The future prospects are increasingly bleak for the energy holdings of the municipal sector in Finland, says partner Mikko Eerola, Head of Energy, Infrastructure and Natural Resources.

Energy used to be good business and people were talking about money plants. How has the situation changed?

”It’s a tough business everywhere now, even in Finland. There are more than a hundred energy generation companies owned by municipalities in this country and their governance is mostly in the hands of amateurs. I think that their competence is with few exceptions too little compared to the big and far-reaching decisions they will face.”

What are the possible consequences?

”The risks are increasing for the citizens and taxpayers. These energy companies very seldom have a board made up of independent professionals for decent interaction with the CEO, for the analysis of strategic developments of business, and for the securing the best interests of owner. I think that municipal politicians should think seriously about what to do with their energy holdings. Should every poor municipality really have their own energy production facility or not?”

What kind of pressures do you see right now?

”Many energy companies have invested in new technology which typically uses local fuel resources. It’s basically a good idea and there will be local winners but it’s not necessarily a winning idea for all citizens. In many cases the prices of heat have risen dramatically and heat users have started to look for alternative energy sources, especially heat pumps.”

What about the global pressures?

”Progressive renewable energy policies have led to an increasing production of wind and solar power almost everywhere. The prospects of global climate change are challenging us to ask if the golden age of big traditional power plants is over for good. The situation is serious for the owners of local energy grids as well. They are often these same municipalities. They need to invest heavily in the grids, but to invest they need to raise prices, which increases customers’ incentives for energy efficiency and off-grid micro production.”

It seems a slightly complex situation for the municipalities. What options do you see for them?

”First, the strongest municipal enterprises can go on as they have done, for a while. Secondly, they can be merged with other municipal entities. The third option is to sell to a new private owner, local or foreign. The first option involves the most risks in the long term. A city may become prisoner to a business which is losing strength. The second and third options are difficult for the personnel, but again I would like to turn the attention of politicians to the increasing risks. They should ask how long they can continue in the energy business and, if they can, how will they find solutions that don’t burn up the money needed for schools and the care of senior citizens.”

What kind of energy policy will be needed in Finland to help with investment or divestment decisions?

”The state can help in structural change with the energy strategy which is a moderate in its adjustments and relatively predictable. Unfortunately, it has been almost the opposite during the last ten years. The new government should change this. They shouldn’t make things more difficult for this business in which the fundamentals are already exceptionally difficult.”

“The new government shouldn’t make things more difficult for the business in which fundamentals are already exceptionally difficult.”

The new government of Finland has decided to cut the subsidies for the wind power operators. What kind of signal is this?

”It’s surely an unpleasant signal. Those operators have probably made too big profits from the taxpayers’ point of view; however, fast turns do not increase the attractiveness of Finland as a safe target country for foreign investments. I see new business secured for lawyers but not much for others.”

How do you see the foreign ownership of energy assets?

”There’s a lot of money in the world. It’s not a bad thing if pensioners in Australia, Canada or Norway invest their dollars and krones in the development of Finland’s energy infrastructure. Global investment funds are mostly very professional, efficient and open in their decision-making. The regulation of electricity, gas and heat stays in local hands in the future. It works well and we don’t have any concerns over the positive regulation development seen here recently. The regulator has a very clear mission here: look after energy business players’ responsibilities and fair billing whatever their ownership is.”

Above is an excerpt of Mikko Eerola’s blog published on 12 June 2015.