Still scope for more consolidation

The Nordic power market has undergone mammoth structural changes since the 1990s when Finland became the first state in this energy-intensive and highly industrialised region to deregulate and open up to foreign participation.

Deregulation in Finland was followed by power market liberalisation in Sweden and Norway creating an ideal platform for the creation of Nord Pool, the pan-Nordic energy exchange. The tempo of change in Denmark, meanwhile, failed to keep pace with rapid developments in neighbouring Nordic markets and continued to proceed at a slower pace.

The buzz words on the lips of all Nordic utility CEOs at the onset of the liberalisation adventure were "restructuring" and "consolidation". A wave of national mergers and acquisitions activity during the seven year period to 2002 served to consolidate the "home market" positions of already dominant players in Sweden, Finland and Norway.

In Finland, the restructuring process was headed by Imatran Voima Oy (IVO) and Pohjolan Voima Oy (PVO). In all, these two companies acquired a total of 30 regional power supply and distribution rivals during the period 1998 to the end of 2002. The targets were mainly small and medium-sized players.

The year 1998 was significant in that it heralded the first acquisition of note by a Finnish power company overseas when Fortum-controlled IVO acquired all stock in UK-based Regional Power Generators from Yorkshire Electricity Plc. The takeover added £62 million in revenues to IVO's balance sheet as well as 272 MW in base-load capacity.

Fortum emerged as the most acquisitive and internationally orientated of the Nordic utilities, and the company's "One Market" approach to its pan-Nordic investment strategies became a critical factor in triggering defensive acquisitive activity by national players such as Vattenfall, Sydkraft and Statkraft.

Traditionally a domestic player with strong links to energy markets in Russia and the former Soviet Union, the state-owned Fortum made Nordic competitors sit up and take notice in 1999 when it bought Elektrizität Wesertal GmbH, Germany's second biggest municipal energy company, with year revenues of 266 million euro, in a cash transaction worth 390 million euro.

That transaction proved to be Fortum's coming of age, highlighting the company's ability to negotiate and finance large-scale overseas energy related asset acquisitions that one normally associated with companies operating in the private sector in larger European power markets.

Fortum followed that landmark deal by acquiring all shares in Birka Kraft Ab of Sweden in February 2002. The consideration, including debt, amounted to 2 billion euro. Outstanding shares in Birka, Sweden's third largest electricity supply company, with 900 000 customers, were bought from the City of Stockholm.

In January 2003 Fortum negotiated its most ambitious takeover in Norway acquiring regional power supply utility Østfold Energi AS from Sydkraft as part of a 800 million euro asset swap between the two companies. That transaction gave Fortum a 21% holding in Hafslund ASA, Norway's second biggest electricity company, setting in motion a failed attempt, blocked as a result of political intervention in Norway, by the Finnish utility to takeover Hafslund.

Takeover targets

"The consolidation process is far from over. In a Nordic context there are still many takeover targets and opportunities out there. There are significant gains to be had from further consolidation," said Mr Mikael Kramer, the head of acquisitions at Vattenfall.

This insight is echoed by Mr Einar Steensnæs, Minister of Petroleum and Energy in Norway. "There are too many small and medium sized utilities, in Norway and elsewhere in Scandinavia. There is a great need to secure a more efficient marketplace through consolidation and the market's key players can play a major future role in this," said Steensnæs.

The push for greater market convergence in Finland and Scandinavia has resulted in unusual alliances and dramatic M&A formations. In Denmark, dominant market player Elsam is facing an uphill battle to persuade the competition authority to approve its 1.4 billion euro offer for rival power generation and distribution company Nesa A/S.

"We seriously want to close a takeover of Nesa at the earliest moment. This acquisition will be an important part of our strategic vision to become a larger player in Denmark and Scandinavia. We well know there are weighty competition issues, and we hope we can overcome these and convince competition officials of our case," said Peter Høstgaard-Jensen, Elsam's CEO.

Elsam's bid for Nesa has positioned the company rather uncomfortably between a rock and a hard place. To approve the acquisition, the competition authority wants Elsam to divest its 36% stake in E2 Energi. Elsam wants to retain this shareholding and says it may allow its bid for Nesa to collapse if competition officials demand the company sells out of E2 Energi.

"We are prepared to make concessions. We have offered the government the opportunity to regulate the prices we charge for electricity. We have agreed with the competition authority that it can intervene and set prices at times where fluctuations in power demand occurs," said Høstgaard-Jensen.

Høstgaard-Jensen said he is aware that if the takeover bid for Nesa fails, regional and non-Nordic rivals are "waiting in the corridors". Vattenfall, Fortum and E.On are the most probable raiders for Nesa if competition authorities block Elsam's bid.

Further consolidation of Norway's power market will most likely take place without the participation of Statkraft, the market's principal player. The competition authority has warned the state-owned utility that it will block large-scale acquisitions in Norway.

Statkraft's acquisitions shopping basket since 2001 has included the regional hydro power generating company Trondheim Energiverk, Sweden-based power cable operator Baltic Cable Ab and ABB Financial Energy's electricity trading business.

Evidence of government concern at Statkraft's growing presence on the Norwegian market emerged in March when Energy Minister Steensnæs told the company's board that the government would intervene to "block any move" on Norsk Hydro's power generating business. The Minister stated he was reacting to industry reports that Statkraft was "interested in opening up a dialogue" with Norsk Hydro.

The government is also opposed to a merger of Statoil and Norsk Hydro, although Steensnæs has hinted that such reservations could dissipate if Norsk Hydro became the subject of a foreign-takeover bid.

The news flowing from the corridors of power is not all negative for Statkraft. The government executed a 489 million euro capital transfer to the company in January, specifying that funds made available could be used to support acquisitions by Statkraft in Germany and France in 2004/2005.

"This is the best Christmas present we could have hoped for. This will be extremely important in expanding our capital resources to expand in key European markets," said Terje Vareberg, Statkraft's board Chairman.

A government appointed expert group, established in July 2003 to advise on changes needed to make the Norwegian energy market "more transparent and effective" has proposed that future state support must be tied to a commitment by Statkraft to "lead in the restructuring" of Norway's energy marketplace by acquiring "minnow" power producers.

"We were careful, precisely for competition reasons, to stress minnow power producers. There are simply too many small-sized power companies in Norway. Statkraft is perfectly positioned to correct this anomaly," said the expert group's leader, Professor Nils-Henrik von der Fehr.

Statkraft remains the most likely indigenous candidate to "mop up" the country's minnow utilities. In February, company CEO Mr Bård Mikkelsen, invited municipally owned regional partners in the so-called Statkraft-Alliance – Bergenshalvøens Kommunale Kraftselskab, Lyse Kraft and Agder Energi – to engage in "exploratory" merger talks.

"There are several other avenues to future closer co-operation between our partners but a merger is one option that should be considered and not ignored," said Mikkelsen.

According to Mikkelsen, a merger could trigger serious consolidation of Norway's energy market while presenting increased opportunities for "much needed" acquisitions and mergers between large, medium and small-sized players in the electricity generation and distribution sectors.

If acted upon, the merger option as proposed by Mikkelsen would create a Norwegian power company with annual revenues of over 2 billion euro, making it Norway's largest electricity supply company.

The most significant power players in Sweden's push for consolidation are E.On Energie AG controlled Sydkraft Ab, Vattenfall Ab and Fortum. E.On remains the most important "foreign" utility in the Nordic power market, with majority equity positions in Sydkraft and Espoon Sähkö Oy, the Finnish utility that competes with Vattenfall Finland Oy.

E.On bought-out Electricité de France's (EDF) 20.1% holding in power company Graninge in August 2003. At the same time E.On acquired Skandrenkraft Ab's 16.2%, raising its ownership to 73%. The combined value of the two transactions was 524.4 million euro, or 21.73 euro per share.

The divestment ends EDF's brief encroachment as a major player in the Nordic power market, a market with which TXU Europe Group Plc flirted briefly before selling Atro, its Finnish utility subsidiary, to local power company Savon Energiaholding in July 2003. In January 2004, the Pohjolan Voima Oy affiliate Powest Oy bought TXU Europe, by now under administration, out of Nordic Energy Oy.

The German power group has made no secret of its long-term ambition to acquire Statkraft's 45% stake in Sydkraft which would be merged with Graninge. E.On has restricted Sydkraft's investment operations to Nordic markets, instructing its Swedish subsidiary to divest shares held in electricity production utilities in Poland.

"We are now part of E.On, and in this new role Sydkraft will focus on operations in Scandinavia. We are drawing up a list of assets that we need to divest in Poland. We expect a lot of international interest in these assets," said Mr Hakan Hagstrom, managing director of Sydkraft Polen.

Swedish corporate law prevents Sydkraft from transferring ownership in its Polish holding to E.On or minority shareowner, Norway's Statkraft. Sydkraft has interests in six district heat companies in Poland. These include Term Poznan (100%), Sydkraft Zlotow (70%), Sydkraft EC Slupsk (63%), Empec Ustka (49%), OZC Ostrow Wlkp (49%) and MEC Koszalin (31%).

Industry Minister Leif Pagrotsky has warned Sydkraft, E.On Scandinavia, Birka Kraft (Fortum) and Vattenfall of possible government "protective intervention" to defend future competition and shield small-to-medium-sized utilities against "hostile takeovers" triggered by what he called "the aggressiveness of the big three".

"We need an energy marketplace that is free and competitive. This will not happen if competition is reduced by the acquisitive activities of the market’s three biggest players. “The government will not allow the energy sector to become too dominated by any single player," said the industry minister.

Unease about ETS

Vattenfall, reflecting a general growing unease among Nordic utilities in forecasting the direction of likely growth strategies in 2004/2005, has expressed concerns regarding the proposed introduction in January 2005 of the European Union's European Emission Trading Scheme (ETS) to oversee its greenhouse gas emission quota trading system within the EU.

With the German government favouring a quota system that penalises CO2 emissions from coal-fired plants and coal mining operations. Vattenfall maintains it will be forced to buy extra quotas at an estimated cost of 328 million euro up to 2012 in order to retain its power generating plants in Germany.

The power company argues that it has invested 9 billion euro since 1995 to reduce CO2 emissions at its German generating plants and intends to file compensation claims. Vattenfall's operations in Germany accounted for 60% of group annual revenues totalling 11.2 billion euros in 2003. 21 000 of Vattenfall's 35 000 employees are located in Germany.

Energy intensive Finnish industries are also opposed to the ETS in its present form. Mr Juha Niemela, CEO of forestry giant UPM-Kymmene, says the ETS is "unworkable" and advised the Finnish government to withdraw from the scheme.

"The ETS will result in higher electricity prices for industry. It may force heavy Nordic industry to relocate outside the EU-region. The ETS can have no real effect on greenhouse gas emissions as long as the USA and Russia, two major polluters, refuse to ratify the Kyoto Protocol. What this does is give a competitive advantage to Russia and the United States at the expense of European industry," said Niemela.

Håkan Murby, director of the SFF, Sweden's Steel Producers Association, agrees.

"Our research indicates that the impact of the ETS will add 1.2 euro cent per kWh to the electricity price charged to industry. This would be totally devastating for Sweden's heavy industry," said Murby.

Sweden's industrial leaders are studying a Finnish government proposal that grants 137.6 tonnes of CO2 emission allowances to 150 named firms and 500 industrial facilities for the period 2005 - 2007. The emission allowances are to be awarded charge-free without an auctioning system.

The 500 facilities include power production units and heavy industrial installations. The legislative bill dealing with the Finnish CO2 quotas proposal will come before the Eduskunta (Parliament) in April.

The ETS is also a cause of anxiety in Denmark. "The ETS will weaken the Danish power sector's ability to compete against German utilities," said Mr Hans Duus Jørgensen, General Manager of Dansk Energi, Denmark's central organisation for energy enterprises.

"The Danish power industry will bear the brunt of the negative impact. Industry can look forward to higher electricity prices and little else of value," said Jørgensen.The Nordic power market has undergone mammoth structural changes since the 1990s when Finland became the first state in this energy-intensive and highly industrialised region to deregulate and open up to foreign participation.

Deregulation in Finland was followed by power market liberalisation in Sweden and Norway creating an ideal platform for the creation of Nord Pool, the pan-Nordic energy exchange. The tempo of change in Denmark, meanwhile, failed to keep pace with rapid developments in neighbouring Nordic markets and continued to proceed at a slower pace.

The buzz words on the lips of all Nordic utility CEOs at the onset of the liberalisation adventure were "restructuring" and "consolidation". A wave of national mergers and acquisitions activity during the seven year period to 2002 served to consolidate the "home market" positions of already dominant players in Sweden, Finland and Norway.

In Finland, the restructuring process was headed by Imatran Voima Oy (IVO) and Pohjolan Voima Oy (PVO). In all, these two companies acquired a total of 30 regional power supply and distribution rivals during the period 1998 to the end of 2002. The targets were mainly small and medium-sized players.

The year 1998 was significant in that it heralded the first acquisition of note by a Finnish power company overseas when Fortum-controlled IVO acquired all stock in UK-based Regional Power Generators from Yorkshire Electricity Plc. The takeover added £62 million in revenues to IVO's balance sheet as well as 272 MW in base-load capacity.

Fortum emerged as the most acquisitive and internationally orientated of the Nordic utilities, and the company's "One Market" approach to its pan-Nordic investment strategies became a critical factor in triggering defensive acquisitive activity by national players such as Vattenfall, Sydkraft and Statkraft.

Traditionally a domestic player with strong links to energy markets in Russia and the former Soviet Union, the state-owned Fortum made Nordic competitors sit up and take notice in 1999 when it bought Elektrizität Wesertal GmbH, Germany's second biggest municipal energy company, with year revenues of 266 million euro, in a cash transaction worth 390 million euro.

That transaction proved to be Fortum's coming of age, highlighting the company's ability to negotiate and finance large-scale overseas energy related asset acquisitions that one normally associated with companies operating in the private sector in larger European power markets.

Fortum followed that landmark deal by acquiring all shares in Birka Kraft Ab of Sweden in February 2002. The consideration, including debt, amounted to 2 billion euro. Outstanding shares in Birka, Sweden's third largest electricity supply company, with 900 000 customers, were bought from the City of Stockholm.

In January 2003 Fortum negotiated its most ambitious takeover in Norway acquiring regional power supply utility Østfold Energi AS from Sydkraft as part of a 800 million euro asset swap between the two companies. That transaction gave Fortum a 21% holding in Hafslund ASA, Norway's second biggest electricity company, setting in motion a failed attempt, blocked as a result of political intervention in Norway, by the Finnish utility to takeover Hafslund.

Takeover targets

"The consolidation process is far from over. In a Nordic context there are still many takeover targets and opportunities out there. There are significant gains to be had from further consolidation," said Mr Mikael Kramer, the head of acquisitions at Vattenfall.

This insight is echoed by Mr Einar Steensnæs, Minister of Petroleum and Energy in Norway. "There are too many small and medium sized utilities, in Norway and elsewhere in Scandinavia. There is a great need to secure a more efficient marketplace through consolidation and the market's key players can play a major future role in this," said Steensnæs.

The push for greater market convergence in Finland and Scandinavia has resulted in unusual alliances and dramatic M&A formations. In Denmark, dominant market player Elsam is facing an uphill battle to persuade the competition authority to approve its 1.4 billion euro offer for rival power generation and distribution company Nesa A/S.

"We seriously want to close a takeover of Nesa at the earliest moment. This acquisition will be an important part of our strategic vision to become a larger player in Denmark and Scandinavia. We well know there are weighty competition issues, and we hope we can overcome these and convince competition officials of our case," said Peter Høstgaard-Jensen, Elsam's CEO.

Elsam's bid for Nesa has positioned the company rather uncomfortably between a rock and a hard place. To approve the acquisition, the competition authority wants Elsam to divest its 36% stake in E2 Energi. Elsam wants to retain this shareholding and says it may allow its bid for Nesa to collapse if competition officials demand the company sells out of E2 Energi.

"We are prepared to make concessions. We have offered the government the opportunity to regulate the prices we charge for electricity. We have agreed with the competition authority that it can intervene and set prices at times where fluctuations in power demand occurs," said Høstgaard-Jensen.

Høstgaard-Jensen said he is aware that if the takeover bid for Nesa fails, regional and non-Nordic rivals are "waiting in the corridors". Vattenfall, Fortum and E.On are the most probable raiders for Nesa if competition authorities block Elsam's bid.

Further consolidation of Norway's power market will most likely take place without the participation of Statkraft, the market's principal player. The competition authority has warned the state-owned utility that it will block large-scale acquisitions in Norway.

Statkraft's acquisitions shopping basket since 2001 has included the regional hydro power generating company Trondheim Energiverk, Sweden-based power cable operator Baltic Cable Ab and ABB Financial Energy's electricity trading business.

Evidence of government concern at Statkraft's growing presence on the Norwegian market emerged in March when Energy Minister Steensnæs told the company's board that the government would intervene to "block any move" on Norsk Hydro's power generating business. The Minister stated he was reacting to industry reports that Statkraft was "interested in opening up a dialogue" with Norsk Hydro.

The government is also opposed to a merger of Statoil and Norsk Hydro, although Steensnæs has hinted that such reservations could dissipate if Norsk Hydro became the subject of a foreign-takeover bid.

The news flowing from the corridors of power is not all negative for Statkraft. The government executed a 489 million euro capital transfer to the company in January, specifying that funds made available could be used to support acquisitions by Statkraft in Germany and France in 2004/2005.

"This is the best Christmas present we could have hoped for. This will be extremely important in expanding our capital resources to expand in key European markets," said Terje Vareberg, Statkraft's board Chairman.

A government appointed expert group, established in July 2003 to advise on changes needed to make the Norwegian energy market "more transparent and effective" has proposed that future state support must be tied to a commitment by Statkraft to "lead in the restructuring" of Norway's energy marketplace by acquiring "minnow" power producers.

"We were careful, precisely for competition reasons, to stress minnow power producers. There are simply too many small-sized power companies in Norway. Statkraft is perfectly positioned to correct this anomaly," said the expert group's leader, Professor Nils-Henrik von der Fehr.

Statkraft remains the most likely indigenous candidate to "mop up" the country's minnow utilities. In February, company CEO Mr Bård Mikkelsen, invited municipally owned regional partners in the so-called Statkraft-Alliance – Bergenshalvøens Kommunale Kraftselskab, Lyse Kraft and Agder Energi – to engage in "exploratory" merger talks.

"There are several other avenues to future closer co-operation between our partners but a merger is one option that should be considered and not ignored," said Mikkelsen.

According to Mikkelsen, a merger could trigger serious consolidation of Norway's energy market while presenting increased opportunities for "much needed" acquisitions and mergers between large, medium and small-sized players in the electricity generation and distribution sectors.

If acted upon, the merger option as proposed by Mikkelsen would create a Norwegian power company with annual revenues of over 2 billion euro, making it Norway's largest electricity supply company.

The most significant power players in Sweden's push for consolidation are E.On Energie AG controlled Sydkraft Ab, Vattenfall Ab and Fortum. E.On remains the most important "foreign" utility in the Nordic power market, with majority equity positions in Sydkraft and Espoon Sähkö Oy, the Finnish utility that competes with Vattenfall Finland Oy.

E.On bought-out Electricité de France's (EDF) 20.1% holding in power company Graninge in August 2003. At the same time E.On acquired Skandrenkraft Ab's 16.2%, raising its ownership to 73%. The combined value of the two transactions was 524.4 million euro, or 21.73 euro per share.

The divestment ends EDF's brief encroachment as a major player in the Nordic power market, a market with which TXU Europe Group Plc flirted briefly before selling Atro, its Finnish utility subsidiary, to local power company Savon Energiaholding in July 2003. In January 2004, the Pohjolan Voima Oy affiliate Powest Oy bought TXU Europe, by now under administration, out of Nordic Energy Oy.

The German power group has made no secret of its long-term ambition to acquire Statkraft's 45% stake in Sydkraft which would be merged with Graninge. E.On has restricted Sydkraft's investment operations to Nordic markets, instructing its Swedish subsidiary to divest shares held in electricity production utilities in Poland.

"We are now part of E.On, and in this new role Sydkraft will focus on operations in Scandinavia. We are drawing up a list of assets that we need to divest in Poland. We expect a lot of international interest in these assets," said Mr Hakan Hagstrom, managing director of Sydkraft Polen.

Swedish corporate law prevents Sydkraft from transferring ownership in its Polish holding to E.On or minority shareowner, Norway's Statkraft. Sydkraft has interests in six district heat companies in Poland. These include Term Poznan (100%), Sydkraft Zlotow (70%), Sydkraft EC Slupsk (63%), Empec Ustka (49%), OZC Ostrow Wlkp (49%) and MEC Koszalin (31%).

Industry Minister Leif Pagrotsky has warned Sydkraft, E.On Scandinavia, Birka Kraft (Fortum) and Vattenfall of possible government "protective intervention" to defend future competition and shield small-to-medium-sized utilities against "hostile takeovers" triggered by what he called "the aggressiveness of the big three".

"We need an energy marketplace that is free and competitive. This will not happen if competition is reduced by the acquisitive activities of the market’s three biggest players. “The government will not allow the energy sector to become too dominated by any single player," said the industry minister.

Unease about ETS

Vattenfall, reflecting a general growing unease among Nordic utilities in forecasting the direction of likely growth strategies in 2004/2005, has expressed concerns regarding the proposed introduction in January 2005 of the European Union's European Emission Trading Scheme (ETS) to oversee its greenhouse gas emission quota trading system within the EU.

With the German government favouring a quota system that penalises CO2 emissions from coal-fired plants and coal mining operations. Vattenfall maintains it will be forced to buy extra quotas at an estimated cost of 328 million euro up to 2012 in order to retain its power generating plants in Germany.

The power company argues that it has invested 9 billion euro since 1995 to reduce CO2 emissions at its German generating plants and intends to file compensation claims. Vattenfall's operations in Germany accounted for 60% of group annual revenues totalling 11.2 billion euros in 2003. 21 000 of Vattenfall's 35 000 employees are located in Germany.

Energy intensive Finnish industries are also opposed to the ETS in its present form. Mr Juha Niemela, CEO of forestry giant UPM-Kymmene, says the ETS is "unworkable" and advised the Finnish government to withdraw from the scheme.

"The ETS will result in higher electricity prices for industry. It may force heavy Nordic industry to relocate outside the EU-region. The ETS can have no real effect on greenhouse gas emissions as long as the USA and Russia, two major polluters, refuse to ratify the Kyoto Protocol. What this does is give a competitive advantage to Russia and the United States at the expense of European industry," said Niemela.

Håkan Murby, director of the SFF, Sweden's Steel Producers Association, agrees.

"Our research indicates that the impact of the ETS will add 1.2 euro cent per kWh to the electricity price charged to industry. This would be totally devastating for Sweden's heavy industry," said Murby.

Sweden's industrial leaders are studying a Finnish government proposal that grants 137.6 tonnes of CO2 emission allowances to 150 named firms and 500 industrial facilities for the period 2005 - 2007. The emission allowances are to be awarded charge-free without an auctioning system.

The 500 facilities include power production units and heavy industrial installations. The legislative bill dealing with the Finnish CO2 quotas proposal will come before the Eduskunta (Parliament) in April.

The ETS is also a cause of anxiety in Denmark. "The ETS will weaken the Danish power sector's ability to compete against German utilities," said Mr Hans Duus Jørgensen, General Manager of Dansk Energi, Denmark's central organisation for energy enterprises.

"The Danish power industry will bear the brunt of the negative impact. Industry can look forward to higher electricity prices and little else of value," said Jørgensen.

CO2 reduction innovations

The Danish government has advised industry to become "more innovative" in finding "long-term solutions" to reduce the country's CO2 emissions levels. In February Denmark signed a framework agreement with China to deliver "CO2 reduction technology" to manufacturing industry in China. Under the plan CO2 reductions directly attributable to the technology delivered by Danish companies can be deducted from the Danish domestic quota.

Denmark's Environment Minister Hans Christian Schmidt has signed a CO2 reduction programme framework agreement with Chile under which the two countries will engage in joint implementation projects in Chile. Denmark becomes the primary technology provider and investor, and in return will purchase unused CO2 credits from the South American state.

Denmark's CO2 investments in Chile will be conducted as so-called Clean Development Mechanism (CDM) projects. The framework agreement with Chile will allow Danish companies, as well as the Danish state, to enter into Chilean climate projects and buy unused CO2 credits. In exchange, Chile will gain new technology and much-needed resources.

Denmark will also host a pilot CO2 capture plant, to be installed at Elsam’s Esbjerg 3 coal-fired plant (see MPS March 2004, page 19).

In Norway, Skagerak Energi has applied for approval to build a "clean" CO2-free gas-fired power plant in Grenland, in Northern Norway. The application covers the construction of a gas-fired plant capable of removing CO2 emissions and a conventional gas-fired plant that will be used to compare cost differences between the two technologies.

Finland plans to implement similar CO2 reduction schemes in the Baltic states. The government has signed an agreement with its counterpart in Estonia under which a state-backed Finnish consortium will build a 20 MW wind park at Pakri, 50km south west of Tallinn, near Paldiski. Under the deal Finland will obtain unused CO2 credits amounting to 500 000 tonnes between 2004 and 2012. The deal is valued at 2.5-million euro.CO2 reduction innovations

Nord Pool launches green certificates products

Nord Pool completed the launch of its first renewable energy production related product, the Swedish green certificates ("elcertificate"), on March 3. Sweden became the first Nordic country to introduce a trading system for green certificates on 1 May, 2003.

The "elcertificates" are subject to set quotas for Swedish consumers, with the exception of certain heavy industries. The chief purpose of the programme is to provide an incentive for investments in renewable energy production.

Initially, Nord Pool will launch spot trading for the Swedish market, a product that will be integrated with other financial products on the power exchange. Nord Pool anticipates that a corresponding certificate system will be introduced in the other Nordic countries. The Norwegian government wants to develop a common Swedish-Norwegian system by 2007.

Nord Pool's trading system will be electronically linked to Swedish TSO Svenska Kraftnät's CESAR database and "elcertificate" transactions will be made automatically between seller and buyer. The "participants" will be responsible for ensuring there is sufficient coverage on their CESAR account for a sale. Short trading is not permitted under the system.