Five things every consumer should understand about electricity demand and production

Professor of Practice Iivo Vehviläinen from Aalto University School of Business specialises in energy markets, and now, he explains the delicate balance of electricity production and consumption.
 

1. Wind shakes electricity prices more than before

   If climate change mitigation is taken seriously, the use of coal, natural gas and oil must be swiftly reduced. Finland has been among the pioneers in this change in electricity production; power plants using fossil fuels have already been largely shut down. Wind power has been mainly built to replace them, now making up over a third of Finland’s electricity production capacity. Although the electricity coming from the wall is the same to us consumers regardless of the production method, changes in production affect all of us through the electricity market.

   Previously, short-term prices in Finland varied mainly according to the season and time-of-day. When the machinery was almost the same year-round, electricity prices were determined by consumption: on a cold winter day, more electricity is used for heating than in summer. Nowadays, prices fluctuate more according to the wind. During windy moments in winter, the need for other production can even reach summer levels and prices often reflect this. On the other hand, in time of low wind, there is no other production available and prices can rise higher than before. The market price of electricity was at zero or even below for about a tenth of the hours in 2024 and, conversely, over 10 cents per kilowatt hour about equally often. In the early 2000s, there were no zero prices at all and higher prices were limited to particularly cold winter weeks.

2. Balancing production and consumption is now harder to maintain – where are the new solutions?

   Electricity and consumption must be balanced at all times if power outages are to be avoided. Even small slips can cause major problems for the whole society, as seen in spring 2025 in Spain, where power was cut off for almost the entire nation for half a day: shops and restaurants were closed, the metro and trains did not run and bank cards could not be used. 

   A large part of maintaining the balance in Finland and elsewhere in Europe has been left to the markets: balance is sought through changes in electricity prices. Previously, consumers used electricity quite freely in the electricity market and electricity production did the necessary balancing work. If electricity consumption increased, the price of electricity rose high enough to bring additional production onto the market. When consumption decreased, both prices and production fell. Hydropower and fossil fuels allowed quick adjustment moves in production. 

   Now we face a new situation. Balancing must be sought through various solutions, such as storing electricity using electric batteries. Developing new solutions is still in its early stages, and therefore, at least in the short term, attention inevitably turns to increasing the flexibility of electricity use by consumers themselves: research shows that even reasonably small changes in electricity consumption can greatly help in balancing prices and ultimately avoiding power outages. 

3. Renewable energy sources reduce price risks in the long run  

   At first glance, it might seem that the price fluctuations caused by wind alone increase uncertainty about the future. This is true in the short term. However, larger uncertainties in long-term electricity prices have come as a result of price changes in fossil fuels. When the cheap fossil energy flowing from Russia to Europe was cut off, the impact was felt in Finland too, as we are connected to the rest of Europe through electricity transmission links. In the future, when we no longer use fossil fuels, prices will only fluctuate predictably according to weather conditions and the impact of geopolitical changes will diminish.

4. Attention easily focuses on the negative – active consumers benefit from fluctuating prices

   Moments when electricity is expensive make the news: ‘An hour in the sauna can cost up to five euros!’ It is rarely newsworthy that consumers who use market electricity and can adjust their electricity use benefit from fluctuating prices. When almost free electricity production is available in abundance, electricity prices drop to zero and sometimes even below. An electric car driver saves by charging during cheap hours, a smart heat pump automatically utilises the cheapest moments for charging.

   However, not everyone can adjust their consumption according to electricity prices, as the energy crisis of 2022 taught. Electricity is a necessity good that cannot be managed without in modern society. For example, an electric heater does not have unlimited flexibility. For many consumers, a safer option may be a fixed-price electricity contract, which provides security for their finances and peace of mind, even though it might come at a potentially higher cost. 

5. The energy transition slows down as uncertainty about the future makes everyone cautious about their finances

   Is it worth investing in an electric car or warm socks at home? Should one take a fixed-price electricity contract for the coming winter or seek out cheap market electricity periods? Uncertainty makes decision-making difficult for both private consumers and large industrial users. 

   In addition to changes in our electricity markets, the whole world is in a volatile state, and even Finland’s neighbouring regions have seen atypical damage to energy infrastructure. Although Finland has well-prepared technically for various development paths, uncertainty affects through the market. Large industrial companies consuming electricity are worried about potentially rising energy prices, and electricity producers contemplating production investments see risks in prolonged periods of low prices. Uncertainty makes everyone cautious. A slow clean transition is detrimental not only to the environment but also to Finland’s economy.
    

In October 2025, the Jenny and Antti Wihuri foundation granted significant funding for a project focused on interdisciplinary research into future electricity energy systems. The project develops prediction and control capabilities for electricity production and demand, the adaptability and security of electricity systems and market mechanisms for the future electricity energy system.  The project is led by Professor of electrical engineering and automation Heikki Mannila from Aalto University School of Electrical Engineering, and the research group also includes Iivo Vehviläinen.