Ensuring Generation Adequacy in Finland with Smart Energy Policy - How to save Finnish CHP Production?

The Finnish electricity market is experiencing a period of prolonged low electricity wholesale prices. Concurrently, there is a growing concern regarding generation adequacy particularly during peak demand periods. Combined heat and power (CHP) accounts for a large share of Finnish energy production and it is expected to continue doing so under the new energy and climate strategy. However, the current and predicted future electricity wholesale prices encourage replacing retiring CHP capacity with heat only boilers (HOBs), which practically excludes the possibility of electricity production at the site for decades to come. This article analyses the economics of biomass-based heat and CHP production, and the required electricity price level to ensure the economic competitiveness of CHP production in Finland. Moreover, this paper analyses the legal framework within which energy policy measures such as subsidisation can be implemented in order to ensure a functional energy system in the future.