The Anatomy of Unaffordable Electricity in Northern Europe in 2021

Jaakko Jääskeläinen (), Kaisa Huhta and Sanna Syri
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Jaakko Jääskeläinen: Department of Mechanical Engineering, Aalto University, Konemiehentie 3, 02150 Espoo, Finland
Kaisa Huhta: Centre for Climate Change, Energy & Environmental Law, University of Eastern Finland Law School, Yliopistokatu 2, 80101 Joensuu, Finland
Sanna Syri: Department of Mechanical Engineering, Aalto University, Konemiehentie 3, 02150 Espoo, Finland

Energies, 2022, vol. 15, issue 20, 1-18

Abstract: European electricity prices soared to unusually high levels during 2021, which exposed vulnerabilities in the economy and led to concerns about affordability. The concerns were further exacerbated in 2022, as Europe strove to cut its dependence on the Russian fossil fuel supply, as a result of the Russian invasion of Ukraine. This article explores the causes of the price increases in 2021 and assesses their likely future development by using Finland as a case example. We address a gap in the existing energy literature by elucidating the origins and future outlooks of price spikes in highly interconnected electricity markets. Based on an interdisciplinary combination of legal and qualitative data analysis, this study approaches its key objective in three stages. First, we describe the European market and its regulatory design to demonstrate the legislative framework and preconditions within which the market is expected to operate and how these rules connect to guaranteeing the affordability of electricity. Second, we explore how these preconditions functioned in practice in 2021 by analysing the wider macro-level trends that resulted in the elevated prices throughout Europe, particularly in Finland. Third, we assess the impacts of these trends on Finnish electricity price development. Based on these descriptive and predictive analyses, we show that the European market design fundamentally necessitates price variation to ensure market-based investment and energy security in the long-term. Our analysis demonstrates that the high energy prices in 2021 were, in general, the result of various weather-related, economic, and political factors. Moreover, our findings indicate that the dynamics of price formation within a Member State are complex, and in the case of Finland, strongly impacted by neighbouring markets.

Keywords: energy market analysis; energy security; energy policy; affordability; price peaks (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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