Risks in Small Electricity Markets: The Experience of Finland in Winter 2012 The structure of the Nordic market opens up opportunities for strategic behavior. To solve this problem, policymakers should either launch a more transparent system for evaluating the role of single demand and supply acts of individual players, or increase regulation, with the obvious risk of ‘government failures.’ Satu Viljainen, Mari Makkonen, Olga Gore and Petr Spodniak I. Introduction Over the past 20 years, electricity markets around the world have started to rely on competition as the primary means to govern the operation of the market. Competition provides an incentive system that impels privately owned firms to behave in ways that are broadly consistent with efficient resource allocation and exposes utilities to market forces and may thereby cause dramatic changes in their performance (Newbery, 1997; Vickers and Yarrow, 1988). Competition has been introduced into the electricity generation and supply sectors whereas the transmission and distribution networks have typically retained their natural monopoly positions. In their new role, the networks are expected to provide a level playing field for competitive network businesses (Haas and Auer, 2006; Joskow, 2006). In addition, the requirements for the networks change as demand and generation structures change, and thus, the network needs to be continuously developed in Satu Viljainen is a professor of electricity markets at Lappeenranta University of Technology, Finland. She gained her M.Sc. in Electrical Engineering and D.Sc. (Tech.) from Lappeenranta University of Technology in 2001 and 2005, respectively. Her present research interests include competition and regulation in deregulated electricity markets, and Russian electricity market development. Mari Makkonen graduated in 2008 as an M.Sc. in Electrical Engineering from Lappeenranta University of Technology, where she is currently working towards a Ph.D. degree. Her fields of interest include electricity market integration, wholesale electricity market models, and transmission network as a marketplace. Olga Gore received her M.Sc. degree in Electrical Engineering from St. Petersburg Polytechnic University, Russia, and Lappeenranta University of Technology, Finland, in 2010. She is currently working on a Ph.D. concerning the Russian electricity market at Lappeenranta University of Technology. Petr Spodniak gained his M.Sc. in Economics and Business Administration from Lappeenranta University of Technology, School of Business, in 2011. He is currently a postgraduate student there. December 2012, Vol. 25, Issue 10 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.11.003 71