Frequently asked questions about electricity distribution pricing
Why can't electricity distribution be put out to tender?
Electricity is always distributed by a local network company, which owns the electricity network and invoices for its use. Residents living in a particular area cannot choose their electricity distributor themselves, but it is determined by the location of the home, cottage or other property.
The distribution company monitors the functionality of electricity distribution 24/7, is responsible for network security, maintenance and fault repairs, and builds the network to be weatherproof and strong enough for the needs of growing electricity consumption. The above tasks are statutory and require large amounts of capital and strong industry expertise from companies in the sector.
Tendering electricity distribution would require parallel electricity networks, in which case there would be electric cables from two or more operators on the property. It is not reasonable or cost-effective for several companies to construct parallel electricity networks. This is why electricity distribution is regulated. Regulation is required to ensure that electricity distribution prices remain reasonable and the electricity distribution business remains efficient.
Electricity distribution is a so-called natural monopoly, the operators of which are regulated by the Energy Authority under the Ministry of Economic Affairs and Employment.
How does the electricity market work in Finland?
Finnish electricity invoice in EU comparison – expensive or cheap?
In European comparison, the Finnish electricity user is doing quite well. Finns pay a relatively low price for their electricity, although there are large differences between countries. Electricity prices for household users in the EU are highest in Denmark (€0.29/kWh) and lowest in Bulgaria (€0.10/kWh).
In 2020, the Finnish electricity user paid approximately 0.18 euros/kWh for household electricity (including energy, distribution and taxes).
- Apartment building, 0.19 euros/kWh
- Detached house or terraced house (consumption approx. 5,000 kWh/year) 0.16 euros/kWh
- Heating with electricity 0.12 euros/kWh
In relation to purchasing power, the consumer price of electricity in Finland is one of the cheapest in Europe.
Source: Eurostat, Finnish Energy
How are electricity distribution companies regulated and how do they operate?
In Finland, there are a total of 77 distribution network companies responsible for electricity distribution to customers.
The operations of electricity distribution companies are regulated by the Electricity Market Act and the Act on Electricity and Gas Market Regulation. The regulator is the Energy Authority operating under the Ministry of Economic Affairs and Employment, whose main tool is the regulation model. Learn more about the regulation model: energiavirasto.fi.
How are Caruna's operations financed?
Caruna's external borrowing is at its maximum, with a total debt of 2.5 billion euros. The rest of the operations are financed by owners' investment. The relationship can be compared, for example, to a mortgage, where part of the financing comes from yourself, part from a financial institution.
Efforts have been made to organise our financing as cost-effectively as possible. The aim of financing is to guarantee long-term conditions for operations and ensure the implementation of network improvement investments. The average interest rate on external loans at the end of 2020 was 2.1%.
Does Caruna pay any taxes in Finland?
Caruna pays all taxes in Finland. As a payer of corporate tax, Caruna ranks 55th on the list of Finland's 100 largest taxpayers (Source: Tax Administration, tax data for 2019, published on 3 November 2020).
Caruna pays more tax than any of the 77 electricity distribution companies operating in Finland. In 2019, the amount of corporate tax was EUR 12.2 million and in 2020 EUR 10.7 million.
Electricity distribution companies also collect and pay to the state the electricity and value added taxes that customers pay in their electricity distribution invoices. Taxes account for about a third of the customer's total electricity invoice and about half of the distribution invoice. In 2020, Caruna paid to the state EUR 292 million of electricity and value added taxes collected from customers.
How much does Caruna pay interest and dividends to its owners?
The owners have invested approximately EUR 800 million in Caruna as a shareholder loan. A shareholder loan of this size is a precondition for obtaining the rest of the necessary financing as efficiently as possible from the market. Annual interest is paid on the shareholder loan.
Dividends are paid if the result for the financial period allows it. Caruna has paid dividends to its owners only once since the company was founded (2014).
Electricity distribution terminology
Network service
We work every day for the smooth daily life of our customers. Occasionally, strong winds and thunderstorms cause interruptions in electricity distribution. We monitor the functionality of electricity distribution 24/7. We repair faults as quickly as possible, without compromising safety. We take care of electrical energy metering and the delivery of data to the market. We serve our customers through several different contact channels.
Investments to improve the electricity network
The length of our electricity network is 88,000 km. Investments are guided by the renovation of the ageing network, the development of reliability of supply, as well as new planning areas and other connections. Investment volumes have levelled off from the peak years, but they account for a significant share of costs now and in the future.
Purchase of electricity
Caruna has several connection points to the transmission grid (Fingrid), other high-voltage distribution networks or power plants. These are used to purchase the electricity needed for further distribution or transmission in Caruna's network when it is not produced in Caruna's network.
In Finland, transmission grid charges are invoiced as part of the electricity distribution fee, accounting for about 2.5 per cent of the total energy charge. It is about 15% of the electricity distribution fee.
Loss of electricity
There are also losses in the distribution of electricity, i.e. a small part of the purchased electricity is lost during the journey due to resistance (a property of a conductor that resists the flow of electricity).
In the electricity system, consumption and production must be equal at all times. Because of this, the amount of loss of electricity is purchased from the market.