Finland and Sweden have ambitious targets to decarbonise their economies by 2035 and 2045, respectively. Achieving these targets will require substantial investments in CO2-neutral energy, direct electrification of industry, transport, and heating, and indirect electrification of heavy transport and heavy industry through e-fuels.
Electrification investments present significant socioeconomic opportunities from high-productivity jobs in both Finland and Sweden. These investments are key for enhancing the industrial competitiveness in the two countries. However, electrification investors face several barriers, and unlocking these electrification investments requires the establishment of long-term investment frameworks.
Against this backdrop, Fortum has commissioned Copenhagen Economics to analyse the societal economic potentials of electrification investments in Finland and Sweden towards 2040 and to assess optimal market designs for enabling the energy transition in Finland and Sweden.
We analyse investments in electrifying transportation, industrial and manufacturing processes, clean hydrogen, data centres, and investments in CO2-neutral electricity production.
Using our global climate-economic model, INTERSECT, we simulate the decarbonisation paths and electrification targets for Finland in three scenarios: Delayed electrification (baseline), ambitious decarbonisation, and electricity doubling.
Ambitious decarbonisation generates significant additional investments in Finland and Sweden
The decarbonisation of the Finnish and Swedish economies results in a transformation away from industries relying on fossil fuels to electrified industries which will see an influx of investments. This means that jobs, value added, and tax payments also flow from industries relying on fossil fuels towards electrified industries. We estimate the size of this transition in terms of the gross economic potentials in electrified industries.
In our delayed electrification scenario, EUR 122 billion investments are expected to arise in Finland from 2025 to 2040. In a decarbonised economy, electrification has the potential to generate EUR 56 billion more investments in Finland towards 2040, totalling EUR 178 billion.
If Finland also realises a doubling of the electricity generation to 160 TWh by 2040, further EUR 53 billion investments are expected in Finland, totaling EUR 231 billion.
Generally, we find a sectoral shift in Finland from former fossil fuel-based industries to industries relying on CO2-neutral electricity. With more electrification, Finnish employment will move from fossil-fuel-based industries towards electrified industries, resulting in up to 70,000 more jobs in electrified industries by 2040, relative to today, whereas some jobs in other parts of the economy cease because of the decarbonisation. The people employed in electrified industries have high productivity, generating up to EUR 4 billion in taxes and EUR 17 billion in gross value added in the Finnish economy (gross effects).
For Sweden, electrification can generate an EUR 200-300 billion investments towards 2040 depending on the scenario. This could result in a transition of the Swedish employment towards electrified industries with up to 90,000 more jobs in electrified industries by 2040, compared to today.
Our recommendations for an optimal market design
Reaping all benefits from electrification investments requires new market instruments. The current energy-only system risks resulting in insufficient investment in balanced capacity and adequacy, cannibalisation of captured prices, and high counterparty risks for new technologies.
We find that Finland would benefit from implementing a market-wide Capacity Remuneration Mechanism (CRM), publicly-backed Power Purchasing Agreements (PPAs) or two-way Contracts-for-Difference (CfDs), and geographically differentiated tariffs. These instruments will help lower the risks of capacity adequacy issues, price cannibalisation, and counterparty risks.
Sweden would benefit from a more stable political environment and from implementing a CRM instrument, and publicly-backed PPAs or CfDs. This will help ensure a robust framework for incentivising new investments in Sweden.
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