“Power and Heat from Peat – Peat in Finnish Energy Policy” (Part 3 of 6)

While most of the publication “Power and Heat from Peat – Peat in Finnish Energy Policy” is written in the Finnish language, the following six English summaries give valuable insight into this largely unknown energy source. Vapo Oy is the largest producer of Peat Fuel in Finland.

Finnish Energy Policy and Peat as a Source of Energy – Summary

Finnish policy on energy and the operations of Vapo, which are elucidated in this chapter, changed quite drastically from the days of the Arab oil embargo in the early 1970s to the present day.

Before the first oil crisis in 1973–74, the Finnish energy system relied basically on hydropower and increasing imports of coal and crude oil. Especially in the 1960s, the energy self-sufficiency rate weakened and oil dependency grew significantly, causing problems for the security of energy supply. In addition, energy efficiency and energy savings were not a high priority since Finland imported most of its energy carriers (oil and coal) from the USSR.

The use of wood as an energy source, a traditional fuel for cooking and heating for centuries and for industrial power plants since the adoption of combustion technology in the late 19th century, declined after the Second World War as a result of nationwide electrification and the emergence of oil-fuelled district heating systems and power plants. Oil prices remained very low from the Korean War to the beginning of the 1970s.

Furthermore, policies regarding the use of forest resources were dictated by the importance of the expanding forest industry for the economy as a whole, and thus the use of wood as an energy source for non-industrial combustion plants was not particularly championed in the 1960s.

Since the oil crises, diversity has defined the basis of
the Finnish energy system, including hydropower for
electricity generation, expanding utilisation of solid domestic
energy sources for heat and power generation (peat, wood
residues and waste, black liquor and other by-products of
the forest-based industry, and since the 2000s also energy
crops), implementation of nuclear power, importation
of coal, oil fuels, Russian natural gas and electricity, and,
since the 1990s, implementation of wind power.

The first oil crisis was the start of an integrated energy policy,
which was led by successive Finnish governments. Energy
efficiency and saving have been given a higher priority,
with public R&D funding being made available. The
spread of district heating characterised developments in
the 1970s and 1980s, with public investment aids and
loans for municipal CHP plants.

The first oil crisis was a turning point for Finland’s
conventional energy system, which was based on increasing
demand for crude oil for transportation and heat and
power generation. Peat was recognised or actually
rerecognised as an important energy carrier and a
substitute for oil by the Finnish and Swedish
governments after the first oil crisis.

Nevertheless, the paths chosen by Finland and Sweden
have been different. In the 1970s and 1980s, domestic
fuel policy in Sweden relied basically on the use of wood
waste and residues, and governments did not particularly
champion the use of peat as a fuel until the 1990s. The
growth rate of peat fuel production was fastest in Finland
after the first oil crisis because governmental subsidies,
domestic fuel policies favouring peat and publicly funded
R&D programmes for the development of peat harvesting
and combustion technology.

After the first oil crisis, Finnish energy policy coevolved
with policies for global competitiveness market,
which meant securing a institutional environment for
export-based industries, consisting basically of the forest
and metals industries. In addition, energy policy after
the late 1980s was shaped by environment policy, with
environmental protection taxes based on sulphur dioxide
or carbon dioxide emissions being implemented.

After the first oil crisis, there has been a clear trend
for taxes on fossil fuels to increase in Finland. As a result,
the prices of peat and wood fuels have become more
competitive against oil and coal.

Before EU membership, natural gas was quite heavily
subsidised in Finland. Delays in Finnish nuclear power
plans after the Chernobyl disaster resulted in increasing
policy support for the use of natural gas, coal and peat in
electricity generation. In 1989, the state-owned electricity
company IVO Oy inaugurated a big peat-fuelled conventional
power plant (154 MW) in Haapavesi. It is still the only
peat-fuelled conventional power plant in Finland since
peat is usually used in CHP or district heating plants. The
Meri-Pori power plant (560 MW), the most recently built
coal-fuelled CHP plant in Finland, was connected to the
grid in 1994 by PVO Oy and TVO Oy.

The use of oil as a fuel in Finnish CHP plants was
cut because of the volatility in oil prices after the Arab
oil embargo, taxation policy and public investment aids
and loans for CHP plants using peat or forest industry
byproducts (sawdust, bark, stumps, forest chips) following
the oil crisis of the 1970s. In addition, the main domestic
substitute for light and heavy oil, namely peat, was tax-free
until the early 1990s. Notwithstanding the implementation
of the taxation of peat fuel, the price of milled and sod
peat remained stable in comparison with imported power
plant fuels in the 1990s and the 2000s.

Peat fuel lost its tax-free status after environmental taxes
were adopted in Finland. Peat fuel has been taxed because
of its carbon dioxide emissions from combustion while
wood fuels have remained tax-free. Nevertheless, peat has
been lowly taxed in comparison with coal, which is one
of the main competitors for milled peat. The use of peat
as a fuel for electricity generation has been fostered by the
feed-in-tariff which was implemented in Finland in 2007.
It is considered that the feed-in-tariff is a premium (€/
MWh) that is intended to ensure that condensing power
plants burning peat take priority over condensing power
plants using fossil fuels (coal/gas/oil). The introduction
of the feed-in-tariff was dictated by security of supply
issues.

Since the 1970s peat has been an important element
of energy supply security in Finland as peat is a domestic
energy source, its price and supply chain have been stable
in comparison with wood fuels, and it is widely used as
a co-firing fuel with wood fuels in CHP plants in order
to decrease the effects of undesirable by-products (e.g.
strongly alkaline ash) from wood combustion.

By the 2000s, Finland was among the biggest energy
peat users worldwide and the biggest energy peat
producer and user in the EU.

In terms of patterns in energy policy, public regulation
is a powerful tool for change as far as the supply side is
concerned. As this study shows, it can even lead to the
emergence of new technologies and the utilisation of
ignored energy carriers.

Finnish energy-producing company Vapo, which was
a state utility in the 1970s and the early 1980s and a state
owned limited company from 1984 to 2002, evolved from
a state-funded concern to a diverse company including
ecosystem services and businesses not only in Finland but
also in the entire Baltic Sea region.

In 1973 Vapo’s head office moved from Helsinki to
Jyväskylä in central Finland, which is closer to the peat
Producing areas. In 1975 the organisation was divided
into peat, wood-processing and oil divisions in line with
government plans to expand peat production. In the
early 1980s, Vapo gave up its imported fuel supply and
oil storage businesses.

In the late 1970s, Vapo started to produce horticultural
peat in addition to fuel peat. Meanwhile, in-house
development work on peat production machinery began
and the processing of fuel peat underwent development.
However, the production of peat briquettes and coke,
which started in the late 1970s, proved unprofitable and
came to an end in the late 1980s. The heat generation
business took off midway through the decade.

In the late 1970s, questions arose concerning Vapo’s
dominant market position in peat production and market
access in the Finnish peat industry. That was one of the
reasons why the Ministry of Trade and Industry decided
to incorporate Vapo in 1984, although it was to be a
wholly state-owned company until 2002. As for the global
deregulation process launched by neoclassical economists
and the economic policies adopted e.g. in Chile, the UK
and the USA in the late 1970s and 1980s, Finland was not
one the countries where neoclassical ideas were strongly
promoted, although there was some gradual deregulation
in the 1980s and 1990s.

In the early 1990s, Vapo launched its environmental
business (Vapo Oy Biotech in 1991), all the company’s
sawmills were merged into Vapo Timber Oy (1993),
a subsidiary of Vapo Oy, and Vapo became the chief
shareholder in Kekkilä Oy (1994), which led to the
merger of Vapo’s horticultural peat division and Kekkilä
Oy. In the late 1990s, Vapo Oy Energy made significant
investments in the production of wood fuels and the
production of terminal chips began. In addition, heat
and electricity generation expanded.

After protracted negotiations, the Finnish government
sold one third of the shares in Vapo to Metsäliitto
Cooperative in 2002. Metsäliitto increased its holding
in Vapo Oy to 49.9% in the beginning of 2005. At the
same time Metsäliitto sold Biowatti Oy’s pellet business
to Vapo. However, this co-operation between a peatproducing
company and a big forest industry company
lasted only seven years. Metsäliitto Group sold all of its
shareholding (49.9%) in Vapo Oy to a Finnish consortium
headed by EPV Energy Ltd in 2009.

Vapo’s geographical integration started in the early
1980s when Vapo began peat production in co-operation
with local partners in Indonesia and the USA. However,
these businesses were quite unsuccessful and Vapo ended
its Indonesian and American operations in the 1990s. In
the 2000s, Vapo’s geographical integration focused on
energy, environmental and horticultural peat production
and sales and wood pellet businesses in the Baltic Sea
region. Vapo purchased Råsjö Torv AB of Sweden in
2000. In addition, Kekkilä Oyj purchased Hasselfors
Garden AB of Sweden. In 2002 Vapo acquired Tootsi
Turvas AS in Estonia, and in 2003 Råsjö Torv acquired
the Såbi Group in Sweden and Tootsi Turvas acquired AS
Puhatu Turvas and AS Biomix in Estonia. By the end of
the 2000s, Vapo was the biggest peat-producing company
in the Baltic Sea region and also a significant exporter of
wood pellets in Europe.

Since the first oil crisis and government plans for
peat production, Vapo has been an important part of the
Finnish energy system and considerations of security of
energy supply, especially where combined heat and power
generation and district heating are concerned. The share
of peat of total energy consumption in Finland has been
approximately 4–8 %. Of the fuels used in combined heat
and power generation, peat has been the most popular fuel
in central, eastern and northern Finland from the 1980s
to the present day. In the 2000s its share of the fuels used
in CHP and district heating plants has been 20%.

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