Government proposes measures to stabilise the electricity derivatives market
In its meeting on 4 September, the Ministerial Committee on Economic Policy discussed measures required in the electricity derivatives market. Stabilisation measures were also discussed in the government evening session on 4 September. The proposed central government scheme is a last-resort financing option for companies that would otherwise be at risk of insolvency.
The Ministerial Committee on Economic Policy supports the proposal to Parliament for granting a budget authority for a loan and guarantee scheme of up to EUR 10 billion, under which the State may grant loans or guarantees to companies engaged in electricity production in Finland. The purpose of the scheme is to cover the companies’ liquidity needs arising from the increased collateral requirements for their electricity derivative contracts. The budget authority for the loan and guarantee scheme is presented to Parliament for approval in the third supplementary budget which will be submitted in the government plenary session on Monday 5 September.
Higher energy prices have led to increased collateral requirements in the electricity derivatives market
The Russian war of aggression and reduced gas deliveries have caused an exceptional situation in the European electricity and gas markets, increasing electricity and gas prices significantly in 2022. In the common European wholesale electricity market, changes in gas and electricity prices elsewhere in Europe are also reflected in the Finnish electricity market.
As the energy prices have risen, the requirement for collateral in the electricity market has also increased. This has both led to a severe lack of liquidity for listed companies and caused a sharp increase in prices for longer-term derivative instruments.
The collateral requirements for electricity producers, which protect their energy production with derivative instruments, and the working capital they need for clearing derivatives trading on Nasdaq Commodities have rapidly reached exceptionally high levels. As these levels continue to increase, there is a risk that electricity producers will face a liquidity crisis.
Ensuring the effective functioning of the electricity market is vital
Ensuring the effective functioning of the electricity market under all circumstances is critical for the functioning of the Finnish economy, society and security of supply. It is also essential for individual electricity users.
The Finnish Government will ensure the effective functioning of the electricity market through the proposed EUR 10 billion loan and guarantee scheme. If necessary, Finland will continue to discuss the situation with Sweden, which is preparing its own measures, and promote measures to ensure the functioning and stability of the energy and derivatives markets in the EU.
The purpose of the central government loan and guarantee scheme is to ensure that the those playing a key role in the effective functioning of the electricity market will have enough liquidity and can function in a situation where financing or guarantees are not available on the market. The loan and guarantee scheme is intended to be temporary and to ensure the effective functioning of the electricity market during the crisis.
The Government proposes that the loan and guarantee scheme be in force until the end of 2023 and that the loan periods be no more than 2 years. The loans will be granted on market terms. Granting loans or central government guarantees is discretionary and requires a favourable opinion from the Ministry of Economic Affairs and Employment. The loan terms and conditions will be notified to the European Commission.
Inquiries: Juha Majanen, Permanent Secretary, tel. +358 295 530 247, firstname.lastname(at)gov.fi and Pauli Kariniemi, Director General, tel. +358 295 530 210, firstname.lastname(at)gov.fi, Ministry of Finance; Riku Huttunen, Director General, tel. +358 295 047 277 firstname.lastname(at)gov.fi, Ministry of Economic Affairs and Employment