The profitability of electricity companies in Finland

Abstract

The purpose of this study is to analyze the key factors affecting the profitability of Distribution System Operator (DSO) and electricity companies. Until this date, there has have been studies about the electricity prices and the electricity networks in Finland but less research specifying their profitability related factors. The theoretical parts for this study contain information such as the way of production of energy, the transmission and the distribution of electricity and energy legislation. The Finnish Energy Authority and the Finnish Energy have been the vital sources of important statistical information. The electricity distribution is a monopoly type of business by nature and it is highly regulated in Finland. The Finnish Energy Authority is responsible for looking after the companies so that their pricing structures and operational principles are reasonable. Even though the Authority makes sure these companies are all profitable, there are still significant differences between companies due to the different locations of companies. In addition, the costs structures between the DSO companies are varying causing tariff variations per transmitted energy unit. The main factors, which have an effect on the profitability of the DSOs, include for example the length of electricity grid, the amount of end users and the geographical operating area of the electricity distribution company. Secondly, the effect of electricity origin or number of different energy sources on the profitability of electricity companies will be studied. The selected companies are reviewed in order to analyze this linkage.