Hydropower generates about 15 per cent of Finland’s electricity, but its role as a source of balancing power makes it far more important than its capacity alone would suggest. As electricity consumption and production increase, this role becomes even more significant.
Hydropower tells the story of how Finland’s power system has transformed. During its peak years in the 1950s and 60s, hydropower generated up to 90 per cent of Finland's electricity.
Even though hydropower production has nearly doubled from the mid-20th century to the present day, the country’s hydropower plants generated only about 15 per cent of Finland's electricity in 2025.
While hydropower’s share of total electricity production has dropped significantly, its role has not diminished to the same extent, says Teemu Kerttula, Manager, Hydropower, at UPM Energy.
"The importance of hydropower to the Finnish electricity market and power generation is much greater than its capacity. It’s the key source of balancing power when solar and wind production is low and electricity demand is high. Without reliable balancing power, the grid would be less stable, and the price spikes would be higher."
In the future, as electricity consumption grows and solar and wind power make up an increasingly large share of production, balancing power will become even more crucial.
Balancing capacity for market needs and critical moments
UPM Energy is Finland’s second-largest electricity producer. Its eight own hydropower plants, along with shares in jointly owned hydropower and nuclear plants, produce about 12 terawatt-hours of carbon-free electricity.
In UPM Energy’s control room in Tampere, operators monitor a total of 20 own and jointly owned hydropower plants and trade on the electricity markets in three shifts around the clock.
For the power grid to operate reliably, electricity consumption and production must be in balance at all times. In addition to regular energy markets, hydropower generation is also traded in the balancing market, helping ensure that enough electricity is available in all situations.
"If the electricity system needs more generation, for example when wind and solar power production is low due to cloudy and windless weather, we can increase the output of hydropower plants by raising their operating power. On the other hand, when there is plenty of electricity on the market, for example due to strong wind power production, we can reduce output by lowering the plants’ operating power. In this way, hydropower helps maintain the balance of the electricity system," Kerttula illustrates.
Adjusting hydropower output is relatively fast, which is one of its greatest strengths in the power market. Power output can be increased or decreased within minutes, and, because water can be released as needed, hydropower can provide balancing power for long periods.
The rise of solar and wind puts hydropower to the test
Hydropower is both a very traditional and a highly modern way to generate electricity. The basic principle of power generation—flowing water spins a turbine that generates electricity—has not changed all that much, but modern hydropower plants are highly automated, and control room operators actively monitor electricity markets and analyse data produced by the plants.
“Automation ensures that, for instance, all five power plants on a single river operate at the right power output, in accordance with permit limits and in response to market needs. We humans oversee the operations and look at the bigger picture,” says Kerttula. He has worked both as a control room operator and control room manager during his UPM career.
Power plants send a lot of data to the control room. This data also helps predict when machinery requires maintenance. When the need for flexible power is at its highest, there is no room for hydropower production to suddenly stop due to a breakdown.
Hydropower plants have a longer lifespan than wind and solar power plants. Most hydropower plants in Finland were built immediately in the post-war period, and their overhaul interval has typically been up to forty years. However, the changes in the electricity market and the growing role of hydropower as a grid balancer place more strain on plants than before.
“As wind and solar have grown significantly, the market also needs much more balancing power, and much more frequently. This, in turn, wears down hydropower plants in a new way. Nowadays, the interval between overhauls is shorter,” Kerttula says.
Rising demand highlights need for balancing power
Electricity is being consumed—and therefore produced - in ever-increasing amounts. According to an estimate by the transmission system operator Fingrid, Finland’s annual electricity consumption will grow from the current 83 terawatt-hours up to 123 terawatt-hours by 2030.
Increasing wind and solar production also require more balancing power. Under current permits, hydropower production is already near full capacity. Modernising the plants will increase capacity only moderately.
So where will the new balancing power come from?
Battery technology is advancing, but batteries can provide power only in moderate amounts and for short periods. Another option is pumped-storage hydropower plants, which store water in large reservoirs. These plants are already being planned in the Kemijärvi area by Kemijoki Oy and PVO-Vesivoima Oy, both of which are partly owned by UPM. The pumped-storage plants could come online in the early 2030s.
Ari Henriksson, Director, Asset Management and Development at UPM Energy, believes there will be much more discussion about increasing the balancing capabilities of existing hydropower plants.
A particular focus of these discussions is Lake Pielinen, which is Finland’s largest unregulated lake. UPM owns one of the two power plants on the Pielisjoki river. Currently, hydropower is generated according to the natural river flow.
“Discussions are already underway about how the water level of Pielinen could be moderately adjusted while producing a reasonable amount of balancing power and, of course, how biodiversity and migratory fish could be taken into account better than before, making the solution a win-win-win for everyone,” Henriksson says.
Due to drought, the water level of Pielinen was exceptionally low in the summer of 2025 and 2026, causing difficulties for residents, fishers, travel entrepreneurs and recreational users. The water level could be adjusted as needed by regulating the flow rate.
“Hydropower can also play a role in balancing weather extremes,” Henriksson points out.
Text: Lotta Heikkeri