Govt proposes up to €10b loans to keep power market stabilise

The government on Sunday announced emergency funding of up to 10 billion euros to power production companies with the view to stabilising the electricity market.

The funding will be given in the form of loans and loan guarantees, not grants, according to the proposal discussed at the meetings of the Ministerial Committee on Economic Policy and at the evening session of the cabinet, said an official press release.

The loan and guarantee scheme be in force until the end of 2023 and that the loan periods be no more than 2 years.

Prime Minister Sanna Marin together with Finance Minister Annika Saarikko and Minister of Economic Affairs Mika Lintilä made the announcement after the cabinet meeting.

Saarikko said at the press conference that with the pledge, the government wants to "calm down the electricity futures, or derivatives market and to secure the availability of electricity in Finland in all circumstances," reported Xinhua.

"The state could grant loans or guarantees on a case-by-case basis to companies whose continued operations are critical to the functioning of society," said Prime Minister Sanna Marin.

Lintilä said at the press conference that the government wants to be proactive in the situation to avoid a "Lehman Brothers" in the energy market.

He underlined that the state is the last instance loaner if other channels are not available. "The primary responsibility is with banks and the owners," he said.

Lintilä said the policy would be available to Finnish companies only. Thus the German subsidiary of Fortum, Uniper, is not eligible for assistance from Finland.

According to the government press release, the purpose of the scheme is to cover the companies’ liquidity needs arising from the increased collateral requirements for their electricity derivative contracts.

The budget authority for the loan and guarantee scheme is presented to Parliament for approval in the third supplementary budget which will be submitted in the government plenary session on Monday.

The Russian war of aggression and reduced gas deliveries have caused an exceptional situation in the European electricity and gas markets, increasing electricity and gas prices significantly in 2022.

In the common European wholesale electricity market, changes in gas and electricity prices elsewhere in Europe are also reflected in the Finnish electricity market.

As the energy prices have risen, the requirement for collateral in the electricity market has also increased. This has both led to a severe lack of liquidity for listed companies and caused a sharp increase in prices for longer-term derivative instruments.

The collateral requirements for electricity producers, which protect their energy production with derivative instruments, and the working capital they need for clearing derivatives trading on Nasdaq Commodities have rapidly reached exceptionally high levels. As these levels continue to increase, there is a risk that electricity producers will face a liquidity crisis.