The war is visible in energy and Germany’s problem also extends to Finland – Can the industry withstand these prices?

Europe is suffering from expensive energy prices, which is especially affecting Germany’s competitiveness. The issue is raised by someone who has undermined the EU’s competitiveness, such as the President of the European Central Bank, the ECB Mario Draghi. The report shows that the difference compared to the United States is startling.

“Even though the price of energy has dropped significantly from the peaks, companies in EU member countries have to pay two to three times the price for electricity compared to the United States, four to five times the price for natural gas. This is primarily due to the lack of natural resources, but also to the problems of the common energy market,” Draghi writes in his report.

For Europe and especially for Germany, its economic engine, the Russian war of aggression has been fatal: the cheap Russian gas ran out. The use of coal in energy production is also disadvantageous due to emissions trading and targets.

According to Draghi, the facts must be acknowledged. Moving towards emission-free energy production and industry is in the EU’s interest in the long run, but fossil energy production still determines the price level and that must be taken into account.

“In the medium term, reducing carbon dioxide emissions will help the transition towards safe and affordable energy sources. However, fossil fuels will play a central role in energy pricing throughout this decade. Without a plan on how to get the benefits of the clean transition to the end users, energy prices will weaken economic growth,” warns Draghi.

Indirectly affects Finland

The situation in Finland is brighter compared to Germany, for example, because there is reasonably priced and carbon dioxide-free electricity such as nuclear, hydro and wind power available. However, price fluctuations have become commonplace in Finland as well.

Still, the weakening of Germany’s competitiveness takes space from Finland’s growth as well, because Germany is one of our most important trade partners. The Ministry of Labor and the Economy is currently preparing an industrial policy strategy. It will be completed by the end of the year. Undersecretary Timo Jaatinen says that the role of energy has naturally been taken into account and Germany’s weakness has been identified.

“We have a comprehensive analysis of the operating environment, including energy. Key competitor countries were also reviewed. I visited Germany a couple of weeks ago and their situation really gives me something to think about,” says Jaatinen.

CEO of Finnish electricity producers Pasi Kuokkanen according to Finland is not immune to the concerns of the rest of Europe.

” [Draghin] I think the concern is real, even though the situation in the Nordic countries is not as bad. Indirectly, there will be problems for us as well, because the crippled competitiveness of the EU and the lack of investments is reflected in Finland as well”, says Pasi Kuokkanen, CEO of Suomen Sähkönszähröien Elfi.

He reminds that the role of gas is very significant in industrial production, and the new generation electric industry is strictly competitive. He considers hydrogen interesting, but realistic only after it succeeds in the competition against fossil fuels.

“What should be done is a difficult question. Elfi has highlighted the further development of the current electricity market model. Fewer price spikes, a lower risk profile and thus lower costs related to price protection,” says Kuokkanen.

Taxes in the background

Draghi’s report does not raise significant solutions to the price problem, but rather the reasons behind it. In addition to the war and natural resources and the non-functioning of the energy market, the report mentions taxation on energy as one of the reasons for the price increase. And although the crisis brought about by the war has eased, issues related to market inefficiencies and taxation may freeze Europe again.

“The higher taxation than in the rest of the world is reflected in the prices. And although these factors have been highlighted in the energy crisis of the last two years, future crises may bring them to the surface again,” the report states.

In Germany, car factories are announced about possible factory closures. They are having trouble competing with cheap Chinese brands. Car factories are also significant consumers of electricity. They have demanded flexibility in the EU’s emission restrictions.

According to the Energy industry, Finland had the second cheapest wholesale price of electricity in Europe last year, 56.47 euros per megawatt hour. In Germany, the price was no less than 95 euros, which is roughly the EU average.