Impacts of large-scale wind power production on the Finnish electricity markets

In response to the threatening climate change, EU has set Finland an obligation to increase the share of renewable energy sources to 33 % of total electricity consumption by 2020. In order to fill this obligation, the installed wind power capacity would have to increase from approximately 110 MW today to 2 000 MW by 2020. The objective of this research is to study the impacts of increased wind power production on the Finnish electricity markets. More precisely, consideration will be given to the wind power production’s possible impacts on CO2 emissions, public support costs and functioning of the electricity market. In regard to the functioning of the market, attention will be paid to spot prices, balancing power and transmission needs as well as competition. The aural and visual impacts of wind farms will be studied as well. In addition to the consequences of wind power, also the optimal support scheme to encourage wind power investments in Finland is discussed. The study is carried out as a literature review. The references consist of a variety of academic articles together with Finnish statistics and non-academic studies from e.g. the International Energy Association and Pöyry Energy Oy. The main findings of the study demonstrate that the most central impacts from increased wind power production in Finland would be the reduction of CO2 emissions by 4,2-4,8 % and public support costs. It is found that by 2020 the cumulative public support costs can range from 1,3 to 1,8 billion euros depending on the support scheme. Increasing wind power capacity would also increase negative local impacts from wind farms such as noise and landscape disamenities. The impact on spot prices would be lowering but small, around 0,3 – 1,2 !/MWh. Increased wind power capacity is unlikely to substantially increase reserve requirements in the power system by 2020, but it requires reinforcements of the national transmission grid and building of a new connection between the northern parts of Finland and Sweden. The impacts on competition are likely to be small even though wind power can replace some of the old capacity of production forms with high marginal costs. It is also found that the optimal support instrument for Finland depends on the objectives: if the most important goal is to rapidly increase capacity this could be best achieved by using feed-in tariffs, but in the long run a more cost-efficient way to support wind power would be developing current investment subsidy-based system further