricity prices are also affected by a number of other factors, such as the stoppages of French nuclear power plants, problems with condensing power production due to drought, and the lower-than-normal availability of hydropower in the Nordic countries. 

Mr Speaker,

We do not know how long the war in Ukraine will last. 

We must be prepared for the long road ahead, which will also put the daily lives of Finns to the test. Decisions at the European and national level, especially decisions to accelerate the green transition, play a key role in responding to the energy crisis caused by Russia. After these measures, we must set our sights on our other supranational dependencies. 

Throughout this war, Finland has stood firmly behind the EU’s sanctions policy and other common European solutions, and we will continue to do so.

We will discuss these matters actively at EU tables at all levels, from public officials to ministers and through dialogue at the highest political level. Our message is clear. The only way we can respond to the challenge posed to Europe by Russia is together at the European level. Our Government is open to exploring all European means to mitigate the rise in energy prices. 

The EU has already taken measures to secure the availability of gas. Russian gas has been replaced by fuel from other sources in the form of liquefied natural gas and pipeline gas from Norway and the areas around the Caspian Sea. The EU regulation on gas storage, which entered into force in July, agreed on increasing the filling rate of gas storage sites, and the Council Regulation that entered into force in August aims to reduce the use of gas. 

The Government is still committed to actively promoting solutions that will alleviate the acute situation and address the different situations in the Member States. That said, there are no ready-made, simple solutions. 

The proposed measures include mechanisms to reduce the impact of gas prices on electricity prices, lowering the maximum price of bids in the power exchange, and European solutions to collateral requirements in the electricity derivatives market. Finland is working actively to influence efforts to lower the maximum price of bids in the power exchange in particular and to establish rules for derivatives trading.

In this exceptional situation, no option can be ruled out. The measures we introduce must not, however, cause any greater problems in the market than they seek to remedy. 

The EU Energy Council and EU finance ministers will discuss joint European measures at their meetings this week. We expect new concrete proposals from the Commission in the next few days.

Mr Speaker,

Since the spring, the Government has made decisions and actively sought ways to curb the cost impacts of the war and increase self-sufficiency.

Most recently, the Government decided in its budget session on measures to alleviate the plight caused by high household electricity prices. The package of measures includes a fixed-term reduction in the value-added tax on electricity to ten per cent, a fixed-term income tax credit for electricity, and fixed-term financial support for households whose income does not allow the full use of the tax credit. The Government will also make adjustments and changes to the social security system targeted at the most vulnerable citizens. 


Energy savings and adequate electricity generation capacity during the winter season will also play a key role. Reducing consumption is particularly important at times when electricity is expensive and generation capacity is in heavy use. Even a small reduction in electricity consumption at these times will significantly lower the market price. The responsibility for saving electricity is not only the responsibility of households, but also that of the public sector and companies.

The energy crisis in Finland is also connected to problems in the electricity derivatives market. Electricity producers, along with major electricity users and sellers, conclude derivative contracts that guarantee a certain price to the producer for future electricity sales. In practice, electricity companies deposit cash collateral corresponding to the future electricity price expectations in the account of the derivative stock exchange. As expectations on the future price of electricity have in some places multiplied, the cash collateral required from electricity producers has also increased considerably. 

The collateral must be paid within a very short period of time; otherwise the electricity company will be declared insolvent. To prevent the serious consequences of fluctuations in the market, the Government’s supplementary budget proposed a central government loan and guarantee scheme for electricity-producing companies operating on the electricity derivatives market. The aim is to ensure that electricity companies have the cash assets needed to pay the collaterals. 

The loans offered to electricity producers come with very strict conditions. The loans are very expensive and are intended for use as a last resort. The strict conditions aim to direct companies to seek out market-based financing.

The outlook for the future is now exceptionally uncertain. In addition to the measures already taken, we are closely monitoring how the situation of citizens, businesses and the market is developing. We are ready to make new decisions quickly if the situation so requires.

Mr Speaker,

When the war is over, our relationship with Russia will not go back to the way it was. 

Russia is using energy to put pressure on Europe, but its actions are short-sighted. Energy can be a weapon, but it can only be used once. The gas crisis we are facing is only speeding up the inevitable development in which Europe turns its back on fossil fuels in Russia.

In addition to managing the acute situation, it is important to attract more investments in emission-free electricity generation and the storage and transmission capacity needed across Europe. These investments in the green transition will also help to reduce greenhouse gas emissions. 

Mr Speaker, 

Breaking away from Russian fossil fuels at a systemic level is not yet enough. 

It is time for us to take a serious look at our dependencies on authoritarian countries and their ability to manage information networks and access to technologies, for example.  We must look at all aspects and functions of our societies that are vital to people’s livelihoods, health, security, rights and freedoms. 

We need to examine our vulnerabilities and find ways to break away from them together at the European level. Once the acute crisis is behind us, the European Union must work quickly to become more self-sufficient and better able to act independently of the influence of countries that do not share our common values. 

 
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